Financial distress in Hong Kong’s commercial property market has moderated but not been completely eliminated, analysts say, with highly leveraged asset owners still expected to find refinancing their loans a challenge.
The city’s office and retail property segments have been mired in a multi-year slump, with new supply outstripping demand in recent years as consumption slowed and interest rates surged, triggering loan defaults.
“We do not expect defaults will increase noticeably from this time point, with transaction activity remaining relatively resilient, and much of the valuation correction has already been reflected in pricing,” said Thomas Chak, head of capital markets and investment services at Colliers Hong Kong.
“Banks, however, continue to release distressed assets, and mortgagee sales remain an important source of transaction activity in order to recover cash and take advantage of the relatively more liquid market this year.”
Savills said lower local interest rates had reduced debt-servicing pressure as the one-month Hong Kong interbank offered rate (Hibor) was about 2.6 per cent by the middle of this August, implying an effective funding cost of about 4.1 per cent to 5.1 per cent, compared with 7 to 8 per cent at end of 2023.
In the first half of the year, Hong Kong saw HK$22.3 billion (US$2.84 billion) worth of non-residential property transactions above HK$50 million, up 120 per cent from the same period last year, with offices accounting for more than two-thirds or HK$15.1 billion, Savills added.