HK Commercial Property Market At Risk Of Re-rating Downwards

HONG KONG – The Chinese territory’s commercial property market could be at risk of re-rating downwards due to draconian border measures, which have already resulted in some people and businesses leaving Hong Kong, reported The Business Times on Monday afternoon (9 May, SGT).

In turn, this has impacted the financial results of the city’s commercial property landlords. For instance, the gross rental income of Sun Hung Kai Properties for its 6-month period ended 31 December 2021 declined 3.8 percent and 16.4 percent compared to the same period in 2020 and 2019 respectively.

Notably, Sun Hung Kai Properties holds approximately 12 million sq ft of retail space across Hong Kong. These include IFC Mall in Central, New Town Plaza in Shatin, and APM in Kwun Tong.

Aside from that, retail sales in Hong Kong recorded double-digit drops on an annual basis in both February and March 2022.

Investors in commercial property landlords could be getting worried about the prospects of companies exposed to commercial assets in the Chinese territory. As of 6 May 2022, Sino Land and Sun Hung Kai Properties traded at a discount to their respective end-2021 book value of 48 percent and 55 percent respectively. Notably, Sino Land is helmed by Robert Ng, son of the late Singapore property mogul Ng Teng Fong.

In addition, Singapore-listed Hongkong Land traded at a discount to its end-2021 net asset value (NAV) of 69 percent as at 6 May 2022. It has also been actively repurchasing its stocks. A key holding of the conglomerate is a portfolio of 12 inter-connected commercial properties in Central, which offers more than 4.8 million sq ft of high-end retail space and Grade A office space.

In the investment market, global investors, who are concerned over Hong Kong’s future as a financial hub, could be less upbeat in their appetite for prime Hong Kong commercial properties.