A leading Hong Kong real estate industry association has called on the government to create a HK$20 billion ($2.6 billion) fund to invest in distressed properties, warning that the city’s worsening property downturn could pose systemic financial risks, Bloomberg reported.
The Hong Kong and International Chapter of the China Real Estate Chamber of Commerce said in an interview that mounting non-performing loans, forced asset sales, and tightening liquidity are threatening both developers and investors. If left unchecked, the association cautioned, the crisis could undermine Hong Kong’s status as an international financial hub.
“It’s a vicious cycle. Banks are now forced to sell the assets on the cheap,” said Charles Lam, the chamber’s permanent honorary president. “We fear this will have a domino effect on the market and collapse the finance and real estate industries.”
The rare public intervention by the chamber highlights the severity of the downturn. Hong Kong banks, heavily exposed to the commercial property sector, are bracing for a surge in bad debts as valuations of offices and retail properties tumble.
Proposed Stabilization Fund
The chamber’s proposal envisions a HK$20 billion vehicle seeded by public and semi-public entities such as the Hong Kong Monetary Authority (HKMA) and the Hong Kong Mortgage Corporation, which could contribute 25% of the initial capital. Institutional investors would provide another 25%, with the remaining half raised from retail investors.
The fund could eventually list on the Hong Kong stock exchange, modeled after the Tracker Fund of Hong Kong that was created during the Asian Financial Crisis of 1998 to stabilize markets.
The association’s membership includes major developers and property investors such as Hongkong Land Holdings Ltd., Link Asset Management Ltd., and Sino Land Co., according to its website.
Market Pressures Intensify
Commercial property values in the city have plunged sharply from their 2018 peaks, with office prices down 48% and retail space 41% lower, government figures show. That drop has eroded collateral values underpinning bank loans, forcing lenders to seize assets. Schroders Plc, for instance, had two properties managed by its real estate arm taken over by creditors in recent months, Bloomberg News reported earlier.
Non-performing loans in Hong Kong rose to $25 billion as of March, a 20-year high, according to Fitch Ratings, citing HKMA data. They now represent 2% of total loans and are projected to climb to 2.3% by year-end — the steepest increase in Asia Pacific. Fitch expects loan quality to deteriorate further through 2026.
Calls for action are growing across the sector. Lawmaker Louis Loong, representing the real estate industry, has suggested converting more commercial land into residential or mixed-use developments to ease oversupply and revive the market.
The HKMA declined to comment, while the Mortgage Corporation and the government did not respond to Bloomberg’s requests for comment.
