Weak demand, tighter lenders: Hong Kong property developers face tough 2024
By Clare Jim
HONG KONG (Reuters) — Hong Kong's property companies face a squeeze in 2024 from rising funding costs and sluggish home sales and office rentals, making creditors and investors cautious about developers’ financial health.
Some of Hong Kong's major banks have cut off fresh financing to the city's highly leveraged or weak property companies, four sources familiar with the matter said, forcing developers to seek more expensive loans in the private credit market.
With the outlook for Hong Kong's once-thriving property market looking increasingly uncertain, many banks are also shrinking existing loans or asking developers to top up collateral, the sources said.
As a result, funding costs are expected to increase, and given sluggish home sales and record high office vacancy rates, this year could be even more challenging for developers than last year.
Investors don't expect Hong Kong developers to default like their counterparts in mainland China, but they don't see a sector rebound any time soon.
They are cautious about the outlook, with the Hang Seng Property Index having plunged 30% in 2023, and off 60% from its all-time peak in April 2019.
House prices are forecast to continue their downward spiral this year, with UBS and Citi predicting a drop of 10%, following a 20% decline since the 2021 peak, while vacancy rates of Grade A office space stand at an all-time high of 16.4%.
«Whether some weaker Hong Kong developers have enough of a cash buffer will depend on the speed of the local economic recovery, and when rates will start dropping,» said UBS analyst Mark Leung, who expects rate cuts no earlier than the second half.
SERIES OF CRISES
Hong Kong developers enjoyed decades of lucrative growth until the
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