Auction flops as buyers baulk at hefty price tag
NEARLY 100 people gathered at the Furama Hotel on Friday hoping to buy a commercial building at a bargain price.
They left disappointed.
The Sanfer Commercial Centre in West Central was put up for auction by four banks at a reserve price of $44.3 million - 50 per cent higher than market predictions.
There were no bidders and the 12-storey building was withdrawn from sale.
Investors had expected it to be sold for a low price because it was a foreclosed property. This means the owner or owners are unable to pay interest or debts within a required time, forcing creditors to take control of the property.
Chung Sen Auctioneers director Tsang Kin-chun, the arranger who handled Friday's auction, said financial institutions usually auctioned such properties at below market prices to try to recoup their money as soon as possible.
But in this case, far from offering a discount, the banks placed a premium on the property above the market level, Mr Tsang said.
Sanfer Commercial Centre was one of several properties recently foreclosed by banks, partly because of the slowdown in the Hong Kong property market.
In one case, Chinese newspapers reported that several small financial institutions had auctioned off four luxury villas in a bid to get back their money.
The owner, a Thai-Chinese businessman who had been heavily involved in the property transaction market over the past two years, had been unable to pay his creditors.
Mr Tsang said the sharp downturn in the real estate market had meant an increase in transaction volumes of foreclosed properties.
'The [number of] deals handled by Chung Sen have increased by 50 per cent to 30 in the first six months, compared with the same period [last year],' he said.
These included office units, factories and apartments.
Mr Tsang said some real estate speculators had bought valuable properties at high prices last year with support from aggressive small financial institutions.
These property firms were now facing financial difficulties and some had failed to pay their debts, he said.
Mr Tsang expected to see more sales of foreclosed properties, given that the property slowdown was likely to continue over the coming months.
But he said the increase in such sales was not entirely caused by the slowdown.
For example, if an industrial manufacturing company went bankrupt, all its assets, such as the factory, would become foreclosed property.
Joseph Leung, director of Vigers Hong Kong's valuation department, said banks in Hong Kong imposed a healthy system to monitor closely developers' financial background and their ability to repay their debts.
'They will not approve the application if an applicant's financial situation is unhealthy,' he said.
He said sales of foreclosed properties were limited and they did not mean many property firms were being forced to close because of the property slowdown.
It was believed banks were keeping close tabs on such firms, he said.
But some small-scale financial institutions, which had aggressively lent money to property speculators by charging high lending rates, would suffer from the fall in both property prices and activity, Mr Leung said.