Sentiment in Hong Kong's property sector hit across the board as there's no respite from coronvirus outbreak

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/business/article/3077994/sentiment-hong-kongs-property-sector-hit-across-board-theres-no-respite?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp&utm_content=3077994 | April 6, 2020 10:21 AM SGT
Hong Kong's property market continues to be battered from all sides as the worsening coronavirus pandemic takes a toll on sales, prices, rents and even government land sales.
New home sales in March sank 40.4 per cent month on month to 594 units, the lowest since December 2018 while overall transaction volume in the first quarter fell to a four-year low at HK$100.09 billion, according to data from Centaline Property Agency. This comes a day after secondary home prices in the city recorded their steepest drop in 15 months in February.
"The downward adjustment in home price is not done yet," said Wong Leung-sing, associate director of research at Centaline, adding that the Covid-19 outbreak has dampened market sentiment and forced developers to defer project launches.
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On Wednesday, the Hong Kong government sold a residential plot far below market estimates.
View of Lot KIL 11238 in Mong Kok, which was sold to Eagle Legend Asia for HK$85.9 million on Wednesday. Photo: Jonathan Wong alt=View of Lot KIL 11238 in Mong Kok, which was sold to Eagle Legend Asia for HK$85.9 million on Wednesday. Photo: Jonathan Wong
The parcel, about half the size of a basketball court in protest-hit Mong Kok, fetched 20 per cent less than the lower end of market expectation. The per-square-foot price of HK$3,512 is the cheapest since June 2004. Hong Kong-listed Eagle Legend Asia paid HK$85.9 million, which is less than a 1,443 sq ft flat at The Cullinan at Kowloon Station that sold for HK$90 million in November 2019.
"The parcel was transacted at a super low price, completely below expectation," said Thomas Lam, executive director at Knight Frank, adding that new flats could be "reasonably profitable" even if sold at just HK$10,000 per sq ft.
He however noted that "if upcoming major parcels are also sold at low prices or withdrawn from sale, it means most developers are worried about prospects".
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Meanwhile, tales of desperation are doing the rounds, with sellers getting so frantic that they are willing to take a massive hit just to exit the market. A flat owner dumped a 278 square feet unit at Tak Po Building in Tsuen Wan for HK$3.13 million, making a loss of HK$470,000 on his two-year-old investment, said Tive Yau, senior principal district sales manager at Centaline.
Luxury flat rents, too, have fallen between 4.5 per cent and 7.5 per cent across Hong Kong in the first quarter, clocking their worst quarterly performance since 2010 as companies downsize, according to Savills. Mainland demand has nosedived around 80 per cent from last year while expat activity has also fallen heavily, the consultancy said.
"Leasing transaction volumes have dropped as economic activity is being widely disrupted," said Teresa Chan, associate director at residential leasing at Savills. "The lack of demand looks set to continue into the second quarter and rents are expected to consolidate further."
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In the office market, only two office units changed hands in 50 major office buildings tracked, compared to 34 in March 2018, according to Midland IC&I.
"The market is worried the global economy will experience a major recession, and the epidemic in Hong Kong is gradually worsening. Coupled with the volatility of the stock market, investment sentiment has been hit hard," said Eric Ong, chief operating officer and director of commercial department at Midland.
Office rents also continue to hit multi-year lows, according to Centaline Commercial. One unit at Lippo Centre in Admiralty was recently leased at a three-year low. At HK$44 per sq ft, it was 25 per cent lower than the previous lease. Another unit at 9 Queen's Road Central was let out at a six-year low of HK$57.5 per sq ft, a drop of almost 50 per cent from its peak.
Prime street shop rents continue to track retail sales lower, slumping by an average of 43 per cent year on year in the first quarter, according to Savills, which expects rents to fall along with rising vacancies.
"The closures and vacancy rate [of shops] ... are definitely higher than 10 per cent," said Shiu Ka-fai, a lawmaker representing the wholesale and retail sector. "Many tenants definitely would [like to] talk to landlords on cutting rents, surrendering or downsizing."
Separately, British celebrity chef and restaurateur Gordan Ramsay's Bread Street Kitchen & Bar, London House and Maze Grill restaurants closed on Wednesday. His Hong Kong partner, Dining Concepts, which operates these eateries, did not respond to requests for comment. They join Korean fashion retailer Aland, Koi Kei Bakery and restaurant Jamie's Italian that have recently closed all or part of their operations completely.
"Some have implemented unpaid leave, some have become unemployed after the stores closed," said Shiu. "The unemployment rate of 6.1 per cent [in retail, accommodation and catering industries] is lagging and the unemployment rate now should be higher."
Swatch, the world's biggest watchmaker by sales, which recently closed stores and laid off staff in Hong Kong, has criticised landlords.
"The majority of the landlords have been very slow to react over the past nine months and have failed to support in what is a difficult situation for the Hong Kong retail industry," said Swatch. "Although we are now seeing more support from the landlords, it is still far below the reality of the market situation."
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