A complete analysis of the financial crisis of Deng Chengbo's family: Market warnings behind the huge wave of property sales

1. Business giants are in financial difficulties and suffer losses, causing market fluctuations

A senior investor known as the "Hong Kong Shop King"Deng Chengbo(Uncle Bo), has been repeatedly reported to be under financial pressure since 2020, and his family has even set off a wave of "slaughter-style" property sales in recent months. According to market news, the Tang family sold three core assets in succession within just two weeks, including a giant shop in Sai Kung Garden, a shop in Wan Chai and a ground floor shop on Sha Tsui Road in Tsuen Wan, cashing in a total of more than HK$556 million. It is worth noting that almost all of these transactions recorded book losses. Among them, the giant shop in Sai Kung Garden was sold for HK$400 million, a loss of HK$38 million compared to the purchase price in 2017, a depreciation of 11%, causing deep concerns in the real estate industry about the prospects of the commercial property market.

II. Analysis of the giant shop transaction in Saigon Garden: a microcosm of the dramatic changes in the regional commercial ecology

The Sai Kung Garden shop transaction that has sparked heated discussion involves a total of 28,439 square feet of space at the basement entrance and the first floor. When the Tang family purchased the property from veteran investors Li Yaohua and Li Yongfa for HK$438 million in 2017, Saigon’s tourism industry was booming, with specialty restaurants and retail businesses thriving in the area. However, in recent years, due to the triple blow of the epidemic, a sharp drop in tourists and changes in local consumption patterns, the vacancy rate of shops in Sai Kung has continued to rise. According to real estate agency data, shop rents in the area have fallen by more than 40% from their peak, and the huge shops owned by the Deng family are more difficult to find a single tenant due to their large area, and were eventually forced to sell at a discount.

3. Timeline of the series of “loss and disposal waves”: the battle to stop the bleeding of assets from Mong Kok to Tsuen Wan

According to the Land Registry records, the Tang family's asset restructuring plan had already emerged as early as the end of 2022:

• December 2022: Sold the entire commercial and residential project at No. 61-67 Soy Street, Mong Kok to Asia United Infrastructure (00711) for HK$351 million, with a book loss of HK$34.72 million
• Early April 2023: Sold a shop on Lockhart Road in Wan Chai for HK$115 million. The property was purchased for HK$135 million in 2018.
• Mid-April: Sold a ground floor shop on Sha Tsui Road in Tsuen Wan for HK$41 million, a significant discount from the purchase price of HK$52 million in 2019
• Late April: Saigon Garden was sold for 400 million yuan, becoming the largest but most loss-making transaction in this round of cash-out operations

Industry analysts pointed out that this wave of "heroic self-sacrifice" operations reflects that the Deng family urgently needs cash flow to alleviate debt pressure. It is reported that many properties under his family had been mortgaged to financial companies for loans. As Hong Kong entered a cycle of interest rate hikes, rising financing costs exacerbated the tension in the capital chain.

4. In-depth tracking: The rise and fall of the Deng Empire

Deng Chengbo, 88 years old, started his business in neon signs in the 1970s and switched to property investment in the 1990s. With his keen vision, he acquired a large number of "silver-owner projects" during the financial crisis and gradually built a tens of billions of assets spanning shops, industrial buildings, hotels and nursing homes. At its peak, it owned more than 400 properties and had also ventured into securities investment and technology. In 2018, it shocked the market with its bold move of "spending 500 million to buy shops without blinking an eye."

However, excessive leverage expansion poses hidden dangers. The social movement in 2019 and the outbreak of the epidemic in 2020 caused shop rents in tourist areas to plummet, and the shops in core areas such as Causeway Bay and Mong Kok, where Deng’s shares were heavily invested, became vacant for a long time. To make matters worse, its elderly care home business, which has been transformed in recent years, has been hampered by tightening policies, and the sales of several industrial building revitalization projects have also been delayed due to the reversal of market conditions. As of the end of 2022, the market estimates that its debt scale may exceed 6 billion yuan, and the loan ratio of some mortgaged properties is as high as 70%.

5. Expert interpretation: Structural crisis in the cold winter of commercial real estate

JLL's head of commercial, Anthony Yan, said the Tang case reflects a profound change in Hong Kong's commercial real estate market:

1. Retail model revolution: the popularity of e-commerce and the rise of experiential consumption have led to a sharp decline in demand for traditional large street shops
2. Interest rate cycle reversal: Following the US interest rate hike under the peg system, the surge in holding costs forced investors to sell
3. Capital flows change: Family offices and funds prefer to invest in new economy assets such as logistics real estate and data centers
4. The rental market is polarized: small shops in livelihood areas are more resilient to price falls, while large shops in tourist areas have become "negative assets"

Stephen Cheng, head of research at Savills, added that the current vacancy rate of "super-sized" shops with an area of more than 10,000 square feet in Hong Kong is 18.7%, and the average rent has dropped by 45% compared to 2019. It is estimated that it will take at least three years to digest the stock. However, large shops in non-core areas such as Saigon may face a longer-term revaluation due to the lack of large chain brands to take over.

