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Sandy Li

With banks reluctant to provide loans, the trend of buying subdivided retail space has waned

Property owners hoping to catch the tail end of a spree of buying subdivided outlets at shopping malls are finding that banks are reluctant to finance these 'high-risk' properties.

The drop in financial support from banks means demand for subdivided units will wane, property agents say.

Many property owners started subdividing large retail malls a year ago to generate higher prices per square foot.

The trend took off after the owners of Red Mall, on Jaffe Road in Causeway Bay, subdivided the space to sell 141 shops for a total of $350 million last April.

The move made a quick profit of $200 million for the owners, Lobo Law Ka-po  and Lai Wing-to.

But property agents say the trend has died with the offer for sale of the Causeway Bay premises of 20-year-old Chuen Cheung Kui Restaurant and its next-door congee shop.

Owner Yu Ming Investment paid $350 million in May for the two properties in Percival Street.

Property players widely expected the firm to renovate the properties and subdivide them into smaller units for resale. However, Yu Ming has offered the two properties in one lot for $450 million.

'Fewer property owners have been subdividing their malls since late last year,' said Stanley Poon Chi-ming, general manager of Centaline Property Agency's retail department.

He said owners of subdivided space might have difficulty finding buyers because banks were not keen to grant mortgages for small shops.

Also, rising interest rates had affected buyer sentiment.

The best lending rate has risen eight times to 8 per cent from 5 per cent  last March.

Brian Cheung Nam-chong, a senior manager at Liu Chong Hing Bank, said the bank stopped offering mortgage financing for small outlets in shopping malls three years ago.

'We have been holding 20 foreclosed small outlets at different shopping malls for five years. No buyers are interested in them at all,' he said.

Mr Cheung said some shopping malls that had been subdivided and sold to individual owners suffered from complex management problems and poor occupancy rates, and that had affected their value.

'It will increase our lending risk,' he said.

A decentralised management meant that it was extremely hard to gain a good trade mix to lure shoppers, he said.

'If these shops fail to generate sales it will hurt the repayment ability of individual owners,' he said.

Such shops, each measuring about 100 sqft, could easily sell for a high price per sqft because the shops were small and therefore relatively inexpensive, he said. But banks were unlikely to provide financing for these high-risk properties unless the developer agreed to be the guarantor.

Derek Chung Siu-kuen, head of mortgage and secured loans at DBS Bank,  said the financial institution would be more cautious about lending that involved small retail properties.

'Residential mortgages are our main focus but we also extend loans to street-level shops in prime locations. We seldom offer loans to small outlets on the first or second floors of a mall,' he said.

He said some shopping malls in Mongkok comprising more than 100 shops were often raided by Customs and Excise, showing individual owners were failing to manage their outlets properly.

Despite the waning trend in subdivisions, a private investor is offering 265 shops in Tokyo Town at 603 Nathan Road, Mongkok, for sale tomorrow.  The shops range in size from about 30 sqft to 260 sqft and will be priced at more than $18,000 to $20,000 per sqft each.

Tony Lo, sales director at Tokyo Town agent Midland Realty, said the owner had secured mortgages for buyers from two banks. These were worth 50 per cent to 70 per cent of the value.



Little shops lose their appeal