Hong Kong’s Overleveraged Commercial Real Estate Tycoons Unravel, Prices Plunge, Creditors Begin to Take Over

Another 34% markdown. The haste with which creditors want to execute the sale adds to the gloom.

By Nick Corbishley, for WOLF STREET:

On Monday, the cash-strapped Hong Kong-based billionaire Pan Sutong suffered the ultimate ignominy. The jewel of his real estate empire, the 28-storey Financial Global Centre, which houses his real estate development firm, Goldin Financial Holdings, was put on the market by his creditors, who, seeking repayment of $495 million of debt, took claim of it in July. The sale, under tender, has been entrusted to Knight Frank, which estimates that it should fetch somewhere in the region of HK$12 billion. That would represent a 34% markdown on the HK$18.3 billion at which Goldin had valued the property in December 2019.

The haste with which the creditors want to execute the sale adds to the gloom pervading Hong Kong’s commercial real estate sector.

Just over a month ago, another liquidity-challenged Hong Kong property baron, Chan Ping-chi, was forced to accept a 35% discount for his stake of the 42nd floor of the Center office. Chan was part of a consortium of property-flipping local entrepreneurs who sought to capitalize on Hong Kong’s ever-rising property prices. To that end, they bought 75% of the 70-storey building off Hong Kong’s richest man, Li Ka-Shing, in 2018 for the sum of $5.2 billion, making it the world’s most expensive skyscraper.

“There’s a saying in Hong Kong property circles that if the city’s richest man, Li Ka-Shing, is selling, you don’t want to be the buyer,” the Japan Times points out.

To begin with, the consortium’s short-term property flipping was hugely lucrative. In the first year, they offloaded more than eight floors and a dozen office suites for about $1.3 billion, generating hundreds of millions of dollars in profit. But this year, Chan’s heavily discounted sale is the only transaction thus far recorded, according to property-data provider Real Capital Analytics. Almost one-fifth of the building stands empty and rents are down around 20% from a year ago.

Both Chan and Pan took on huge volumes of fresh debt to fuel their respective property binges. In the case of Chan and his cohorts, they reportedly financed their purchase of the Center with bonds paying interest rates of over 15%. But last year, prices stopped rising, and then began falling, as a confluence of factors pummeled the city’s economy.

Beijing imposed capital controls on money flowing out of China, depriving the Hong Kong property market of much of its life blood. Trade tensions between the U.S and China began escalating, leaving Hong Kong slap bang in the middle. And the city was rocked by student protests, which recently met the immovable force of the Chinese Communist Party. And now, there’s the virus crisis.

The Hong Kong economy is now in the throes of its deepest ever recession on record. Office rents are slumping, vacancy rates are rising and the value of some of the world’s most expensive commercial real estate is plunging.

Values of class-A office buildings in the city fell last year by 7%, the first fall since 2008, according to Jones Lang LaSalle Inc. With Covid-19 thrown into the mixer this year, they could fall an additional 20%, the commercial real estate services company warned. With office vacancies at a 15-year high of 6% in Central, Hong Kong’s priciest office district, after rising for 13-straight months, rents are also heading down. In August alone, rates for offices fell by 2.5% compared to the previous month.

Today is not the best time to be a Hong Kong property tycoon, especially if your property empire was quickly assembled at the dizzying zenith of the city’s multi-decade boom and paid for with bucket loads of debt you can no longer service without selling off, at discount prices, many of your most valuable assets. Few are quite as leveraged as Sutong.

“Coronavirus has nothing to do with it. He is overleveraged,” a person familiar with the situation told The Financial Times. “My assessment is he is over-geared in a huge way.”

By December 31, 2019 Goldin Financial Holdings had HK$18.5 billion ($2.3 billion) in total liabilities, of which HK$11.9 billion ($1.5 billion) was due within a year, according to an interim report released in March. To service that debt, the company had total cash on hand of just HK$2.4 billion.

To try to keep at bay its main creditors — Industrial and Commercial Bank of China, Industrial Bank, Shanghai Commercial Bank and HSBC — Goldin has been offloading assets as quickly as it can. In April, Pan even remortgaged his own home in Hong Kong’s Deep Water Bay area. In July, Goldin sold an undeveloped parcel of land on the one-time runway of Hong Kong’s former Kai Tak airport for $450 million, 21% less than it had paid for it just two years earlier.

Last month, the sale of Goldin’s factoring division raised an additional $260 million. Pan even requested a bailout from Li Ka-shing. Even though the bailout is supposed to have gone through, it hasn’t stopped creditors from beginning the process of liquidating his most valuable assets.

On Friday, Goldin announced that it expects to post a loss of HK$6.1 billion ($790 million) for the financial year ending June 2020. In response, Goldin’s shares fell to HK$1.01 (US$0.13) before being suspended. The shares have lost more than two-thirds of their value in the last year and are down 97% from around HK$15 five years ago. By Nick Corbishley, for WOLF STREET.

