While the residential market shows slight signs of recovery, the office market has plummeted from a deep plunge to a crash. The reason for this is that banks are selling off the foreclosed properties at rock-bottom prices. Hang Seng Bank recently sold two floors of World-Wide House in Central at a record low price, which completely shattered the illusion that the rising stock market would automatically lead to a surge in office prices.
Hang Seng, acting as a lender, sold a foreclosed premises which included two floors (26th and 27th floors) of the World-Wide 
House at a drastically reduced price. With a total floor area of 20,000 sq ft sea-view office, this represents accommodation value of only HK$15,000 per sq ft. This transaction price hit a 15-year record low of the building. Given that the World-Wide House is one of the landmark Grade A office buildings in Central, its transaction price will inevitably immensely suppress down the valuation of Grade A office buildings across Hong Kong.
In late April of this year, Hong Kong Stock Exchange (HKEX) purchased 147,000 square ft of high floors in One Exchange Square in Central. The total transaction amount was HK$6.3 billion, which represented an average price of HK$42,850 per sq ft. Given that the price of the World-Wide House, which is nearby, has fallen to HK$15,000 per sq ft, the value of the One Exchange Square Offices floors purchased by the HKEX will inevitably slide down to HK$25,000, a sharp drop of about 42% from the transaction price. The total value of these premises will fall to HK$3.68 billion, resulting in a huge loss of HK$2.62 billion.
With the price of high floor commercial buildings in Central's core area falling to HK$15,000 per sq ft, the other less premium Grade A commercial buildings are bound to fall down to HK$10,000 per sq ft. Based on the fact that Grade A commercial building prices had fallen to the record low of 15 years ago, with an average drop of 50% to 60%, landlords who purchased those Grade A commercial buildings with 50% of loan-to-value ratio in the past few years, will basically recoup zero capital after selling their properties. Some buyers with exceeding 60% loan-to-value ratio have all become negative equity owners.
Hang Seng Bank aggressively sold its foreclosed commercial units without hesitation, forcing other banks, such as Bank of East Asia and some Chinese banks to follow suit. As a result, the prices per sq ft of Grade A and grade B offices will drop to HK$8,000 and HK$5,000 respectively. This dire situation is expected to occur at the beginning of next year.
