Transcription
We are looking back at the banking sector. As of the end of June this year, their interim results showed that the real estate industry has been continuously under credit pressure, and the non-performing loan ratio has risen to 6%. Compared to the same period last year, this is a significant increase. Although HSBC, or perhaps Hang Seng, is expected to increase provisions, and some reports even suggest that Hang Seng should actively sell off assets, in reality, frankly speaking, selling off these debts today, whether it's Hang Seng or any other bank, is not simple. They will face a situation where they need to invest a lot, and they will also lose money. Otherwise, who would buy them? I believe HSBC, whether it's Hang Seng or any other bank, is tense about this situation because their assets are absolutely in crisis.
Everyone, welcome to this financial property market update. Looking back, some local banks have recently announced their results, and it is indeed evident that the non-performing loan ratio is showing an upward trend, causing market concern. The pressure on banks is increasing. How will this affect the property market trend? On the other hand, we are also seeing news spreading quickly that large developers are actively acquiring commercial units. This will also help the property market trend to improve. In this episode, we have invited a financial analyst to analyze this for us. Welcome.
Okay, let's start with the banking sector's situation. Some news has emerged indicating that HSBC is rarely requesting banks to resolve some real estate issues. Let's talk in detail about Hang Seng's situation in handling non-performing loans. However, this piece of news will cause market concern about the pressure on banks. In your analysis, how significant will this be for the public property market, especially for commercial and office spaces?
Well, in fact, over the past year and a half, the public property market has also been continuously falling. Are banks feeling the pressure? Whether it's the debtors or the banks, the pressure is becoming increasingly intense. As of today, I see that they are actively recovering. Of course, when some people default, for example, in general loans, there are two things. When property prices fall, the bank will first ask you to top up the price. This is the first step. If you also have no money to top up, the bank can proceed. If you cannot do that, then they will proceed to the third step, which is to potentially repossess the asset. Under today's circumstances, they are still trying to recover. Of course, topping up the difference is a form of recovery. Many people do not have the ability to do so. However, over the past year and a half, we have seen banks actively urging some people to repay. Some people, upon hearing this news, try their best to do so. We also see in the market that some people are trying hard, while others cannot do anything because, in reality, for banks today, the remaining balance of their loans might be higher than the price they can find from buyers in the market. In simpler terms, they cannot repay the debt, and they cannot estimate it. So, the bank will ask you to repay. If you cannot repay, the bank has to think about it. I believe HSBC, whether it's Hang Seng or any other bank, is tense about this final situation because their assets are absolutely in crisis.
I think, you know, we are seeing a large number of recovery procedures that have not yet materialized. Frankly speaking, banks, as I've said before, adopt an attitude. Even if you do absolutely nothing, they won't act immediately. Banks will try their best to use a delaying tactic and a tolerant attitude to handle this matter. As of today, I see that although banks are calling and checking in almost every day, asking about your well-being, they have not yet proceeded to immediate recovery. That is, to immediately take back your property, or to call it bank repossession. We have not yet seen large-scale actions. We have not seen them yet. Does this mean the market is very stable? Absolutely not. There are many situations of the second and third categories. The first category is no difference. The first category is topping up the difference. Almost all of them cannot do it. I consider this to be the best quality. In fact, I don't care about this anymore because most people cannot do it. What is the second category? The second category is, "I hope you repay first." The second and third categories. What is the third category? Doing nothing. So, both the second and third categories cannot be done. The second and third categories are quite numerous. However, banks have not yet seen a very large number of cases to pursue this. Although there are reports saying that Hang Seng is increasing its recovery efforts, and some reports even suggest that Hang Seng should actively sell off assets, in reality, frankly speaking, selling off these debts today, whether it's Hang Seng or any other bank, is not simple. They will face a situation where they need to invest a lot, and they will also lose money. Otherwise, who would buy your debt? Your debt is not particularly good, and they won't repay it. So, no matter how much you collect, it's meaningless. Therefore, any buyer must value the asset. They must value the item, or you sell it to me cheaply, and then I can resell it. I can cover my costs and make a small profit. It mainly depends on the asset. For now, we have not seen much of these two things in the market. First, frankly speaking, banks selling off such debts, we have not heard of any successful examples so far. The main active recovery efforts are not yet very visible. We also have not seen much. What we see is that banks are constantly verifying with you, constantly chatting, constantly checking on you daily, asking if you have a fever. But if you talk about large-scale actions by banks, they have not done much yet.
