Hong Kong skyscrapers will scale new heights again

Sun Hung Kai Properties

26/08/2020 04:06

(The author is a Reuters Breakingviews columnist.  The opinions
expressed are her own.)
    By Jennifer Hughes
    HONG KONG, Aug 26 (Reuters Breakingviews) - It’s the long
views that elevate Hong Kong’s skyscrapers. Hongkong Land
 HKLD.SI , for example, has owned most of the buildings in its
central Landmark complex since 1901; Swire Properties’  1972.HK 
involvement in the once-industrial area of Quarry Bay dates to
1882. Shorter-term investors should put some faith into these
now-struggling developers.  
    Between June 2019, when the anti-government protests
started, and the pandemic-induced trough in mid-March, shares in
$9 billion Hongkong Land and $16 billion Swire Properties
roughly halved. Those of Sun Hung Kai Properties  0016.HK , the
$38 billion owner of the city’s iconic IFC and ICC towers, home
to international banks, law firms, and fund managers fell
30%. All three have partially recovered along with broader
equities. 
    Commercial rents in Hong Kong slumped 11% year-on-year in
the first six months of 2020, and are expected to drop 17% for
the full year, according to property services outfit CBRE. It’s
the weakest forecast for any big city globally. Geopolitical
tension is weighing on the market, with a new national security
law stoking fears about the city’s future.
    That helps explain why Hongkong Land, Swire and Sun Hung Kai
are trading at 26%, 44% and 51% of book value, respectively –
all near-decade lows. There are good reasons to think they can
get back to their 50-60% averages over the last five years,
though.
    One is working patterns. Hong Kong has one of the highest
office densities and people living in some of the tightest
quarters. That should curb the burgeoning work-from-home effect.
Despite concerns about an exodus of foreigners, fresh demand may
pick up from mainland China. The city centre is likely to hold
up. Vacancy rates there have reached a 14-year high, at 5.6%,
but below the citywide rate of 7.9%. For the newer Kowloon-side
eastern office area it’s 13.9%. 
    Any rebound will be gradual. Hong Kong isn’t getting the
same quick boost from the mainland as it has following past
crises. After the SARS epidemic in 2003, property stock prices
recovered in four months. It took five months after the global
financial crisis. The climb back up is steep, but history
suggests tower landlords can scale new heights again. 
    On Twitter https://twitter.com/JennHughes13

    CONTEXT NEWS
    - Hong Kong’s banking regulator on Aug. 19 eased a cap on
commercial property mortgages to 50% loan-to-value from 40%,
after prices for office and retail space fell 15% and 10%,
respectively, from late-2019 levels.
    - Hongkong Land on July 29 reported a first-half net loss of
$1.8 billion after it wrote down the value of its investment
portfolio by $2 billion, to $35.8 billion. 
    - For previous columns by the author, Reuters customers can
click on  JHUGHES/ 
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Hong Kong eases mortgage rules for commercial property   
 urn:newsml:reuters.com:*:nL4N2FL2SR
Hongkong land results    https://www.hkland.com/data/media_releases/investor_relations/2020/hll_20200729.pdf
 
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 (Editing by Robyn Mak and Sharon Lam)
 ((jennifer.hughes@thomsonreuters.com; Reuters Messaging:
jennifer.hughes.thomsonreuters.com@reuters.net))