UK office workers are again told to work from home, retailers don’t pay rents, and UK commercial property owners sink deeper into the mire. Read… Commercial Real-Estate Fallout Even Douses the Queen of England

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  31 comments for “Hong Kong’s Overleveraged Commercial Real Estate Tycoons Unravel, Prices Plunge, Creditors Begin to Take Over


    Kyle Bass predicted this HK real estate meltdown about 2 years ago. Most people thought he was crazy, but my guess is Kyle is coining some money these days with a short bet on HK real estate.

    • MonkeyBusiness says:

      Not sure how that guy still remains in business. First he predicted the Yen will go to hell, then he predicted the Yuan will crash. I am not sure he even understands they are two different currencies.

      The man got lucky with his subprime bet just like John Paulson. After that he’s been shooting blanks. From Wikipedia “His Japanese and European strategies have not been major successes and the Chinese yuan short led to severe losses for his fund in 2017”

      Also the man making the most money is obviously Li Ka Shing since he sold at the top. Li was also an early investor in Facebook so he’s sitting pretty on that and many other things.

    • Richard says:

      It was amusing for me to watch Kyle talked crap about Yuan back then, then got slammed by reality when trying to short Yuan. What a joker.

    • Akam says:

      Doubt it. Bass is all talk. He also shorted the HK dollar years ago and if he kept that position would have recorded huge losses. Just a mouth-piece for the Trump admin.

  2. Dan says:

    Chinese and specially the one from Hong Kong turn anything they touch into gambling; in the process, they distort any meaningful economical benefits or price discovery. Look at how they have turned real estate in Canada and Australia to total gambling. In the process, they also destroy the lives of the native people of these countries. So, I hope the situation in Hong Kong and China get even worse so that they can’t go around the world and start betting wars on houses which are a place for families to live and not a gambling asset.

    • MarMar says:

      This is ridiculously essentialist. Every country has its share of native speculators in real estate and everything else.

    • Tony says:

      I can tell you from personal experience that mainland Chinese are much bigger gamblers than Hong Kong, or anywhere else.

      • Gerrard White says:


        Do you know the story about Kerry Packer, the Aus mogul?

        He was gambling one time in Vegas, so it goes, when he got into a quarrel with a Texan, how much are you worth Kerry asked, $300million the Texan replied – toss a coin for it?

    • mr wake up says:


      In NYC I have followed residential sales in Queens which I dont really follow often, but being that we have very low volume in commercial real estate I got bored. I noticed that very large percentage of 1-2 family homes have mostly been purchased by mainland China names and even that volume is down but overall prices stable.

      In addition when you dive deeper the buyers are usually 2-3 people. On one deed. All 3 have different last names plus these properties are getting gut renovation inside. Not always in and out but always inside.

      Prices range from $650k – $1,200,000 with 20-30% down payments and another 150-250k in renovation costs.

      • Endre says:

        It’s traditional in mainland China for the females to not change their name after marriage.

    • Patrick Lewis says:

      your my kind of guy
      anything i have done over the 40+ years of working for my self has always been based on trust and being honest, and if i want say a holiday home in a nice village and i find out that a family need that house i will walk away from the deal sometimes i have the deposit for them, where as these guys just up the value and when they get burned it will only be there backers that get hurt they will have minimum stake. agreed nice to see them hurt.

    • Happy1 says:

      Chinese invest in overseas property because they don’t trust their dictatorship and those who have lived for a while remember the government confiscating all property in 1949. They come by their distrust of government by way of hard learning and will buy good and overseas property to hedge. The reason this is notable is mostly because there are more than a billion of them. Wealthy people in South America have similar effects on Miami real estate, but there aren’t as many of them.

    • A says:

      It’s not actually gambling. In China a man-in-black can show up at your door, confiscate everything you own, and disappear you.

      So if you become wealthy in china, you’re willing to pay any price to buy something expensive that isn’t in china.

      After all, a 20% loss on your vancouver home is a lot better than a 100% loss on your assets in china.

  3. Skara says:


    We need a 34% markdown on the S&P. How are you feeling about your short these days? Still holding…?

    • MonkeyBusiness says:

      Shopify back at 1000 plus tells everything.

      Until that breaks, the market will not break.

    • David Hall says:

      In 2016 Chinese billionaire Wang Jianlin was warning China’s real estate market is in a bubble. He sold his real estate holdings.

      • MonkeyBusiness says:

        Mainland China and Hong Kong are very different beasts.

        Real estate is still hot in China depending on tier. Remember, the population would rather put money in real estate than in anything else. Not saying they don’t have a bubble over there, in fact, the government has started to put up restriction again on real estate.

    • Wolf Richter says:

      Still holding. September was good for my short, after a terrible July and August. Now down in the mid-single-digits.

  4. TownNorth says:

    Thanks for this article. I think the tide was turning in commercial property before Covid hit, in many places. Now Covid will sort the winners and losers.

