A common route for property owners to effect divestiture of their real estate assets to de-risk their investments and to improve liquidity is to sell down part of the asset and form a joint venture with the buyer. Alternatively (or as a hybrid), an owner may sell the whole or part of its properties – but on the basis that it receives a lease back immediately on completion so that it can continue to use the property (or properties). In this third article in our “Improving Liquidity for Asian Real Estate Investors” series, we explore sale and leaseback arrangements and how these arrangements can help de-risk investments and provide liquidity for real estate investors in Asia. In case you missed them, you may be interested in Part 1 and Part 2 in the series which examined the key issues that Asian real estate investors should consider if they are contemplating a partial sale and entering into a joint venture with a new capital or operating partner. 

In this second article (in our three part series which explores joint venture and sale and leaseback arrangements for Asian real estate investors), we examine some of the key economic considerations that investors should bear in mind when considering selling down interests and forming a joint venture (JV) involving Asian real estate: (i) funding, (ii) distributions and waterfalls and (iii) exit mechanisms.   In case you missed it, the first article in the series 'Improving liquidity for Asian real estate investors - Part 1' where we discussed some of the other key JV considerations for Asian real estate investors (e.g. structure, governance and control, conflict of interests and deadlock) is available for you to read.

Three years after the outbreak of COVID-19, restrictions have finally eased in Asia. However, investors in the region are still feeling its effects as well as headwinds caused by higher interest rates, rising inflation, supply chain constraints and tightening labour markets – not to mention the potential impact on the broader banking system of the recent failures of Silicon Valley Bank and Signature Bank in the US.  These are challenging times and Asian real estate investors have certainly not been immune to these challenges.   Investors in many locations (including Asia) are experiencing property market slumps partly driven by unfavourable revaluations by lenders and banks of mortgaged properties and the calling in of loans or the anticipated calling in of loans. This is a time when property owners may need to consider ways to de-risk their investments and to improve liquidity by divesting (wholly or partly) of their real estate assets.  A common route to effect such divestiture is to sell down part of the asset and form a joint venture with the buyer. Alternatively (or as a hybrid), an owner may sell the whole or part of its properties – but on the basis that it receives a lease back immediately on completion so that it can continue to use the property (or properties). In our three part series, we explore some of the key issues involved in these joint venture and sale and leaseback arrangements for Asian real estate investors.

On 22 February 2023, Paul Chan, the Financial Secretary of Hong Kong SAR, delivered the 2023-24 Budget (the “Budget”). Starting off by acknowledging the severe external environment, Chan went on to forecast that the Hong Kong SAR economy will see “a visible rebound” and can enjoy “abundant opportunities”. Confirming speculation circulated by the press prior to the publication of the Budget, Chan announced the implementation of a further round of consumption vouchers of HK$5,000 per eligible citizen, as well as the launch of a “Happy Hong Kong” campaign consisting of gourmet experiences, sea-land carnivals, mega events and other collaboration  events  whether on the tech side with the Science Park and Cyberport, or with Hong Kong SAR’s Ocean Park and Disneyland and the highly acclaimed cultural facilities of M+ and the Palace Museum. Aside from these more eye-catching initiatives, the Budget contains various updates relevant to the real estate, construction and infrastructure sectors, many of which echo the policy address delivered by the Chief Executive in October 2022 (the “Policy Address”). It is these areas in the Budget that we will focus on in this article. You may also find our summary of the Policy Address on relevant issues in our earlier article “Hong Kong SAR Policy Address 2022 – A Quest for Talent, Public Housing and Land Supply”.

Hong Kong SAR Chief Executive John Lee announced his maiden policy address on 19 October 2022. Alongside initiatives to attract foreign talent and safeguard national security, which are the main themes of his speech, he highlighted various key policies which are relevant to the real estate, construction and infrastructure sectors. We set out the key takeaways in this article.