The collapse of the office market will push up the number of negative assets

The transaction volume of the first and second markets has increased slightly recently, but the transaction price is still weak. As for the transaction of shops and office premises, the transaction volume is still sluggish. As for the transaction price, Grade B office premises follow the downward trend of Grade A offices and enter a nose-dive mode.

A moment ago, the top floor of Harbor Crystal in Tsim Sha Tsui East was sold. The sales area of this floor is 19,000 square foot, and the transaction price of this floor plummeted to HK$ 3,660 per square foot (psf). This transaction price was already lower than the reconstruction cost of this property. Once this deal is closed, the prices of office buildings in Tsim Sha Tsui East will inevitably be pulled down.

The New Mandarin Center is next to the Harbor Crystal Center, and the average asking price is HK$ 7500 psf. Once the above-mentioned transaction price is recorded, the New Mandarin Centers transaction price will be pushed down by at least HK$ 2,000 psf. Therefore, the transaction price of New Mandarin will fall by 30% to Hk$5,500. If the transaction price of New Mandarin Center is cut down to this new low. Half of the office premises in Tsim Sha Tsui East will become negative assets.

Since last year, the transaction price of Grade A offices has plummeted by 70%. Until now, Grade B offices have been falling as grade A offices it does. The massive falling prices of grade A and grade B office premises have been triggering half of the office premises which are held by the investors, are turning into negative assets. Therefore, it is foreseeable that the volume of negative assets will increase before the end of the year.

The transaction price of the office premises has dropped, the number of negative assets has skyrocketed, and the cases of bankruptcies will finally increase drastically. Under this vicious cycle, the bad debt rate of property mortgage loan is bound to rise to more than 10%. With this rapid increase in bad debt, banks have to lay off staff and cut expenses, resulting in a rise in unemployment rate. Eventually, the assets of great depreciation in Hong Kong will last for years.