New Initiative in Hong Kong: Fund to Support the Real Estate Market

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The Hong Kong branch of the China Real Estate Chamber of Commerce (hereinafter referred to as the Chamber) has proposed creating a HK$20 billion fund (about $2.6 billion) to support distressed assets, reports Bloomberg. A sharp drop in office and retail property values has triggered an increase in bad loans and threatens the city’s position as an international financial center.

Rare public statements from the industry association have highlighted the depth of the crisis in Hong Kong’s commercial property market. Banks are facing rising defaults, forced asset sales, and a shrinking appetite to finance new projects. The Chamber warns that without government intervention, the situation could evolve into a systemic crisis and deal a blow to Hong Kong’s financial stability.

According to Fitch Ratings, the volume of nonperforming loans in Hong Kong reached $25 billion by March 2025 — a two-decade high — equivalent to 2% of the total portfolio. By the end of the year, the figure could rise to 2.3%, marking the sharpest jump in the Asia-Pacific region. At the same time, official statistics record a 48% drop in office property values and a 41% fall in retail space compared with 2018 peaks, which has sharply reduced collateral values and intensified pressure on borrowers.



Charles Lam, the Chamber’s Honorary President, described the situation as a “vicious circle.” According to him, banks are being forced to sell assets at a discount, which makes them even less willing to extend new loans. This deprives investors of liquidity and reduces the number of new projects, potentially worsening the crisis further. “We fear a domino effect that could bring down both finance and real estate,” Lam said.

The Chamber believes the fund could help break this cycle. A quarter of its capital could come from state or semi-state entities, including the Hong Kong Monetary Authority (HKMA) and the Mortgage Corporation, another 25% from institutional investors, and the remaining 50% from retail participants. Eventually, the fund could be listed on the stock exchange. The initiative is being compared to the Tracker Fund, established in 1998 after the Asian financial crisis to stabilize the equity market.

The seriousness of the proposal is underscored by the Chamber’s membership, which includes leading players such as Hongkong Land Holdings Ltd., Link Asset Management Ltd., and Sino Land Co. Their involvement, according to the initiators, shows that urgent measures are needed. The issue of market support is also being debated at the legislative level. Lawmaker Louis Loong has proposed converting part of the commercial land into residential or mixed-use projects to reduce the oversupply of office and retail spaces — a step he believes could revive the market and ease pressure on developers.



Regulators have so far refrained from commenting. The Hong Kong Monetary Authority declined to discuss the idea of the fund, while the government and the Mortgage Corporation did not respond to Bloomberg’s requests. Meanwhile, signs of crisis are mounting: in September, it became known that banks had seized two real-estate assets managed by a Schroders unit, confirming rising bad debt levels and pressure on fund managers.

These cases are not isolated. The difficulties also manifest themselves in the situation with New World Development, one of Hong Kong’s largest developers. The company has been struggling for years with declining revenue and growing debt: in H1 2025 it projected losses of up to HK$6.8 billion. To maintain liquidity, New World carried out the region’s largest debt refinancing in summer 2025, worth $11.2 billion, and in autumn secured a loan of up to HK$5.9 billion from Deutsche Bank against its flagship project Victoria Dockside. Despite these measures, the company has had to postpone payments on some perpetual bonds, fueling investor concerns about the resilience of even leading developers.

According to the Financial Times, the region’s biggest lender HSBC has
acknowledged that 73% of its Hong Kong commercial property loan portfolio has already been classified as high-risk or impaired. To cover potential losses, the bank has raised provisions by over $1 billion, underlining the depth of the sector’s problems.



Other support measures are also being discussed. In particular, there have emerged speculations about creating a “bad bank” in Hong Kong that could buy up distressed assets. However, the HKMA has publicly rejected this possibility, saying that such a step is not being considered.

Some forecasts point to further risk escalation. According to Reuters, in 2026 the volume of bonds issued by Hong Kong developers and due for repayment will increase by almost 70% — from $4.2 billion to $7.1 billion. This burden, amid a continuing market downturn, poses the threat of new defaults and greater pressure on the banking system.