More of Hong Kong’s small and medium-sized property developers will face default risks, market experts said, adding that they hoped the government would provide more capital support as banks remained cautious about issuing new loans.
“There is no white knight in the market, so investors and companies that are in financial distress have to self-rescue,” said Glen Ho, national turnaround and restructuring leader at consulting firm Deloitte.
“The market is very rigid, lacking new capital, as banks are reluctant to grant new loans,” he said.
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The multi-year price slump in the city’s commercial real estate sector, which has caused considerable financial strain for developers, has raised concerns among banks over growing non-performing loan (NPL) ratios.
Hang Seng Bank saw its NPL ratio rise to 6.69 per cent in the first half from 6.12 per cent at the end of December, according to its latest financial results. Expected credit losses rose by 48.5 per cent to HK$4.9 billion during the period due to “higher charges for Hong Kong commercial real estate exposures”.
Joseph Tsang, the chairman of JLL Hong Kong, said banks that are cautious about lending create problems for the real estate market.
“Even if someone is willing to purchase the distressed assets, no one is willing to lend new money,” he said. “Potential buyers need to buy with cash or at high rates.”
“We hope that the government can pay attention to this issue by lowering the loan-to-deposit ratio and reducing the reserve requirement ratio to allow banks to release more liquidity.”
People visit West Kowloon Art Park. Photo: Jelly Tse alt=People visit West Kowloon Art Park. Photo: Jelly Tse>
Experts said in the short term, lower interest rates will not solve all developers’ problems because declines in commercial capital values cannot be resolved quickly.
“For small and medium-sized developers, I can’t say if the worst has come but we haven’t seen any substantial improvement, [so] the situation will persist and we will see more of them facing loan default risks,” said Deloitte’s Ho.
Hong Kong property developers had more than US$18.8 billion in club and syndicated loans due by the end of 2026, according to data compiled by the London Stock Exchange Group.
Earlier in August, Road King Infrastructure suspended US$22.6 million in interest payments and said it would defer distributions of US$56.5 million in perpetual securities, making it the first Hong Kong-based developer to default on bond payments since China’s property crisis began in 2021.
In July, Hong Kong developer Grand Ming Group avoided risking default by obtaining waivers from its lenders for outstanding loans totalling HK$4.8 billion (US$611.5 million). Emperor International Holdings, the conglomerate’s listed property business, said in June that it had more than HK$16.6 billion in overdue loans as of March 31.
Cash-strapped owners are facing mounting pressure from banks, forcing them to offload assets. Transactions have hit record lows this year, JLL’s Tsang said.
“This trend shows no signs of ending but will persist at least in 2025,” he added.
Prime office capital and rental values have fallen to levels not seen since 2010, according to the latest data from JLL. Prices have plummeted by about 50 per cent, while high street shops have endured even more pain.
The Law Society of Hong Kong recently bought an entire floor of offices in what was once the world’s most expensive tower at a 50 per cent discount.
The Law Society paid HK$345 million, or HK$14,000 per sq ft, for 24,980 sq ft (2,320 square metres) on the 26th floor of The Center from Gale Well Group. In 2021, Gale Well paid HK$693 million for the asset.
“The market will not return to the past levels and people need to face the reality,” Ho said, adding that the correction was not necessarily negative as it created opportunities.
Last week, FWD Hong Kong signed a decade-long lease for 330,000 sq ft of office space in Taikoo Place, the largest office rental deal in the city this year. The company was adding four and a half floors in Devon House to accommodate its growth.
The expansion would make FWD the largest office tenant in Taikoo Place, a complex of 10 prime office towers. Devon House will be renamed FWD Tower next year.
Office-leasing activity in Hong Kong rose for a fourth straight month in July, chipping away at the elevated vacancy rates that continue to weigh on rents, according to JLL. However, grade A office rents continued to fall, declining 0.5 per cent in July from a month earlier despite the improved leasing activity.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP’s Facebook and Twitter pages. Copyright © 2025 South China Morning Post Publishers Ltd. All rights reserved.
Copyright (c) 2025. South China Morning Post Publishers Ltd. All rights reserved.
