Hong Kong property developers selling off non-residential buildings

Hong Kong’s major property developers are speeding the sale of their non-core properties in a bid to lift revenue after investors’ demand shifted away from domestic-housing market due to increased risk, industry experts said.

Chinachem Group, Sino Land, Sun Hung Kai Properties and Wheelock & Co are the latest developers to sell or to tout their car parks, office, retail and industrial buildings in an effort to cash in on sharp price rises over the past couple of years.

“Developers are likely to take the advantage of high prices to dispose these assets as overall indicators show their valuation close to the peak,” Denis Ma, head of research at JLL, said.

Most of the assets already have tenants and are generating stable rental incomes. That is appealing to investors, he said.

Chinachem Group last week offered 27,457 square feet spaces at the 34-year-old Queen’s Centre in Wan Chai for sale.

The property, jointly owned with Dan Form Holdings, comprises five retail shops, a basement and 11 office floors. It has an estimated value of HK$400 million, or HK$15,000 per square foot.

The sale came four days after a consortium of developers led by Sino Land sold 147 car parks at the Hermitage residential project in West Kowloon for HK$350 million. Prices ranged from HK$2.3 million to HK$2.7 million.

“Such high prices for a car park space show asset values for non-residential properties have shot up a lot. It would encourage developers to cash in these non-core properties,” Thomas Lam, the head of valuation and consultancy at Knight Frank, said.

Sun Hung Kai Properties (SHKP) also found strong buying interest when it launched its new industrial building, W668, at 668 Castle Peak Road near MTR Lai Chi Kok station on the market early this month.

The developer said nearly 90 per cent or 18 floors at W668 had been sold for a total of HK$1 billion.

Wheelock and Co said it sold the Parkside’s retail podium at One Harbour Gate in Hung Hom for HK$500 million,

Vincent Cheung, executive director for valuation and advisory services in Asia at Colliers International, attributed the sale partly to the slowing residential market.

“In addition, developers in general will likely dispose non-core assets rather than keeping them,” he said.

Lam of Knight Frank said investors would add value after they purchased these properties to enhance rental income.

“The investment yield for commercial properties is more or less the same as residential which has stood at about two per cent. But after renovation, annual investment return for commercial properties could rise to as much as five per cent,” he said.

Some new owners, who bought the en-bloc office tower, would offer individual office or industrial units to buyers or renters at higher prices, he said.

Eva Lee, an analyst at UBS, predicted mass retail rent would drop 10 per cent this year and by a further 10 per cent next year, while luxury retail rentals may tumble 10 per cent this year and by as much as 15 per cent next year.

JLL’s Ma said the number of transactions for retail shops at upper floors have dropped rapidly as dwindling sales take their toll.

A 1,580 square feet at 25th floor of the retail project, The Sharp, in Causeway Bay is on sale at HK$10.34 million less than the owner bought it for in 2013, according to Midland Realty.

The floor is being sold for HK$41.8 million, about 18 per cent below the HK$52.14 million paid by the owner three years ago.

Most of the floors in the building sold at a loss of about HK$3 to HK$4 million.