Distressed property sales in Hong Kong are beginning to bite banks that used to be well protected against loan losses.
The city’s commercial real estate sector is going through one of its worst slumps in history, with no end in sight. Average prices of office buildings, shopping malls and other properties have fallen more than 40% from their highs in 2018, eroding the value of the collateral backing many bank loans. Defaults are also rising as more property owners and developers run into cash flow difficulties.
Banks with soured loans and mortgages have been reluctant to sell the underlying real estate assets at a loss — but that is changing. Some recent transactions, including the HK$2.6 billion ($334 million) sale of the Cheung Kei Center to a university in November, saw lenders offload assets at less than the face value of their loans, crystallizing losses.
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