Fifth Covid wave to lower residential sales volumes and retail sales: Moody's

Companies are expected to weather out disruptions for up to 6 months.

The fifth wave of Covid infections in Hong Kong is expected to suppress retail and residential sales for the first half of 2022. 

"The fallout from the fifth coronavirus wave will be credit negative for rated Hong Kong property companies that have significant retail and residential exposures as their revenues will drop from already depressed levels," explained Stephanie Lau, Senior Credit Officer, Vice President, Moody’s Investor Service. 

Measures currently in place, such as tightened social distancing measures, can result in an overall reduction in footfall in shopping malls. This, in turn, could lead to the closure of shops, which could also affect shopping mall operators’ occupancy levels and lease renewals. Pressure to offer rent relief can also be faced by operators under the latest proposed rental moratorium legislation, resulting in a dampening across overall earnings. 

These measures could also result in difficulties in launching projects for property companies, as a potential delay might occur in the government’s issuance and approval of presales permits, and limitations in sales offices. 

Despite these obstacles, however, the overall outlook expects these dips to be manageable, should the disruptions not continue beyond the next three to six months. 

According to Moody’s, companies at the beginning of the pandemic last 2020 showed that they could survive sharp declines in retail and residential sales, with most also having solid liquidity, healthy financial metrics and adequate financial buffers. 

Overall, a decrease in overall primary residential sales value in 2022 is expected by Moody's due to the implementation of these measures. Accompanying this would be a drop in the number of units transacted, with residential prices also expected to under a low to mid-single digital decline in the coming months.