Financial distress in Hong Kong's commercial property sector has moderated, though highly leveraged owners continue to face refinancing challenges.
Key facts
- •Non-residential property transactions over HK$50 million totaled HK$22.3 billion in the first half of 2024.
- •Office properties accounted for over two-thirds of large non-residential transactions, totaling HK$15.1 billion.
- •The volume of non-residential transactions above HK$50 million rose 120 per cent compared to the first half of 2023.
- •The one-month Hibor rate dropped to about 2.6 per cent by mid-August.
- •Mortgagee sales remain a significant source of market activity as banks work to recover capital.
Financial distress in Hong Kong's commercial property market has eased, though analysts warn that highly leveraged asset owners still face difficulties refinancing loans. The sector has struggled with a multi-year slump driven by high interest rates and an oversupply of office and retail space.
By the numbers
Market conditions and outlook
Thomas Chak, head of capital markets and investment services at Colliers Hong Kong, stated that defaults are not expected to increase significantly from current levels. He noted that much of the necessary valuation correction has already been reflected in property pricing, and transaction activity remains relatively resilient. Despite this stabilization, banks are continuing to release distressed assets. Mortgagee sales remain a key driver of transaction activity as lenders seek to recover cash and capitalize on improved market liquidity.
Impact of interest rates
According to Savills, reduced local interest rates have alleviated some debt-servicing pressure. By mid-August, the one-month Hong Kong interbank offered rate (Hibor) stood at approximately 2.6 per cent. This resulted in an effective funding cost of 4.1 per cent to 5.1 per cent, a decrease from the 7 to 8 per cent range observed at the end of 2023.
Advertisement
This article was independently rewritten by ManyPress editorial AI from reporting originally published by SCMP Business.
