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A Sinking Ship: Hong Kong’s Hotel Investment Market in Distress

Things do not seem to pan out nicely for Hong Kong recently. The last year’s business performance, as well as economic indicators, were greatly dimmed by civil unrest, while 2020’s travel restrictions and social distancing rules are further discouraging any inbound travel, bringing the city’s hotel scene almost to a standstill.

Granted, selling hospitality assets during such times is troublesome to say the least. Landlords are suing hotels for overdue rents, which are just but one problem on the owners’ minds, while occupancy levels are struggling to hit even modest 20%. In such market conditions, discounts are unavoidable but even with them there is no guarantee the new owners could start getting returns in the nearest future. In the absence of international visitors for the reasons of both protests and travel restrictions, the profitability of hospitality sector will be greatly dependent on the ability of Mainland Chinese to come to Hong Kong. Should this not be allowed soon, the industry’s recovery may take much longer than the owners, investors and management companies could initially count on.

In such circumstances it is not surprising that only one property has changed hands in the past eight months as compared to seven hotels in the same time period in 2019. The 94-room Le Petit Rosedale Hotel in Causeway Bay was sold to Wang Digben by ITC Property Group in late August for HK$460 million, which represents a 34.3% discount from the original asking price of HK$700 million. Meanwhile, another deal was called off by the buyer, losing a bit over HK$30 million in deposits – Queen’s Hotel in Sai Wan was supposed to be sold to Grand Fortune Overseas Holdings for HK$310 million (HK$450 million original asking price), but the deal was cancelled less than a month after signing the purchase agreement.

Overall, it seems hospitality sector in Hong Kong is facing some dark times. The new coronavirus pandemic, associated social distancing rules and civil instability are feeding the already shaking market into more distress, pushing the desperate owners towards steeper discounts for their undervalued assets. The much-needed relief could come from less risk-averse investors looking to make a buck off such properties, however, evidently, these investors are few and far between for the raising demand to get rid of the hotels – at least for the time-being.

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