Table of Contents
In August 2024, the news that Shenghui Retail Shop Fund sold a ground floor shop on Water Street for HK$15.6 million shocked the market. This transaction was the third loss for the fund in one and a half months. The fund sold the ground floor and loft shops at 126 Wusong Street, Jordan, for HK$18.68 million last month. The unit was bought for HK$27.5 million in July 2022 and held for about two and a half years, resulting in a loss of HK$8.82 million or 32.07%.
A month later, the fund sold Shop No. 2 on the ground floor of ONE EIGHTY, 180 Shau Kei Wan Road, Shau Kei Wan, for approximately HK$20.1 million. The shop has an area of approximately 1,433 square feet and a price per square foot of approximately HK$14,000. The fund held the shop for less than two years and exited the market with a loss of approximately HK$4.9 million or 19.6%.
The "myth" of the original owner of the Sai Ying Pun shop making a profit of 17 times in 34 years turned out to be a "Waterloo" in the hands of a professional fund. When even the "Shop King" Li Genxing needs to stop losses in succession, what kind of structural crisis is hidden? (See Table 1 for data comparison)
Table 1: Key data of Shenghui Fund's three losses
| Property Location | Purchase time | Purchase price (million) | Selling price (million) | Holding period | Eclipse Range |
|---|---|---|---|---|---|
| Sai Ying Pun | 2022.08 | 2,450 | 1,560 | 3 years | 36.33% |
| Jordan | 2022.07 | 2,750 | 1,868 | 2.5 years | 32.07% |
| Shau Kei Wan | 2022.12 | 2,500 | 2,010 | 1.5 years | 19.6% |
Anatomical erosion of the lesion: three fatal injuries strangling the market
1. Post-epidemic consumption pattern discontinuity: "e-commerce + northbound" double blood-sucking
In the caseWater StreetAlthough the shop has a rental return of 5.4%, it cannot hide its fatal flaw - restaurant tenants with monthly rent of 70,000 yuan are facing the impact of "weekend empty city". Data from Midland Industrial and Commercial Properties shows that the vacancy rate of street shops in Hong Kong Island reached 12.8% in the second quarter of 2024, a three-fold increase from the pre-epidemic period.
The deeper crisis lies in the shift in consumption structure:
- The Shenzhen-Guangdong consumer circle takes shape: According to data from the Hong Kong Census and Statistics Department, in the first half of 2024, Hong Kong residents went north for consumption 42 million times, equivalent to 7 million people "voting with their feet" every month.
- E-commerce erodes physical: Consumer Council survey shows that citizens increased the frequency of online shopping for daily necessities on 62%, and the advantage of traditional "impulsive consumption" in street shops has collapsed
2. Interest rate scissors: 4.75% financing cost vs 5.4% rental return
Taking the Water Street shop as an example, based on the current loan interest rate of H+1.3% (actually about 4.75%), after deducting commissions and management fees, the net return rate of the fund may be less than 4%, and the fund will suffer losses if there is any fluctuation in tenants. What’s even more fatal is that shop valuation is inversely correlated with interest rates – for every 1% increase in interest rates, the theoretical drop in shop prices is 8-10% (JLL model).
3. The trap of “shop securitization”: liquidity black hole devours value
The fund operation model has inherent defects:
- High leverage short cycle: Most of them adopt a 3-5 year closure period, which is mismatched with the normal payback period of shops (usually 8-10 years)
- Valuation bubble aftermath: The purchase price in 2022 is mostly based on pre-epidemic rents, ignoring the structural decline in the rental market
- The Dilemma of Retailization：The fund's split sales lead to the fragmentation of ownership, which in turn weakens the flexibility of property restructuring
Experts diagnose: When will the market bottom out?
"Currently, shop rents in the core area have fallen back to the level of 2008, but it will take time for interest rates to normalize. We expect a turnaround in the second half of 2025." However, there are alternative voices that believe that shops are undergoing a process of "de-investment productization" and will return to their practical nature in the future.
Postscript: Sober thoughts beyond data
When the numbers game of 1.3 million becoming 24.5 million and then shrinking to 15.6 million comes to an end, what should really be examined may not be the gains and losses of a certain fund, but the reconstruction of the entire commercial real estate valuation system. In the struggle between the physical and the virtual, should those street shops that carry the city’s memories be seen as financial tools or cultural carriers? This eclipse storm will eventually force people to face choices.
Further reading:
- Casino king Zhou Zhuohua's century-long trial ends, but he still maintains control over core assets
- Another day! The son of "Shop King" Deng Chengbo, Deng Yaosheng, was sued by a financial company in the High Court for a huge debt of 230 million
- The crazy Deng Chengbo, the financially troubled agent, was so eager to set off firecrackers to pay tribute to the gods after receiving the commission!