    This quote sure stands out: “Coronavirus has nothing to do with it. He is overleveraged.” Debt sure makes things riskier doesn’t it?

  5. Seneca’s Cliff says:

    Hong Kong is to the rest of the world commercial real estate market what Miami was to the condo market back in 2007. The most overvalued, the most leveraged and the most troubled. But just like 2007-2008 these fire sales and haircuts will coming to middle America in short order. Hold on to your hat, this ride is just getting started.

    • Zantetsu says:

      If I had a nickel for every time I read “this is just getting started” here. It feels like the deluge will never come. I think there are so many forces working to prevent it that it will somehow be averted. There may be horrific consequences for the real world standard of living for many people, and an incredible increase in the wealth disparity in the USA, but … I think there will be no deluge. Just a slow churning.

      • MonkeyBusiness says:

        I agree. Hunger Games will not start this generation.

      • Paulo says:

        I am going to agree with you Zan. I have been expecting a big big correction for years, meanwhile interest rates for mortgages are 1.5% here. My son just did a refi on his main home which will save him 27K after paying the penalty for closing out early, plus lowers his monthly payment that allows renter to fully cover mortgage payment and insurance. Taxes are minimal. He has also turned around an bought another place with a suite. He doesn’t seem to be afraid of the debt. He’s 36 so I just keep my mouth shut on this one. I have no clue as to what will happen? I thought I knew, but now? No clue.

    • Petunia says:

      I follow some HK fashion bloggers, they are no longer buyers of high end brands, they are selling their high end pieces. Looks like a cash crunch is in effect.

      Since in the last few years, the major buyers of high end luxury brands were Asians, this is another bad sign for the luxury retailers.

  6. nick kelly says:

    I think this movie is coming to a theater near you. And me.

    • Petunia says:

      The movie started while you were buying the popcorn.

    • Frederick says:

      Don’t you just hate that Nick? Speaking of popcorn just finished watching Wolf on Lynette Zangs show

      • nick kelly says:

        I thought it was funny /witty

        No doubt the storm is gathering here, but it’s hit there. But ya we are into the opening scenes.

  7. Sound of the Suburbs says:

    Wall Street and the City were at the heart of the 2008 financial crisis.
    Anywhere that large numbers of financial types gather is a risk.
    Hong Kong is an accident waiting to happen.

    How many of the banker’s debt products can an economy take?
    Let’s find out.

    At 25.30 mins you can see the super imposed private debt-to-GDP ratios.
    Economies fill up with the banker’s debt products until you get a financial crisis.
    1929 – US
    1991 – Japan
    2008 – US, UK and Euro-zone
    The PBoC saw the Chinese Minsky Moment coming and you can too by looking at the chart above.

    Hong Kong looks a lot like China, but unlike China they don’t even know they’ve got a problem.
    Hong Kong’s private debt-to-GDP ratio is firmly in the danger zone.

  8. Sound of the Suburbs says:

    Understanding what’s really going on always helps.
    How did Japan kill growth for thirty years with a real estate boom and bust?

    The real estate illusion.
    Japan boomed on real estate lending in the 1980s.
    They spent the next thirty years paying down the debt they had run up in the 1980s.

    What is really going on in the real estate boom and bust?
    When you use bank credit to inflate asset prices, the debt rises faster than GDP.

    The bank credit of real estate lending is bringing future spending power into today.
    You spend the money today and pay it back in the future.
    It is like borrowing your own money from the future, and the interest is the charge you pay for this service.
    Bank loans create money and the repayment of debt to banks destroys money.

    Policymakers thought banks were financial intermediaries and so didn’t realise how we were impoverishing the future by running the economy on debt.
    They couldn’t see what had gone wrong in Japan and put it down to demographics, which seemed plausible, but wrong.

    In the real estate boom, new money pours into the economy from real estate lending, fuelling a boom in the real economy, which feeds back into the real estate boom.
    The Japanese real estate boom of the 1980s was so excessive the people even commented on the “excess money”, and everyone enjoyed spending that excess money in the economy.
    The money creation of bank loans causes the economy to boom, but this is only a secondary effect so debt rises faster than GDP.
    There is lots of new money going into the economy, but the inflation is only seen in asset prices, not consumer prices, so the central bankers and economists don’t see the problems developing.

    In the real estate bust, debt repayments to banks destroy money and push the economy towards debt deflation (a shrinking money supply).
    Japan has been like this for thirty years as they pay back the debts from their 1980s excesses, it’s called a balance sheet recession.

    Using future spending power to inflate asset prices today is a mistake that comes from thinking inflating asset prices creates real wealth.
    The transfer of existing assets, like real estate, does not add to GDP.
    GDP measures real wealth creation in the economy.

    Real estate is just one type of financial asset, the same thing applies elsewhere.

  9. Yerfej says:

    Globalism allows for the export of various countries avoidance of honesty to the west. Of course this creates a façade of growth in the west while allowing everyone to pretend all is well. If you support this then you’re complicit in the corruption.

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