Will Hong Kong see fewer creditor-led commercial property sales as assets stabilise?

Hong Kong's commercial property market remains under pressure despite moderating financial distress, with analysts predicting fewer creditor-led sales as assets stabilize. The city's office and retail segments have experienced a multi-year slump, with new supply outpacing demand due to slower consumption and rising interest rates.

Thomas Chak, head of capital markets at Colliers Hong Kong, stated that defaults are not expected to increase significantly, and transaction activity will remain resilient, with many valuation corrections already reflected in pricing. Banks continue to release distressed assets, and mortgagee sales remain crucial for recovering cash and taking advantage of a more liquid market.

Savills reported a 120% increase in non-residential property transactions over HK$50 million in the first half of the year, with offices accounting for more than two-thirds of the sales. However, 25% to 56% discounts are common in distressed resales. Jack Tong, director of research and consultancy at Savills Hong Kong, emphasized that lower financing costs are providing some relief to borrowers, but concerns remain for owners with high leverage, weak rental cash flow, or substantial valuation shortfalls.

The outlook for the commercial property sector is improving due to easing Hibor rates and Hong Kong's better economic prospects, but it would be premature to conclude that the concerns are overblown, especially considering office yields remain low compared to borrowing costs.