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Asset managers look to sell Hong Kong buildings as higher interest rates bite

HONG KONG – Asset managers are increasingly looking to dispose of their commercial buildings in Hong Kong as rising interest rates take a toll on mortgage payments, which for some have now exceeded rental income.

Some of the sales plans also come as mortgage loans are due to be refinanced, which is made more difficult when equity in the asset drops, people in credit and property markets said.

While Hong Kong reopened its borders in 2023 after the pandemic, the recovery in the city’s commercial property sales and rental markets has been weaker than expected due to rising interest rates and a sluggish global and Chinese economy.

Office prices have dropped more than 30 per cent since their peak in 2019 following anti-government protests and Covid-19, with many international firms scaling back or exiting the financial hub.

Average rents have fallen 34 per cent and vacancy rates rose to 17.3 per cent at the end of June, according to data from Cushman & Wakefield.

Sources said a few larger asset managers, eager for swift disposals, are starting to sell Hong Kong assets at discounted prices.

KaiLong Group is putting two of its buildings – which both have loan facilities due in 2023 – on the market with the deadline for non-binding bids later in September, two sources with knowledge of the matter said.

One asset is a new 25-storey Grade A tower in financial district Central, while the second is also a 25-storey commercial building, with 41 parking spaces, in nearby Wan Chai.

People with knowledge of the matter said KaiLong would like the buildings to fetch at least HK$1.5 billion (S$259.8 million) and HK$1.25 billion, respectively. The asking price for the Wan Chai asset is more than 20 per cent below market price, they added.

Mr Ivan Ho, chief executive for Hong Kong at KaiLong, told Reuters that the company is not selling because of a “bad future” but rather through a “normal marketing exercise once assets are ready for sale”.

Realtors say there is little incentive for investors to hold on to buildings because assets have run into negative cash flow due to higher interest costs.

The city’s monetary policy moves in lockstep with that of the United States as its currency is pegged to the US dollar. Its interbank rates spiked in 2023 and now hover at around 2009 levels.

Buying demand has also dropped as uncertainty over high interest rates, tighter credit conditions and elevated refinancing needs make investors more cautious.

The city saw commercial real-estate investment volumes drop 65 per cent to HK$4.7 billion in the second quarter, the lowest quarterly total in 14 years, according to property consultancy CBRE.

The total in the first half was also the lowest for a six-month period since 2009, its data showed.

“There are more assets in the market now, but it doesn’t mean transactions will increase because the expectations between buyers and sellers have drifted wider apart, and it’s difficult to do financing for commercial properties,” said Mr Tom Ko, executive director for capital markets at Cushman & Wakefield Hong Kong. REUTERS

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