Hong Kong’s financial sector and regulators have sounded the alarm that the property market is showing the most serious signs of a downturn since the 1997 Asian financial crisis. In recent months, the Hong Kong Monetary Authority (HKMA), which effectively serves as Hong Kong’s Central Bank, has been scrutinizing more strictly the potential for banks’ nonperforming loans and whether to expand credit lines to small developers. Banks have received internal warnings that the value of collateral underpinning hundreds of billions of dollars in property-related loans needs to be reassessed.
According to Bloomberg on the 18th (local time), with commercial real estate remaining a key pillar of Hong Kong’s economy, many bankers and property consultants said regulators widening their oversight to include small developers was a “sign of growing market anxiety.” In response, an HKMA Spokesperson said, “It has long been a basic principle for banks to handle risky lending with care.”
Hong Kong’s residential and commercial real estate have both shown a distinctly weak trend recently. According to the property research firm Global Property Guide, Hong Kong residential housing prices fell about 7.8% year over year in the first quarter, and the luxury housing market plunged about 14.3% year over year in the second quarter. The Hong Kong commercial office market has also maintained a high vacancy rate in recent years as an oversupply has built up. Amid this trend, internal reports said the HKMA is conducting monthly checks on whether banks will participate in refinancing transactions that ask whether to roll over existing loans, and on risks from declining collateral values.
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