Tight control: A view of Victoria Harbour, with the backdrop of the central financial district, in Hong Kong. To curb speculation, the government discourages foreign buying, second-home ownership and transactions in general. — Reuters
WHAT’S the true value of an apartment or office space in Hong Kong?
No one really knows. Property sales, especially in the pre-owned segment, have slowed to a trickle.
Li Ka-shing, nicknamed “Superman” for his rags-to-riches story, is the last one who has to worry about a possible property crash among the city’s tycoons.
The 95-year-old’s flagship CK Asset Holdings Ltd is cash-rich and runs a diversified business.
The company owns real estate in Singapore and the United Kingdom, as well as infrastructure and utility assets in Australia and Germany.
But Li’s family seems determined to stress test Hong Kong’s property market.
Its unconventional moves are causing unease among other developers and homeowners.
Buying frenzy
Last week, CK Asset stirred up a local buying frenzy when it put up for sale flats at a development in the north Kowloon district.
More than 600 units were priced at HK$14,686 (US$1,880) per sq ft on average, a seven-year low for new apartments in the city. Tens of thousands of buyers wrote deposit cheques, hoping to snatch the deal.
It was the first taste of a price war before the city gets flooded with supply.
The number of unsold new apartments – completed or under construction – has hit a decade high.
Over 35,000 units from 82 projects could be coming to market in the second half, according to Bloomberg Intelligence.
For comparison, the last time the city recorded at least 30,000 new apartment sales was 1998.
Going forward, rival developers are expected to price units at 10% below so-called market levels.
A mirage
Hong Kong property transaction volume, especially in the secondary market, dwindled after steep stamp duty was introduced in late 2012.
CK Asset will pounce when it spots rivals in distress. It was in talks with banks, including HSBC Holdings Plc and Standard Chartered Plc, to take over most of the HK$10.2bil project loan for The Corniche, a luxury residential building in the southern Ap Lei Chau district, built by Chinese developers Logan Group Co and KWG Group Holdings Ltd.
Both companies had defaulted on their dollar bonds and the project loan is due one year from now.
CK Asset had indicated it would make the acquisition in cash.
Unsettled homeowners
This deal, if successful, would leave nearby luxury homeowners deeply unsettled.
The Corniche went on the market in January at a unit price of HK$50,000 per sq ft, although so far only three flats have been sold.
CK Asset, on the other hand, might be getting this site for just over HK$15,000 per sq ft.
So at what price will Li sell these ocean-view apartments?
After all, the billionaire has a reputation of hard-nosed dealmaking.
In late 2017, he sold The Center, a prestigious office tower in the Central business district, for a record HK$40.2bil to a consortium of investors that subsequently divvied up the 73 floors.
It was norm-breaking: Traditionally, a grade-A building would be sold to a single buyer, which the best tenants prefer because of better maintenance of common areas.
Sure enough, Goldman Sachs Group Inc moved out shortly after.
More drama ensued. In early 2022, Shimao Group Holdings Ltd founder Hui Wing Mau, one of the consortium members, rushed to put up two floors for sale as his mainland real estate empire ran into financial trouble.
Other distressed Chinese developers, such as Kaisa Group Holdings Ltd, offloaded their floors, thereby denting The Center’s image.
But hey, Li had already cashed out.
Eerily high prices
To many, Hong Kong’s property prices feel eerily high.
Home values are only around 14% off their 2021 peak.
It’s cheaper to rent than to buy, when comparing prevailing mortgage rates with rental yields.
Office vacancy rates in Central – one of the world’s most expensive for commercial space – are above 10%, the highest since at least 2006.
In Hong Kong, the lack of pricing transparency is in part due to onerous stamp duties for some buyers put in place a decade ago.
To curb speculation, the government discourages foreign buying, second-home ownership and transactions in general.
It has killed a vibrant market.
So don’t blame Superman for being cut-throat.
His decisions make good business sense, simple as that. — Bloomberg
Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. The views expressed here are the writer’s own.
