Hong Kong property: cash-rich buyers make most of Peak distress amid 50% price slump

In July, Savills brokered the sale of four mansions at 46 Plantation Road, which were sold for HK$1.1 billion (US$141 million). The houses were among several assets the family of Ho Shung-pun, a low-key clan of real estate developers in Hong Kong, had pledged as collateral for HK$1.6 billion of private credit loans.

Savills also brokered the sale of a house that once belonged to China Evergrande Group chairman Hui Ka-yan. The ultra-luxury property on The Peak sold for HK$838 million.

“As veteran investors and property owners began to face financial difficulties, these resulted in sharp price cuts for the emergency sale of such properties,” said Raymond Lee, CEO for Hong Kong, Macau and Greater China at Savills.

He said overall property prices in Hong Kong have adjusted since last year, and continue to trend downwards this year, despite the government’s withdrawal of all property cooling measures in late February. The downturn has affected commercial properties as well, which have experienced a huge drop in rents and selling prices.

Hong Kong’s lived-in home prices fell 1.9 per cent in July from the previous month, dragging the official benchmark to its lowest level in nearly eight years, according to data from the Rating and Valuation Department.

Lee said that about 10 years ago, banks readily approved loans for investors to buy properties during the low-interest rate environment.

He said investors had not faced serious difficulties from the rising interest rates until the end of last year, which pushed Hibor, or Hong Kong interbank offered rate, above 5 per cent, pressuring mortgage repayments. At the same time, rents of commercial buildings and retail shops also fell, he added.

“As a result of these two factors, [property owners’] cash flow has been hit, affecting valuations,” Lee said. “Banks started to call loans from individual investors, which forced property owners to sell their assets at significantly reduced prices.”

Lee and his team have been involved in many of Hong Kong’s significant transactions this year.

“We’ve been targeting some of the distressed companies and individuals as early as 2022,” said Thomas See, senior associate director at Savills. “The Peak currently has over 100 houses, which have been put up on the market for sale, both primary and secondary, and the number of sellers with financial urgency has risen to double digits.”

Some cash-rich buyers are eagerly monitoring the prices, which have come down at least 30 per cent from their highs, he added.

Looking ahead, Savills executives said the property market may stabilise towards the end of following the Federal Reserve’s interest rate cuts. Fed chair Jerome Powell gave the clearest indication of a rate cut as soon as this month in a recent speech at the bank’s Jackson Hole meeting.

The market may steady only a bit as the impact of the rate cuts may not materialise immediately, Lee said.

Lee added that the downturn in the property market this time has been no worse than the Asian financial crisis 27 years ago.

“Even the rich owners may have faced difficulties this time, but the depth and breadth of the property market adjustment is comparable to that in 1997,” Lee said.

He predicted that as there are still many owners selling their properties at significantly reduced levels, the prices of the properties will continue to trend down.

“The adjustment in the property prices has not yet ended.”