Commercial property: Hong Kong, Singapore only bright spots as rising interest rates kill off deals across Asia-Pacific

The rival business hubs both saw their deal values increase on a quarterly basis, defying a regional rout in investment amid rising financing costs
In other major property markets in the region such as mainland China, Japan, Australia and South Korea, deals fell between 33 per cent and 78 per cent

Hong Kong property

Cheryl Arcibal

Published: 9:30am, 12 May 2023

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Commercial property deals in Hong Kong and Singapore, Asia’s main business hubs, grew in the first quarter, defying a regional rout in investment as rising financing costs sidelined potential buyers, according to financial data company MSCI.

In the first three months of the year, Hong Kong saw commercial property deals worth US$2.6 billion, up 15 per cent from the previous quarter, but 40 per cent lower than a year ago. Its rival Singapore fared better, with deals worth US$3.7 billion in the same period, 40 per cent higher than the preceding three months and an 18 per cent rise from a year ago.

Hong Kong and Singapore were “bright spots” that contrasted with a quarterly slump in other major property markets in the region such as mainland China, Japan, Australia and South Korea, where deals fell between 33 per cent and 78 per cent. On an annual basis, the commercial real estate transactions in these markets declined by between 19 per cent and 47 per cent, the MSCI data show.

“Trading of commercial property slumped in the first quarter of 2023 to the lowest total in over a decade, extending the downturn seen in the second half of 2022, due to rising interest rates and an unsettled picture on pricing,” the report said.

“The volume of income-producing properties that changed hands totalled US$27.2 billion in the first quarter of 2023, just half the level of the same period a year ago.

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“Of the major markets, only Singapore and Hong Kong were the main bright spots, each boosted by megadeals.”

Several economies in the Asia-Pacific region have experienced rising interest rates in recent months as monetary authorities have sought to tame runaway consumer prices. Australia, for example, began tightening policy in May last year, with the latest hike of a quarter percentage points earlier this month bringing cash rates to 3.85 per cent. South Korea has been tightening its monetary stance since August 2021, but paused its campaign in its latest policy meeting in April.

While Singapore and Hong Kong appear to be weathering current uncertainties, the two markets are in very different conditions, according to property consultancy CBRE.

“The deal volume growth (in Hong Kong) is partly contributed by some distressed or motivated sellers. But it is a relatively small portion and not largely driven by those,” said Reeves Yan, executive director, head of capital markets, CBRE Hong Kong.

“The deal volume growth is largely driven by the border opening with incoming [mainland Chinese] and international capital.”

One of the major deals in Hong Kong was the acquisition by PAG and Singapore government-backed Mapletree Investments of a 28-storey office building in the Kowloon Bay district that was the former headquarters of debt-laden Goldin Financial Holdings in January for HK$5.6 billion (US$715 million).

CBRE noted that Hong Kong’s non-residential property transactions in April surged 38.6 per cent from the previous month to 1,172 units.

“The growth in volume is not significant yet in the first and second quarters due to the high-interest rate environment and uncertain global economy. I believe more growth will take place in the second half while the interest rate stabilises or even shows some signals of rate cuts,” Yan said.

For JLL, any uplift from the border reopening is likely to be tempered by rising interest rates in Hong Kong.

“While positive factors, such as the reopening of the borders with mainland China, have some impact, they are offset by high-interest rates, which could keep the deal volume stable,” said Oscar Chan, head of capital market at JLL Hong Kong. “The attractiveness of property prices in Hong Kong varies by sector. For instance, some office properties are currently selling at replacement costs, which may be appealing to certain investors.”

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