Investors in Hong Kong eye the commercial market to avoid increased stamp duty on homes
Investors in Hong Kong are accelerating the pace of their commercial property disposals, which have been unaffected by the recent adjustment in stamp duty to 15 per cent on deals for non first-time home buyers, as buying demand will shift away from the housing market.
In less than a week after the new duty took effect, retail and office assets worth more than HK$1 billion have been offered for tender.
Investor Lai Wing-to, who owns dozens of retail properties, believes the commercial sector would benefit from the cooling measures.
“I would sell some of my shops if attractive offers are received,” Lai said.
In Tai Kok Tsui in Kowloon, a group of investors are offering their 80 per cent share of a 55-year-old industrial building, Style Factory Building, at an indicative price of HK$160 million.
The remainder of the building is held by two independent investors.
Alvin Lam, a director at Midland Surveyors, which is the sole agent of the building, said: “The building should attract strong interest as investors will diversify their capital away from the residential market.”
Midland Surveyors has been appointed to handle the sale on behalf of a group of occupants who together hold the bigger share of the building. The tender closes on November 25.
The block of owners wanting to sell is large enough to trigger the compulsory sale rule. In 2010, the threshold to force the sale of a flat that is at least 50 years old was lowered to 80 per cent of a building’s flats from 90 per cent.
The industrial building is at 9 Elm Street and has a total gross floor area of 37,901 square feet.
In Hong Kong Island, the owner of a 22-storey office building, L. Plaza, on Queen’s Road Central is up for sale with a target price of HK$950 million.
“In general, the market is interpreting the news as a positive for the commercial market. Investors preference will turn to non-residential properties after the substantial increase in stamp duty (to curb investment demand),” said James Pong, director of investment of Savills, which is the sold agent of L. Plaza.
Retail properties with smaller lump sum amounts payable will become the primary beneficiaries, Pong said.
He said L. Plaza was up for sale mainly because the owner, who bought the property for HK$810 million in August last year, planned to reallocate the family’s assets.
The site area covers about 3,629 square feet and the gross floor area is approximately 58,269 sq ft. Approval has been given by the government for the conversion of 1st to 4th floors into retail shops with an extra lift installed.
“This key additional feature will increase the value of the property and should definitely prove attractive to retail tenants,” Pong said.
On November 5, Bridgeway Prime Shop Fund Group, which focuses on trading shops, agreed to buy a retail unit for HK$17 million in Happy Valley, a day after the government announced the 15 per cent stamp duty for non first-time home buyers.
Edwin Lee, the founder of Bridgeway, said transaction values in the residential market reached HK$60 billion last month, while the retail property sector achieved just HK$2 billion in total sales value.
“The shifting of only a few per cent of capital in the residential market to retail shops will significantly boost the sector,” Lee said.
He forecasts the retail property market will hit bottom earlier than expected as capital flows into the sector, adding that prices of retail shops have plunged 20 per cent to 50 per cent from their peak levels in 2014.
The fund has bought five retail properties, which can be subdivided into nine smaller shops, for a total of about HK$70 million.
“We will focus on shops worth below HK$50 million as changing hands is easy,” Lee said.
JLL said there were 133 registered transactions in the retail property market for the first nine months this year, down 35 per cent from the same period last year.
In the period year on year, total transaction values dropped 35 per cent to HK$19.33 billion, it said.
Eric Ong, a director of commercial property sales agency Midland IC&I, expects prices for grade-A offices will continue to grow as investors seek to avoid paying the 15 per cent stamp duty and to reduce transaction costs.
“Prices may edge up 5 to 10 per cent for prime office spaces,” Ong said.