Private Credit Firms Step into Hong Kong's Property Market Void
May 9, 2025, 10:12 pm
Location: China, Hong Kong Island, Hong Kong
Employees: 501-1000
Founded date: 1993
Hong Kong's property market is a tempest. Valuations are plummeting. Banks are retreating. In this storm, private credit firms are stepping up, ready to fill the gaps left by traditional lenders.
As the dust settles from the recent economic upheavals, private credit is emerging as a beacon of hope for developers struggling to keep their heads above water. With banks tightening their purse strings, these specialized lenders are poised to capitalize on a unique opportunity.
The landscape is shifting. Gaw Capital Partners and Blue Mountain Bridge Capital are among the firms launching new funds aimed at the Asia Pacific region, including Hong Kong. Their goal? To invest in large commercial properties and developers at a time when the market is rife with uncertainty.
The need for private credit is palpable. Developers are feeling the squeeze. Demand is waning, and prices are on a downward spiral. Access to private credit could provide a lifeline, albeit a temporary one.
Despite the challenges, private credit has become a $2 trillion industry globally. Investors are drawn to the allure of higher yields. They see potential profits even in default scenarios, provided they can sell collateral at favorable prices.
Blue Mountain Bridge is making waves. The firm is in the market to raise $250 million for its first fund, aiming to secure $150 million by the end of 2025. The firm’s chief investment officer believes this is the perfect time to invest in private credit in Hong Kong.
Recent transactions highlight the potential rewards. In January, Blue Mountain closed a $33.4 million senior loan secured by a newly converted office property, offering a hefty annual coupon of 15%. Last December, the firm exited a $64.1 million senior loan with an impressive internal rate of return of 15%. These figures outshine the average net IRR of 11.9% recorded by private credit funds from 2018 to 2023.
Gaw Capital is also making its move. With $34.4 billion in assets under management, the firm is launching a new fund targeting $2 billion. This fund will invest in both private credit and private equity deals across tier-1 and tier-2 cities in the Asia Pacific.
The competition is heating up. Sun Hung Kai & Co has launched a new business, co-investing in a $100 million residential mortgage portfolio. They are seeing interest from both distressed developers and those with solid fundamentals.
However, the backdrop is concerning. Major developers like New World Development are facing liquidity issues. The property market is grappling with sliding sales, high vacancies, and rising interest rates. Banks are pulling back on financing, leaving developers in a precarious position.
The numbers tell a stark story. Total loans for property development and investment have been declining since 2022, down 12.6% year-on-year by the end of 2024. Refinancing is becoming increasingly difficult.
Commercial properties are bearing the brunt of the downturn. Vacancy rates are nearing 20%, a consequence of oversupply and a bleak economic outlook. Prices have dropped by 40% since their peak in 2019. Distressed properties are changing hands at prices 60% lower than their previous highs.
CBRE estimates a funding gap of $720 million in Hong Kong's property market between 2025 and 2027. This gap is driven by shifts in capital values and rental adjustments.
Family offices and wealthy individuals are also entering the private credit fray, attracted by the promise of higher yields compared to direct real estate investments. However, the influx of competition is driving interest rates down, creating a challenging environment for lenders.
Yet, caution is the name of the game. Market participants are wary of valuation gaps and the risks involved. Investors are advised to structure deals carefully, seeking lower loan-to-values and tighter covenants.
The landscape is fraught with uncertainty. Some lenders may be tempted to accept looser covenants or lower-quality collateral to deploy capital. This could expose them to significant risks, especially if the property market faces further corrections.
In this evolving scenario, private credit firms are not just filling a void; they are reshaping the future of Hong Kong's property market. As traditional banks step aside, these firms are stepping in, ready to navigate the choppy waters ahead.
The next few years will be crucial. Will private credit firms thrive in this new environment, or will they find themselves caught in the same storm that has battered traditional lenders? Only time will tell. But for now, they are the new players in a game that is far from over.