We are looking back at the banking sector. As of the end of June this year, their interim results showed that the real estate industry has been continuously under credit pressure, and the non-performing loan ratio has risen to 6%. Compared to the same period last year, this is a significant increase. Previously, some representatives from Hang Seng also said that it cannot be compared in such a way. In fact, they want to reassure everyone, but now, some banks do have such a trend of rising non-performing loans. Even if it's a slight drop, perhaps buyers are not constantly being checked on. But the situation is like this, and it's not a solution. Do you think the situation will worsen? In fact, it's not ideal because the commercial property sector is very extensive, and banks have a considerable amount of debt in this area. However, when banks discover that some recovery efforts, that is, these debts, may have problems in recovery, they are very conservative in their new lending. The entire commercial property market is such that even if someone wants to buy a property, that is, a property whose price has fallen, and it's very cheap, and they really want to buy it, they still cannot borrow money. This is because banks are very cautious. Either they don't lend, or they charge you a very high interest rate. It's obvious that they don't want you to borrow. What is a high interest rate? It's not the 3% or 4% that we borrow. We are talking about 7% or 8%. Frankly speaking, even if property prices fall significantly today, commercial property cannot yield 7% interest. Because if commercial property needs to yield 7%, banks would lose almost half. This is because, remember, banks also borrow half. If that's the case, if you need to go up to 7%, banks will have almost nothing left. So, it cannot be done.
Therefore, this matter leads to a broken cycle. I have said in other situations that I think the government and the monetary authority should look for ways to work with banks to see how they can be reassured to release capital, that is, to release money. This is because they suspect they cannot collect the money, or they suspect that their debt, that is, their accounts, may have problems, leading them to not want to lend new debts. What banks are currently focusing on is something they are very willing to do, which is registration. In fact, registration is not a big problem. You can find the bottom line because banks are very willing. However, the people who buy these properties have a very low default rate. They almost never default. But buying properties is not like that. The risk is considerable. Now, banks feel that for this type of thing, they are not confident in the first instance, and in the second instance, they may not receive the money back, so they are even less confident. Therefore, this is a vicious cycle. I really hope that, for example, I believe the government and the monetary authority will consider whether a platform can be established. It's not that the government will bear the losses if commercial investments fail. It's not like that. It's not that we are suggesting the government should guarantee banks. That's not the meaning. In fact, the government needs to work with investment banks to organize a platform. If this platform is set up by the government, I believe many international investors, including sovereign funds, will be very interested in researching it with you. Because, today, when I buy this asset from the bank, it's already half its value. It's half of the bank's loan from that day. If you think it's not worth it, then lower it. As I said before, someone needs to be willing to pay. If everyone admits defeat, I think banks will feel very relieved to transfer these assets elsewhere. That is, to resolve this matter from their books. Then they can lend capital again.
I actually want to respond to one thing. The government always says that the banking system is very sound and there are no problems. In fact, I want to say that no one doubts that the banking system has problems. In fact, no matter how bad the property market is, for banks in Hong Kong, their ratio, compared to the whole world...
The most stable ones, no matter what happens to them, the bank is not a big problem. I have never worried. Some people say, which bank might collapse? There's no such thing. Actually, I think the chance of a bank having problems is not high. It's good, the chance is not high. Instead, I am not worried about this now. It's because they feel their numbers are not adding up, and they are unwilling to lend money. This is what causes the entire commercial real estate to be in a spiral, a downward spiral. Because you, if no one takes it, no matter how cheap it is, no one will take it. In that case, you must find someone who is not borrowing money to buy it. Remember, if I want to sell something, I might need to find someone who is not borrowing money to buy it, or someone with strong financial power. Although currently only end-users are in the market, it's best to borrow from those end-users. This means they are not borrowing money, or they themselves are very powerful banks, or some government agencies, or some very good companies. If these kinds of buyers are the only ones in the market, then your market will be good. Then you need to change your item to suit these people. We can then say, in fact, these people know their market power. Honestly, if they hold this amount of cash, what they usually need are the best and cheapest things. So, overall, these things are not good news for commercial real estate.
Subscribe to YouTube exclusive offers, just scan this QR code to get a one-month online version in April. Not even half a day. Some professional industries, they buy in large quantities. Some commercial units have some news. We are talking about Alibaba, because the market is currently around 7 billion to buy the 13th floor of Island One Centre. If this transaction is finalized, it will break the record of the Hong Kong Stock Exchange buying an office unit for 6.3 billion in April 2025. Of course, the market is currently holding on. In fact, relevant parties have also said that this news is not yet fully confirmed. But the real observation is that if there are some large online companies, or even other enterprises, because many industry insiders have noticed this trend, that different enterprises are starting to buy some commercial properties in Hong Kong. They might open branches, or even headquarters. Do you think this trend will be good for the trend of these units? Actually, as I said earlier, these are all end-users or government agencies buying. But their purchases, or some large state-owned enterprises or banks, these purchases have a characteristic: they only buy the highest quality, almost triple-A properties. You can pay attention to it. A trading venue, or buying Island One. These are all the highest quality properties. For example, what is considered high quality in terms of specifications? It means their supporting facilities and their facilities are the highest. For example, tall buildings, wide floors, and their environmental protection standards are also the highest. These are what will be welcomed, or the location is like a trading venue, completely irreplaceable.
