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Hong Kong protests to have limited impact on property firms in short term
The current political protests in Hong Kong are likely to have limited credit implications on property investment companies and property developers in the short term.
The Asset 3 Oct 2014

The current political protests in Hong Kong are likely to have limited credit implications on property investment companies and property developers in the short term. However, downside risks to the base-case rental and property sales will increase if the situation deteriorates severely or persists for a prolonged period, thus shaking consumer and business confidence, says Standard & Poor's Ratings Services.

 

Retails sales will be most immediately affected as tourists may stay away, hurting retail sales during the October national holiday period. This is likely to hit landlords that benchmark rental income on retail sales growth (i.e., turnover sales rental). For our rated landlords, the percentage of rental income linked to retail sales is low.

 

Furthermore, retail properties are currently close to full occupancy, and landlords generally have a well-balanced lease expiry profile. Most Hong Kong property companies also have a fairly even mix of commercial and retail space, which mitigates the impact from slower retail activities.

 

Residential property sales on the other hand may be more affected as confidence wavers on the standoff between the protestors and the government.

 

S&P notes Hong Kong property developers have sufficient financial buffer to withstand potentially slower sales activities for the next six to 12 months.

 

Developers achieved good property sales in the January to August period as primary market sales exceeded the amount in full-year 2013 and more than 80% of full-year 2012. Hong Kong property developers rated by Standard & Poor's have strong cash positions and steady income from property leasing to mitigate sales volatility.

 

 

 

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