Investment funds eye deeper discounts, fire sales as distress mounts in Hong Kong property sector

Hong Kong’s cash-strapped property owners have been willing to sell their assets at a 20 per cent to 30 per cent discount as the economic fallout from the coronavirus pandemic mounts. Some investment funds are waiting out for bigger fire sales.

London-based real-estate investment fund manager Nuveen Real Estate said some assets had been priced at around 20 per cent to 30 per cent clearing even before the pandemic hit, as holders buckled under months of anti-government protests.

“There are some non-prime assets in decentralised locations in Hong Kong that are being offered for sale as sellers’ financials have been compromised by business shortfalls elsewhere and the need to raise cash,” said Harry Tan, head of research for Asia-Pacific at Nuveen. He declined to reveal more details about these assets.

Some of the extreme cases included a jeweller’s shop on the Park Lane Shopper’s Boulevard near the Tsim Sha Tsui police station, according to Land Registry data. It was sold last month at HK$40 million (US$5.2 million) for a record HK$30 million loss including expenses.

“It is true that a lot of ready capital is looking for distressed assets to buy,” said Reeves Yan, executive director, capital markets at property consultancy CBRE Hong Kong. “Generally, they are expecting a discount of 30 per cent to 40 per cent” in this environment, he added.

Still, there is a very limited supply of distressed assets in the market given the low holding costs and strong financial fundamentals of many Hong Kong owners, he added.

Before the coronavirus pandemic, Asia-based institutions, listed vehicles and private-equity funds had US$250 billion in dry powder, ready to be deployed for commercial real-estate assets in the next three years, analysts said.