VI. Market ripple effect: investor confidence crisis and bank credit tightening

The Deng-related chain erosion has already produced spillover effects. Several unnamed banking industry insiders revealed that many institutions are reassessing the risks of commercial property mortgage loans, with valuations of shops generally lowered by 15-20% and approval conditions becoming stricter. A foreign bank in Central has even set internal regulations that shop loans of more than 50 million yuan must be accompanied by a personal guarantee. This move may trigger a chain sell-off among small and medium-sized investors, further exacerbating the market's decline.

On the other hand, the movements of the takeover party are worth paying attention to. For example, the mysterious buyer of the Sai Kung shop is rumored to be a local catering group that plans to build a comprehensive entertainment and dining project; while Asia United Infrastructure, which previously acquired the Mong Kok project, plans to convert it into a shared workspace. Whether these transformation attempts are successful will become a barometer for observing the future of commercial real estate.

VII. Legal and Financial Perspectives: Compliance Challenges in Family Asset Restructuring

As the Deng family accelerates the disposal of assets, the legality of its transactions has attracted attention. A lawyer pointed out that if the company is insolvent, according to Section 232 of the Companies Ordinance, creditors can apply for a winding-up order to freeze the assets. It is currently known that several of the Deng family's holding companies have undergone changes in directors, and his son Deng Yaosheng has gradually taken over the business. Whether such structural adjustments touch upon the "voidable transactions" clause will become a focus of observation in the legal community.

Financial restructuring expert Chen Guanhong suggested that companies in similar situations should consider debt restructuring rather than selling assets at a low price, negotiate with creditors to extend the debt or swap debt for equity, and introduce strategic investors at the same time. However, this plan must be based on the long-term appreciation potential of assets, which is extremely difficult to achieve in the current commercial real estate market.

8. Historical references and future predictions: Hong Kong’s real estate cycle at a crossroads

Looking back over the past three decades, Hong Kong's commercial real estate has experienced many crises: the 1997 financial storm, the 2003 SARS epidemic, and the 2008 financial tsunami. Each time there was a major adjustment, but it was subsequently driven by a rebound due to China's economic take-off. The particularity of this crisis lies in:

• The contraction of international capital liquidity caused by the Sino-US game
• The long-term impact of China's economic restructuring on Hong Kong's re-export trade
• The double whammy of an aging local population and a brain drain

Economist Guan Zhaozhao predicts that the commercial property market will enter an "L-shaped" adjustment period. Although prices will not collapse, it will take a long time to digest the excess supply. For highly leveraged investors such as the Deng family, balancing asset realization and business transformation will be a critical test of survival.

Conclusion: The fading of an era and the birth of a new order

The financial crisis of Deng Chengbo's family is not only a setback for his personal investment strategy, but also a microcosm of the pain of Hong Kong's economic transformation. When the "Store King Myth" loses its glory, what is revealed is the fundamental change in the rules of the capital game. In the new era of deep integration of the virtual and real economies and the rise of the ESG investment wave, how to reshape the value logic of commercial real estate will be a century-long proposition that the entire industry urgently needs to solve.

---

postscript

1. According to data from the Rating and Valuation Department, the vacancy rate of Hong Kong street shops reached 12.4% in the first quarter of 2023, the highest since 1999.
2. Valuable assets that the Deng family has yet to dispose of include:

• The entire Sugar Street Commercial Building in Causeway Bay, valued at over HK$800 million
• A $650 million industrial building revitalization project in Tuen Mun
• Market rumors say a Chinese-backed fund is in talks to buy some of Tang's hotel assets, which may be the key to turning the crisis around.

Deng Chengbo(1934 - May 14, 2021), known as "Uncle Bo",Hongkongmerchant, famous for investing in a large number of commercial properties. At its peak, he owned more than 200 industrial and commercial properties in Hong Kong and was known as the "Shop King of Hong Kong".

Deng YaoshengStan Tang (1986-), Hong Kong entrepreneur, currentlyStan GroupPresident,Easy Communications Group(Hong Kong Stock Code: 8031) Chief Executive Officer and Executive Director, formerPine Care Group(Hong Kong stock code: 1989) Chairman and Executive Director. FatherDeng Chengbo.
Deng Yaosheng has won the CanadianUniversity of Western OntarioIvey Business SchoolExecutive MBA in International Business andThe Hong Kong Polytechnic UniversityMaster in Innovation Leadership for Senior Executives. In 2019, Deng Yaosheng wonHong Kong Business Professional Validation CentreHonorary Fellow.

Further reading:

• Hong Kong property market future analysis report: challenges and opportunities from a multi-dimensional perspective
• JP Morgan's view on Hong Kong's real estate market