Rich Hong Kong families sell mansions at a loss to repay debt

A stuttering economy has driven some to offload their assets for as low as half the price.

Rich families in Hong Kong are selling their villas and mansions at deep discounts so they can pay off debt, exacerbating the city’s prolonged property slump.

About 40% of secondary property deals worth $50m in July were sold at a loss,” Cathie Chung, senior director of Research at JLL in Hong Kong told Real Estate Asia.

Declining collateral value that is prompting banks to call in loans, prolonged economic uncertainty, elevated interest rates, and cautious buyer sentiment are to blame, she added.

But this is not new, Chung said, noting that the market downturn for luxury properties started way back in 2022. “But in recent months, the market saw more motivated vendors softening the asking price to exit.”

In July, the family of Ho Shung-pun, director of real estate investment firm Kowloon Investment, sold four mansions in Hong Kong’s Peak area for $1.1b — a 40% discount from 2017 values —  so they could repay a $1.6b loan from Hong Kong-based private equity firm Gaw Capital Partner, according to Knight Frank.

A foreclosed mansion at Jardine’s Lookout was sold for $360m, a more than 60% discount from its asking price three years ago.

Chung said banks are more aggressive and eager to demand loan payments amidst declining collateral values.

Data from CBRE showed that about three-quarters of high-end luxury residential deals in the first half of 2024 involved cash-strapped sellers.

Limited liquidity, fund flows, and valuation are also driving the trend, said Cherrie Lai, head of Residential Sales at Savills Hong Kong.

Lai said the fund flows from foreign investors have not been steady in the past few years, leading to constrained liquidity. As a result, mortgage banks can only offer lower loan-to-valuation ratios, putting property buyers with insufficient cash at a disadvantage.

“In the absence of any uplifting of the loan-to-valuation ratio or stable valuation price, these properties actually have a smaller batch catchment of buyers and suffer a higher loss,” she added.

Because of this, demand for properties is declining, forcing sellers to dispose of low-value properties at deep discounts.

Whilst some rich sellers are losing money from their property sales, others, both foreign and local, are capitalising on the trend.

“The discounted properties have attracted more cash-rich local end-users who are beginning to look at these types of properties because they understand the market,” Chung said.

“The cash-rich are looking for longer-term investments, and mainland Chinese buyers have been quick to capitalise on the decline in luxury property prices,” she added.

Lai noted that back then, buyers had to pay a premium for something unique. “Nowadays, when there's a discount, they would look for the high end, even top end.”

But Chung said buyers are still approaching the market with caution, as speculative demand remains minimal and buyers prioritise sustained investment over quick gains.

Discounting trend

“We find buyer sentiments have largely shifted towards viewing these properties as long-term investments rather than short-term opportunities,” she said. “So the primary motivation behind purchases mainly focus on asset allocation and securing the stable and long-term value of the properties.”

People are also buying properties for their own use, sometimes making small renovations to keep costs low. Lai said that these wealthy buyers still look at the location and prefer prime areas.

“Those owners suffering from business loss or liquidity issues will try to liquidate some of the properties to pay up the loan or try to relieve the interest rate payment,” she said. “[For them,] that would be the main objective or main part of the discount property.”

Lai said market conditions remain uncertain due to still high borrowing costs and the unpredictable speed at which the supply can be cleared to make way for new investments.

“We still have a lot of supply accumulated in the pandemic, and we didn't have many land sales in the past years, so we need to absorb and clear this ongoing stock before we can move on to a new market outlook,” she added.

Whilst scrapping cooling measures has benefited the primary market, which accounts for 60% of property deals worth $50 million and above in the luxury segment, these were not enough to reverse the downtrend in the secondary market.

“When buyers are heavily drawn to the primary market, it becomes difficult for secondary market vendors to compete on pricing,” Chung said.

She said the mild rebound in luxury residential prices in the second quarter had not been sustained, with values sliding in the third quarter.

“The trend of discount properties really hinges on how the leveraging trend plays out for the in-debt owners, with an overall expectation for the trend to remain in the near future, like in the near term, but to really moderate in the midterm,” she added.