Sales of retail shops suffer after duty rises
More defaults forecast for second half in the wake of extra tax burden and lending squeeze
The government's decision to double stamp duty on the purchases of commercial real estate and tighten lending has caused a slump in the number of retail property transactions.
Data released by Ricacorp (Commercial, Industrial and Retail) Properties shows the number of retail transactions plunged 85.6 per cent to 158 last month from a peak of 1,098 in February.
"The retail property sales market dropped sharply after the government's announcement of the doubling of stamp duty. The industry outlook remains grim as the market is unlikely to turn around overnight," said Percy Or, senior regional director of the retail department at Ricacorp (CIR) Properties.
The blow to sentiment was triggered mainly by the government's announcement on February 22 of a doubling of stamp duty on non-residential property sales exceeding HK$2 million.
The property agency forecast the number of retail transactions would fall further to 900 in the second half of this year from 2,778 in the first half, Or said. "It will be the lowest since the first half of 2009," he said.
Eddie Chan, assistant district director of the retail department at Ricacorp (CIR) Properties, expected more defaults in the second half of the year because of the extra tax burden and the fact that banks had lowered their valuations of commercial properties since the market turned poor.
Recently, a buyer forfeited HK$4.25 million after terminating a HK$42 million purchase of a 1,000-square-foot street-level shop in Wyndham Street in Central, he said.
"Due to the difficulties in securing bank loans and the poor market sentiment, the buyer decided to walk away from the deal even though the shop is now leasing for HK$100,000 a month," Chan said.
Another shopping centre in Tsim Sha Tsui may face defaults by buyers. In January, investors snapped up nearly 600 shops, each measuring 100 sqft, on the first three levels of Park Hotel building for HK$3 million to HK$5 million each.
"Most of them are short-term investors and these transactions are due for completion by the end of this month," Chan said.
He expected about 20 per cent of the buyers to cancel the deals as the extra tax had raised transaction costs.
As the loan-value ratio for commercial properties was lowered to 40 per cent from 50 per cent, he said buyers with a tight budget would face difficulties spending an extra 10 per cent for the down payment.
Unlike street-level shops in tourist belts such as Causeway Bay and Tsim Sha Tsui where prices were supported by high rental, Chan said retail properties in secondary locations were under pressure.
"Prices for street-level shops in secondary locations such as Sham Shui Po have dropped by 5 to 15 per cent as retailers in these areas are mainly targeting local consumers," he said.