Asset repricing and conversion opportunities are drawing capital back into the market.
The real estate market is showing signs of recovery after a prolonged downtrend since 2018, with improving sentiment across residential and office assets, according to Savills.
The residential market has already started to recover, supported by lower mortgage rates and the removal of cooling measures. Meanwhile, the office sector is bottoming out as rental declines slow broadly and reverse in some segments.
Savills said steep price corrections in recent years are now helping place a floor under asset values. As pricing resets, investors are increasingly looking at conversion and repurposing strategies, particularly for older assets.
Hong Kong was identified as one of the developed Asia-Pacific markets with the most aged real estate stock, alongside Australasia, Korea, and Japan. In these markets, median building ages are typically above 25 years, with some asset classes exceeding 35 years.
Older office and hotel assets have become key targets for conversion into rental housing, co-living, student accommodation, and senior living, where occupier demand is firmer, and income is more defensive.
Savills said weaker assets are gaining alternative value as older buildings lose tenants to a limited pool of newer stock. The discount at which these assets trade is also creating value-add opportunities for investors.
The report also noted that many Hong Kong assets remain underwater after years of correction. Banks are becoming more proactive in clearing impaired loan books through mortgagee sales and loan portfolio sales.
Real estate and construction account for about 15% to 18% of major Hong Kong banks’ loan exposure, but represent around two-thirds of impaired loans.
Savills said discounts remain available, with capital approaching the market from both equity and credit perspectives. However, it warned that Hong Kong has historically been a fast-moving market, meaning the pricing window could close quickly once sentiment improves.
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