Commercial Property Loans In Hong Kong

HK$200bil Commercial Property Loans In Hong Kong Due Next Year

HONG KONG – Banks are unsure whether they should still lend to commercial property owners in the city, given that nearly HK$200 billion (US$25.6 billion) worth of loans secured by commercial real estate will come due next year based on HSBC Holdings’ estimates. Of this amount, only around 15 percent have been refinanced or are close to being refinanced, reported Bloomberg on Monday (18 December, SGT).

Whether banks will continue lending to commercial property landlords has become a controversial issue. In August 2023, New World Development stopped a sharp fall in its bond prices after announcing it had secured HK$30 billion of low-interest bank loans. The selling had been triggered by a blogger who accused the property developer of borrowing debt with interest rates of 11 to 12 percent in the private markets.

Already, some banks are reducing their exposure to smaller, leveraged landlords. In September, Lai Sun Development Co only managed to roll over 80 percent of a 4-year loan amounting to HK$3.6 billion that was originally taken out to construct the Marriott resort. DBS Group Holdings and HSBC unit Hang Seng Bank are no longer involved in the debt transaction. Then in October, merely about 75 percent of the HK$4.2 billion loan, secured by a Grade A office building in Kowloon Bay known as Harborside HQ was refinanced.

Worse, businesses in Hong Kong continue to languish. In a recent study, only 33 percent of the surveyed companies expect higher business turnover 2024, while the office vacancy rate in Central is at a record high.

Moreover, loan officers know that many urban rejuvenation projects are on shaky ground, including Hysan Development’s mega development in Causeway Bay, which was funded in early 2022 by a HK$13 billion green loan. The overall cost, including land and construction, is estimated at HK$25 billion, while annual capital expenditure leading to the expected 2026 completion is forecasted to use up 50 percent of Hysan’s operating cash flow. However, Causeway Bay is a shadow of its vibrant past, with Hysan Place, a high-end shopping and office development, being mostly empty during a recent evening visit. Also, Moody’s recently reduced its outlook for the commercial property landlord to negative due to Hysan’s high leverage.

Nevertheless, Hong Kong banks have incentives not to rock the boat. Withdrawing loans could lead to a market meltdown, top tenants exiting Hong Kong, and possible fire sales and asset write-downs. In turn, these will negatively impact the banks.

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