In conclusion, the rise of private credit in Hong Kong's property market is a double-edged sword. It offers a lifeline to developers in distress but also poses risks that could reverberate throughout the sector. As the market continues to evolve, the role of private credit will be pivotal in shaping the future of real estate in this vibrant city.
As the dust settles from the recent economic upheavals, private credit is emerging as a beacon of hope for developers struggling to keep their heads above water. With banks tightening their purse strings, these specialized lenders are poised to capitalize on a unique opportunity.
The landscape is shifting. Gaw Capital Partners and Blue Mountain Bridge Capital are among the firms launching new funds aimed at the Asia Pacific region, including Hong Kong. Their goal? To invest in large commercial properties and developers at a time when the market is rife with uncertainty.
The need for private credit is palpable. Developers are feeling the squeeze. Demand is waning, and prices are on a downward spiral. Access to private credit could provide a lifeline, albeit a temporary one.
Despite the challenges, private credit has become a $2 trillion industry globally. Investors are drawn to the allure of higher yields. They see potential profits even in default scenarios, provided they can sell collateral at favorable prices.
Blue Mountain Bridge is making waves. The firm is in the market to raise $250 million for its first fund, aiming to secure $150 million by the end of 2025. The firm’s chief investment officer believes this is the perfect time to invest in private credit in Hong Kong.
Recent transactions highlight the potential rewards. In January, Blue Mountain closed a $33.4 million senior loan secured by a newly converted office property, offering a hefty annual coupon of 15%. Last December, the firm exited a $64.1 million senior loan with an impressive internal rate of return of 15%. These figures outshine the average net IRR of 11.9% recorded by private credit funds from 2018 to 2023.
Gaw Capital is also making its move. With $34.4 billion in assets under management, the firm is launching a new fund targeting $2 billion. This fund will invest in both private credit and private equity deals across tier-1 and tier-2 cities in the Asia Pacific.
The competition is heating up. Sun Hung Kai & Co has launched a new business, co-investing in a $100 million residential mortgage portfolio. They are seeing interest from both distressed developers and those with solid fundamentals.
However, the backdrop is concerning. Major developers like New World Development are facing liquidity issues. The property market is grappling with sliding sales, high vacancies, and rising interest rates. Banks are pulling back on financing, leaving developers in a precarious position.
The numbers tell a stark story. Total loans for property development and investment have been declining since 2022, down 12.6% year-on-year by the end of 2024. Refinancing is becoming increasingly difficult.
Commercial properties are bearing the brunt of the downturn. Vacancy rates are nearing 20%, a consequence of oversupply and a bleak economic outlook. Prices have dropped by 40% since their peak in 2019. Distressed properties are changing hands at prices 60% lower than their previous highs.
CBRE estimates a funding gap of $720 million in Hong Kong's property market between 2025 and 2027. This gap is driven by shifts in capital values and rental adjustments.
Family offices and wealthy individuals are also entering the private credit fray, attracted by the promise of higher yields compared to direct real estate investments. However, the influx of competition is driving interest rates down, creating a challenging environment for lenders.
Yet, caution is the name of the game. Market participants are wary of valuation gaps and the risks involved. Investors are advised to structure deals carefully, seeking lower loan-to-values and tighter covenants.
The landscape is fraught with uncertainty. Some lenders may be tempted to accept looser covenants or lower-quality collateral to deploy capital. This could expose them to significant risks, especially if the property market faces further corrections.
In this evolving scenario, private credit firms are not just filling a void; they are reshaping the future of Hong Kong's property market. As traditional banks step aside, these firms are stepping in, ready to navigate the choppy waters ahead.
The next few years will be crucial. Will private credit firms thrive in this new environment, or will they find themselves caught in the same storm that has battered traditional lenders? Only time will tell. But for now, they are the new players in a game that is far from over.
In conclusion, the rise of private credit in Hong Kong's property market is a double-edged sword. It offers a lifeline to developers in distress but also poses risks that could reverberate throughout the sector. As the market continues to evolve, the role of private credit will be pivotal in shaping the future of real estate in this vibrant city.