HSBC’s commercial real estate default amount in Hong Kong surged by 456% in the first half of the year, signaling a downturn in the real estate sector that is beginning to impact the banking industry in Hong Kong.
According to a report by the Financial Times on September 22, in the first half of this year, HSBC’s commercial real estate default amount in Hong Kong exceeded $3 billion, highlighting the risks the British bank faces due to the sluggish real estate market in Hong Kong, a critical market for the bank.
Hong Kong represents the largest commercial real estate loan market for HSBC globally, with default amounts accounting for 45% of its total global commercial real estate loan defaults, compared to only 18% in the UK.
HSBC’s financial report for the first half of the year showed that as of June 30, the bank’s total global commercial real estate loan amount reached $79 billion, with default amounts totaling $3.2 billion, accounting for 9% of the bank’s total commercial real estate loans in Hong Kong. This marked a significant increase of 456% compared to $576 million six months ago.
Data from commercial real estate consultant Cushman & Wakefield showed that rents for prime offices in Hong Kong have dropped by over 35% since 2020.
David Wong, Head of the North Asia Banking Division at rating agency Fitch, told the Financial Times, “Banks have been under pressure for years due to exposure to risks in the Chinese real estate market, and now the focus has shifted to Hong Kong. We can say with more confidence that the banking sector’s exposure to commercial real estate risks in China is close to the bottom, but the exposure to risks in Hong Kong remains uncertain.”
The rapid deterioration of HSBC’s commercial real estate business in Hong Kong reflects the repercussions of the ongoing exodus of the financial and legal industries from Hong Kong in recent years, which has started to impact the bank’s balance sheet. Hong Kong, once known as one of the world’s top three financial centers alongside New York and London, has seen a surge in office vacancies following the 2019 anti-extradition protests and subsequent government crackdown, as well as the lockdown measures imposed in response to the COVID-19 pandemic from 2020 to 2022.
Apart from the commercial real estate sector, the private residential market in Hong Kong continues to remain subdued.
According to data from the Hong Kong Land Registry, there were 4,729 property transactions in August, including first-hand private flats, second-hand residential properties, first-hand public housing, commercial spaces, parking spaces, and others, marking a decrease of approximately 10.1% from July’s 5,262 transactions, reaching a new low in nearly six months.
Property prices have also fallen to their lowest levels since September 2016. The latest report of the Centaline City Leading Index (CCL), a weekly property price index compiled by Centaline Property Agency to reflect price trends, stands at 138.68 points, marking the third lowest in nearly 8 years.
The number of transactions by mainland Chinese buyers, reflected in the “Mandarin Pinyin Buyers Register” by Centaline Property, has seen a continuous decline for three consecutive months since May, with 723 transactions recorded in July, a five-month low and a decrease of nearly 5% from June’s 758 transactions, and a nearly 70% drop from the peak in April.
Regarding the current situation in the Hong Kong property market, James Wong, Chairman of the Asia Pacific Group, pointed out that “current citizens lack confidence in the economic outlook, leading to hesitancy in entering the market.”