Private lenders step in as Hong Kong banks cut real estate loan growth

Knight Frank expects Hong Kong to remain a distressed-refinancing rather than growth-lending market.

Private credit lenders are stepping in as Hong Kong banks pull back from real estate, with property development and investment loans down 12.6% YoY by end-2024, Knight Frank reported.

In its report, the firm said the market has shifted from stalemate to price discovery, with home prices about 30% below their 2021 peak and office vacancy still elevated—conditions that have tightened banks’ appetite for new property risk.

HSBC is cited as saying domestic lenders are prioritising risk reduction and portfolio clean-up, extending credit mainly to the most secure projects.

As refinancing becomes harder, borrowers are turning to higher-cost private credit; deals are being written at current market values and, in some cases, short-tenor senior loans carry double-digit coupons.

Knight Frank noted managers, including Blue Mountain Bridge Capital and Gaw Capital, have raised dedicated pools targeting Hong Kong, achieving high-teens gross yields.

HSBC loan-book data reproduced in the report show Hong Kong commercial property exposures migrating into higher-risk “Stage 2” and “Stage 3” buckets between mid-2024 and mid-2025.

With Grade-A offices still oversupplied, residential and strata commercial assets—where sales velocity supports paydowns—are flagged as the most liquid near-term opportunities.

Personal guarantees remain common in Hong Kong lending, though banks are generally reluctant to enforce them, the report adds.

Over the next 12–24 months, Knight Frank expects Hong Kong to remain a distressed-refinancing rather than growth-lending market, favouring lenders that keep lower LTVs, tighter covenants, and underwrite today’s cash flows.