Analysis | Hong Kong’s property developers will struggle to service their bulging debts as interest rates soar, analysts warn
- Home builders are likely to have a hard time turning a profit as the interest payments on their debt mountains get bigger
- They are likely to be less aggressive bidding for land, and are coming under pressure to offload assets at lower prices
Raymond Cheng, managing director of CGS-CIMB Securities, has a sense of déja vu.
The same was true in the years just before Cheng became an analyst in 2003.
Home builders’ gearing ratios – a measure of how much of their operations are funded by debt – at that time were particularly high, at 60 to 70 per cent, Cheng said. Many of them had been aggressive in their land acquisitions, their appetite for risk fuelled by the many opportunities in the market in the 1990s.
During the deep correction between 1997 and 2003, when home prices nosedived some 60 per cent, they suddenly found themselves losing money on property sales.
The painful experience of those troubled times was enough to make many of them more financially prudent. Over the next few years, gearing levels fell to about 10 to 20 per cent as the developers reined in their expansion and allocated more of their money to investment properties.
