Hong Kong’s heavily indebted developers and their creditors are expected to encounter mounting financial strain, with bond maturities projected to rise nearly 70% next year amid declining sales and property values in the city’s critical real estate sector.
Last week, Road King became the first local developer to miss a bond coupon payment since China’s property debt crisis began in 2021, following Emperor International, which recorded its first loan default earlier this year.
Analysts say that limited prospects for a near-term recovery in Hong Kong’s commercial property market, combined with fewer avenues for raising new capital, mean more developers are likely to struggle with debt repayments.
Property and related sectors make up about a quarter of Hong Kong’s GDP, and increasing defaults could not only drag on the city’s economic outlook but also pose risks to lenders, including HSBC, which has significant exposure to developers in the financial hub.
According to LSEG data and Reuters calculations, local property developers’ bond maturities are set to rise to $7.1 billion in 2026 from $4.2 billion this year.
Edward Chan, an analyst at S&P Global Ratings, warned that more small developers could default over the next 12–24 months, as banks reduce their lending exposure to the sector.
“It will be at a point where there is actually no chance for them to repay such loans,” Chan stated.
Developers, primarily holding office and retail properties, face immense pressure as selling these assets to raise cash is increasingly difficult, with valuations having fallen more than 50% from 2019 peaks and no recovery in sight, Chan added.
Additional fire sales could further push down prices, impacting the broader industry, including financially stronger developers, say analysts.
Moreover, most of Hong Kong developers’ debt is tied to bank loans. Reflecting the rise in bad loans within the sector, Hang Seng Bank recorded a substantial HK$2.5 billion charge on Hong Kong commercial real estate in the first half of this year, a 224% increase from the same period last year, Reuters reports.
HSBC, the parent company, revised its internal model, which showed that Hong Kong commercial real estate loans with significant credit risk, but not yet in default, had tripled to $18.1 billion by the end of June this year.
However, HSBC clarified that the surge in loans classified as problematic does not necessarily reflect their actual credit quality, noting that external factors and market conditions can increase such classifications without leading to actual defaults.
In addition, market observers noted that some banks have chosen not to classify certain loans as defaulted or demand immediate repayment from struggling developers, fearing that it could further weaken asset quality and trigger a domino effect across the sector.
Also, some lenders have held off on seizing collateral from defaulted loans, concerned that debt recovery would be difficult and that such actions could further depress a market already hit by plummeting commercial property prices.