Property developers in Hong Kong will likely find securing loans increasingly difficult amid the city’s beleaguered real estate market, an analysis from Moody’s Ratings concludes.
According to the credit rating agency, the prolonged property slump could pose a “major risk” to lenders. Consequences could include increased loan-loss provisions and tighter credit lines, likely hitting smaller developers the hardest.
Property development and investment loans accounted for 16 percent of Hong Kong banks’ total lending as of June last year, Moody’s stated in a report on Wednesday.
[See more: Top realtor calls on officials to restore public confidence in Macao’s property market]
“Hong Kong banks have large exposures to commercial property and may face heightened asset risks,” it read. “Prominent Hong Kong developers, such as New World Development [NWD], have historically enjoyed strong banking relationships and lending was usually on an unsecured basis.”
NWD is one of Hong Kong’s most highly leveraged developers. Collectively, it accounts for 1 percent of gross loans by the city’s banks, and 8 percent of property development and investment loans. The company’s indebtedness reportedly rose from 55 to 89 percent in June – prompting it to promise sales totalling HK$13 billion (US$1.67 billion) by the end of the financial year, this coming June. NWD posted a record loss of HK$19.7 billion last year.
Hong Kong’s residential property price index meanwhile fell by 12.52 percent in the third quarter of last year, when compared with the same period in 2023, according to official figures cited by the Global Property Guide. That was its 11th eleventh consecutive quarter of year-on-year decline.