Well, this is a big deal. If it turns out that these buyers only like these kinds of things, then the current situation is very clear. Pay a little attention, or look further, or completely no one is looking, only these things are being looked at. The trend is like this now, meaning only the best things are being bought. Slightly worse, or further away, or with worse specifications, no one wants them anymore. This doesn't have a big impact on commercial real estate. Because you must remember, if we are talking about the trading venue, our transaction volume, if calculated by building area, using building area, because when the market calculates that number, there are actually many different perspectives. Of course, the landlord's rentable area in Hong Kong is almost the ground area, meaning it is a very usable area. If calculated that way, it's 40,000 yuan. But if we convert it to building area, it's about 30,000 yuan per square meter. You can see that if the trading venue is also calculated at 30,000 yuan per square meter, then the value of those who bought Island One Centre that day will fall. Because it's hard to compare with the trading venue. If you say this, if it's bought at 266,000, or 20,000 yuan, then it can also be said that other areas have experienced great joy. Because people will compare these things. So, it means that currently only the highest quality things can attract this type of buyer. And I can confirm that, we are now seeing many state-owned enterprises, or some large online companies, or large national banks, are taking advantage of the current low prices to see if there are any opportunities to buy some of the highest quality properties. In the past, you must remember, these highest quality properties were all in the hands of the strong. Who are the strong? Those few major landlords, the most prime properties in Central that can be swept away. Over the years, they have all been held by major landlords. They rarely sell. Everyone hopes that these state-owned enterprises, or these online companies, will take advantage of this time to see if they can buy some of the highest quality properties from these strong hands. We have seen this situation. The government, for example, the exchange and the SFC that we have recently seen, have also made purchases in the past one or two years. Everyone sees that this time, although property prices have fallen a lot, and many high-quality things can suddenly be bought. This means it is a good time to buy. But this does not mean, because if we remember, commercial real estate is a broad category. If we look out at the street, even if we look at Causeway Bay or Tsim Sha Tsui, the commercial buildings. We are not just talking about the trading venue, or Island One, it's not like that. Our entire commercial real estate is very broad and large. If you say, if our commercial real estate only buys those few well-known high-quality ones, then it's a big deal. It's not very optimistic yet. Looking back at this year's policy address, the government has not yet made any measures or policies regarding public properties or related properties to address these issues. So, do you expect that in the coming second half of the year, or even the fourth quarter, the trend of public new properties will continue to be adjusted by the market, and the government's role will not be able to do anything? I think for now, the government's role cannot interfere with the market. It's actually difficult for real estate, mainly because rents are falling. The extent of rent decline is so large that when rents fall, you know, in the past few years, from zero interest rates to now, we need to know that when commercial real estate was borrowed in the past, it was not the multiple that we registered. Many were borrowed at 1.5 times or even 2 times. If you say 3 times, it's almost there. If you say 200 basis points, which is 2%, it's even higher. Now we are talking about these. Remember, if they are giving this interest rate today, but their rents are also falling, and at the same time they have fallen by three or four times, then it means that they cannot even cover the rent. This problem has already started. So, this situation, for now, will not improve until rents rise. When will rents rise? We know that Hong Kong's economy has not yet fully recovered. And mainland enterprises opening companies in Hong Kong have decreased a lot compared to the prosperous times. In the prosperous times, many mainland companies came to Hong Kong. Now, it's not that there are no big ones, but they are concentrated among large state-owned enterprises, meaning only large companies. So, overall, it has decreased a lot. If you ask me, I predict that in the next 12 months, I don't see any major changes in real estate. What can the government do? Actually, I think what the government can do is, as I said earlier, to try to talk to the banks, to sit down and discuss with the banks, what methods can be used to get out of this predicament. You don't want to create debt, but if you don't, you have problems. You see, the first numbers are not adding up, and property values are falling day by day. I don't dare to borrow, and I don't dare to lend more money. So what? Actually, it's worth researching how to get their funds out, how to protect them, even if they might lose, but at least they have a place to transfer their assets with peace of mind. I hope the government will look at it from this perspective.
Subscribe to offers, just scan this QR code to get a one-month online version for 30 yuan. Not even half a day. [Music]