KUALA LUMPUR, Sept 8 (Bernama) -- Bursa Malaysia closed almost flat on Tuesday as buying interest rotated away from index heavyweights towards smaller-cap construction stocks, with sentiment affected by geopolitical uncertainty, said an analyst. At 5 pm, the FTSE Bursa Malaysia KLCI (FBM KLCI) eased 0.39 of a point to 1,714.40 from Monday’s close of 1,714.79. The benchmark index opened 1.65 points lower at 1,713.14 and moved between 1,710.44 and 1,714.50 throughout the trading session. The broader market was almost evenly balanced, with decliners leading gainers 548 to 546, while 598 counters were unchanged, 1,107 were untraded and 25 were suspended. Turnover expanded to 4.13 billion units valued at RM3.14 billion from 3.60 billion units valued at RM2.45 billion on Monday.
Amidst a prolonged slump in Hong Kong's commercial property market, Chinese state-owned firms have emerged as key buyers, snapping up shopping malls and office spaces as local and international investors pull back. Although current deal sizes are smaller than during Hong Kong’s peak six years ago, these purchases highlight the city’s increasing dependence on Chinese capital.
China Resources Longdation Co, the property management arm of state-owned China Resources Holdings Co, has been actively acquiring retail spaces in Hong Kong. This includes purchasing a waterfront shopping mall for HK$540 million (US$69 million) in July and another retail podium for HK$310 million earlier this year. Additionally, the firm reportedly made a HK$9 billion offer for the K11 Art Mall from New World Development Co, potentially one of the largest commercial property deals of the year.
Chinese Buyers Capitalize on Low Prices
"The timing is good to buy prime retail properties in Hong Kong because the prices are low," said Tom Ko, head of capital markets at Cushman & Wakefield plc’s Hong Kong office. Chinese state-owned firms, with stronger balance sheets and access to cheaper financing in mainland China, are capitalizing on the downturn in the Asian financial hub. Investors are currently achieving yields of up to 6% on retail spaces, which were rare a few years ago.
In contrast, traditional investors, including local tycoons and foreign property funds, remain mostly on the sidelines. Challenges such as banks’ reluctance to lend for commercial properties and the negative carry—where borrowing costs exceed property yields—are deterring many potential investors.
Currency Peg and Interest Rate Disparities
Hong Kong's currency peg to the US dollar means its monetary policy mirrors that of the US Federal Reserve. The Hong Kong Monetary Authority's base rate has remained at 5.75% for over a year, with local lenders' prime lending rates even higher. Meanwhile, mainland China’s one-year loan prime rate is significantly lower, at 3.35%, giving Chinese buyers a financing advantage.
Bloomberg Intelligence analysis indicates that HK$2.1 trillion has been wiped off commercial and residential real estate values in Hong Kong since 2019. Wealthy Hong Kong families facing mounting debt have been offloading properties at steep discounts, providing more acquisition opportunities for Chinese state firms.
Key Players and Acquisitions
Chinese firms are capitalizing on these opportunities:
- China Telecom Corp is among the bidders for a 15-floor office tower in Kowloon.
- Sino United Publishing Ltd, a state-owned company, bought two office floors in Kwun Tong for HK$133 million in June, after acquiring a floor in Wan Chai for HK$240 million late last year.
Most current office market buyers, including Chinese state-owned companies, are end-users rather than investors, according to Oscar Chan, head of Hong Kong capital markets at Jones Lang LaSalle Inc.
Struggling Commercial Market Despite Chinese Interest
Despite the influx of Chinese money, the commercial property market continues to face challenges. Office vacancy rates reached a record high of over 16% in the second quarter, with rents down 35% since their peak in 2019. The increase in office supply and downsizing by foreign firms, including Goldman Sachs Group Inc, has dampened demand.
The retail sector is also under pressure. Despite a surge in tourist arrivals, retail sales in July decreased by 12% year-on-year, with shop rents remaining far below their peak a decade ago.
Future Outlook and Dependence on Chinese State Support
The weak market outlook suggests that Hong Kong may need to rely even more on Chinese state-owned enterprises to stabilize its property sector. These enterprises often have objectives beyond profit, such as meeting state goals, according to Heron Lim, assistant director-economist at Moody’s Analytics.
The ongoing challenges have weighed heavily on Hong Kong's real estate stocks, with the Hang Seng Properties Index down 20% this year, compared to a 1% gain for the broader benchmark.
“It will not be surprising to see more involvement from Chinese state-owned enterprises in future real estate projects to provide de facto support to Hong Kong,” said Gary Ng, senior economist at Natixis SA. "There are both economic and political rationales behind it," he added.
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