Nearly 30% of the shops are in prices of 30% lower than the purchase prices, and 40% are tenants of restaurants.
Hong Kong Wen Wei Po (By Choi King-man)
The turmoil in Hong Kong has continued for five months, hitting the restaurant and retail business badly, and transactions of shops being put on sale at a loss increase sharply, furthermore currently a large number of owners are selling the properties at lower prices than the purchase prices. According to Midland Non-Residential Properties Information Research Department and Midland Shops Information, as of the 20th of this month, the company had recorded 60 cases of shops being put on sale at a loss (that is, shops in shopping malls are not included), the asking prices of 28% among are even lower 30% or more than the purchase prices. The company believes that investors are still bearish on the market outlook as social conflicts continue, and it is expected that the number of shops being put on sale at a loss will continue to rise.
The number of mainland visitors to Hong Kong decreased significantly affected by the violent demonstrations, and the desire of the local people to go out to consume has also declined, thus the restaurant and retail businesses have been bleak. The total revenue of the restaurants in the third quarter of this year fell 11.7% year-on-year, the largest decline since the SARS outbreak in the second quarter of 2003. Retail sales were also poor. Retail sales in August were recorded the largest monthly year-on-year decline since records, and it was worse than that during the Asian financial turmoil. Political events have continued for five months but have not yet subsided. Public transport has been blocked, normal business activities have been greatly affected, and some restaurants and retailers have closed down or closed ahead of time, causing merchants to lose. Investors believed that the rental prospects would be pessimistic, so they decided to put on sale the shops.
Kowloon district accounts for more than 40%.
They bought the shops in a booming market in those years looking forward to the shop market prospect in the future, but the reality was not as expected, and the current weakness in the retail consumer market has also caused the value of the shop to fall sharply. Some owners may need to sharply cut the price of the shop due to the problem of capital turnover. In the cases of shops being put on sale at a loss of this company, some investors bought at the peak of the market. Dividing by loss ranges, the cases with a loss under 30% are 43, accounting for about 72% of the total; and the cases with loss in or above 30% are 17 cases, accounting for about 28%.
By region, as of November 20, Hong Kong district had shops being put on sale at a loss of 21, accounting for 35% of the total. The New Territories recorded 12, accounting for 20% of the total. Kowloon has the largest number of shops being put on sale at a loss, with the latest 27, accounting for 45% of the total. The shops being put on sale at a loss in the four core districts (ie, Causeway Bay, Central, Tsim Sha Tsui, and Mong Kok) accounted for about half of the total. About 40% are from tenants of restaurants, including Chinese restaurants, non-Chinese restaurants, snack shops, and coffee shops. The remaining 60% of merchants include clinics, pharmacies, currency shops, supermarkets, and so on.
The market outlook is bearish, so it is estimated the cases in a loss will still increase.
The director of the Midland Shops Department, Low Chin-ho expresses, the Sino-US trade war and the political conflict in Hong Kong continue to affect the shop market, greatly reducing the business of retail and catering merchants. The current poor market conditions have caused the value of the shops to plummet because some investors bought the shops during the peak period of the market many years ago, and investors decide to put on sale the shops at a loss due to the pessimistic about the rental business prospects.
Low Chin-ho continues to point out that social disputes in Hong Kong have not yet subsided, and it makes merchants’ business worse, also many investors are optimistic about the market outlook. Although the company recorded 60 shops being put on sale at a loss, it is believed the transactions at a loss will be over 60 cases, since some cases may have a loss after repeated price reductions under the expansion of the bargaining space in the market. In the second half of the year, there have been many cases of transactions at a loss, and it is expected that the situation will continue in the short term, also the number of transactions at a loss will continue to increase.
Hung Hom street shop was sold, at a loss equivalently to service charges.
In addition, as violent clashes hit all walks of life, some shop owners in Hung Hom District chose to sell the shops at a loss. The market source points out that, the original owner of No.5 street shop, Bailey Garden, 23 Bailey Street, Hung Hom, in construction area of 703 sq ft, had originally asked for HKD18.6 million before mid-June, but largely cut 41% under the aspiration of immigration, then finally sold it for HKD11 million. Besides the original owner had bought it for HKD10.48 million in 2016, and it is estimated there is loss equivalently to service charges such as agent commission, stamp duty, and legal fees. At present, the above shop is leased to Centaline Property for a monthly rent of HKD34,000 in the lease term until June 2020, with a return of 3.7%.
Market source points out that, the shop location is relatively secluded facing a shop opposite for the mainland delegation to buy chocolates, however, each package of chocolate is several hundred HKD, and generally only mainland customers would buy it, so it is believed the consumption power in the area will not increase accordingly before the completion of the URA’s reconstruction project of Bailey Street / Wing Kwong Street in Hung Hom (including 2,000 units).