Hong Kong’s developers may face the greatest challenge as bond maturities are expected to increase by 70% next year from $4.2 billion to $7.1 billion, according to LSEG data and Reuters calculations, while the sales and value of the property sector continue to drop.
China’s property debt crisis has already caused Emperor International and Road King to miss its coupon payment. If the non-repayment continues to rise, the economy and creditor of Hong Kong will suffer significantly as its property and related sectors are essential to this Asian financial hub, accounting for about a quarter of its GDP.
Analysts from S&P Global Ratings pointed out that there is still a possibility that many small-sized developers could default in the next 12-24 months as banks cut their loan exposures. Several developers may try to raise money by selling their office and retail assets, even though they already lost more than 50% of their values from the 2019 peaks.
Most Hong Kong developers faced heavy debt as they borrowed a significant amount from the bank. The worsen of the situation has already caused Hang Seng Bank to take HK$2.5 billion charge on Hong Kong commercial real estate in the first half of this year.
Although S&P estimated the increase in impaired loan ratios for the local banking sector, Eddie Yue, the head of Hong Kong Monetary Authority, stated that the bank is capable to withstand market volatilities due to its sufficient provisions, good financial strength, and well-capitalised system.
Market observers also noticed that some banks chose to not categorise a defaulted loan while others did not seize the pledged assets of the developer who missed the loan payment date. Chairman of JLL Hong Kong pointed out that these institutions want to give the market more time to recover.
