Hong Kong’s Financial Secretary Paul Chan has expressed concern over the future of the city’s economy, stating that there will still be great uncertainty in the economy next year. This revelation comes as the comprehensive deficit for this year is expected to be slightly more than 100 billion yuan, higher than the estimate announced earlier in the year.
Chan also addressed the characterization of Hong Kong as an “international financial center,” describing it as “untenable” given the current economic climate. The statement reflects the challenges faced by the city’s financial industry, as cash flow pressure increases and developers turn to non-bank financing to fund new projects and refinance loans.
According to reports, higher interest rates are exacerbating the debt burden of the real estate industry, prompting large developers like New World Development to seek ways to reduce borrowing after aggressive expansion. Some developers are turning to family offices, private equity companies, and asset management companies for high-risk, high-yield loans with asset collateral.
The real estate finance landscape in Hong Kong is changing, with family offices and asset managers venturing into new business avenues, such as private credit funds, to bolster their private credit portfolios. This shift comes amidst diminishing revenue from office and retail spaces, as well as a decline in residential sales and soaring vacancy rates.
With the industry in decline, experts predict that the private lending market in Hong Kong is in its infancy, with more inquiries than completed transactions. As banks prepare to reprice their assets in the first quarter of next year, there is a possibility that asset prices may fall and non-performing loan (NPL) cases may increase, leading to a potential surge in the demand for alternative financing sources.
The situation in Hong Kong’s real estate and financial sectors is indicative of the challenges faced by the city’s economy, with potential ramifications for both domestic and international investors. As the city grapples with economic uncertainty, stakeholders will be closely monitoring developments in the coming months.
With the future of Hong Kong’s financial and real estate sectors hanging in the balance, the city may see a significant shift in its economic landscape in the near future.