The massive depreciation of premises is a nightmare to investors

Since the withdrawal of the cooling measures of the property market, the transaction prices and volumes have completed its rebound recently. Afterwards, the purchasing power of first-hand and second-hand properties has been reduced rapidly. Besides, the public sales records of new projects have been decreasing since then.

At present, there has been a fundamental shift in the luxurious housing market, and the wealthy owners have accelerated the sale of their houses at a deep-discount prices. Recently, SASA chairperson Kwok Siu-Ming has put his extravagant houses in Kau To Shan in the sales list at a discounted price of 30%. In recent months, transaction price of Grade A commercial building No.9 Queen's Road Central has dropped by 60% compared with the peak period, and the transaction price of Bank of America Center had also decreased by 60%. According to the estimate, there are thirty percent of these industrial and commercial property investors who will be in bankruptcy before 2025. Even the wealthier investors still have a tough time in the current business environment. In fact, their earning power are less than before. In this situation, their net assets worth will decrease by 60 to 70 %, and even traditional wealthy families' net assets will be reduced in half in this great recession.

These new promising investors speculated massively in shops and industrial & commercial properties with high leverage. They earned enormously when it was at high tide of the property market. In a booming environment, they earned easily more than HK$100 million in a single transaction. Unfortunately, this property market adjustment is led by shops and commercial premises. In 2017, the legendary deal of Central Center Transaction was the turning point of this notable change. As a result of this mega deal, many investors fell in a deep fiscal crisis and only the strongest of them could survive in this situation.

This adjustment has been based on industrial and commercial properties and have spread out to luxurious homes market in recent years. In fact, the decline of small and medium-sized residential properties is modest due to the demand from locals and newcomers from mainland.

The second half of this year is coming, and the market will begin to fall again. In the past few years, the investors have accustomed to buying high and selling higher later. If the properties valuation increases significantly, they will re-mortgage these premises, obtaining the additional capital to purchase more premises. They keep on repeating this strategy in years. Based on the leverage is too high, these over-speculated commercial premises are no longer attractive to investors. How much the property market will fall in the second half of this year. It is difficult to predict, but it will not be a single digit decline.