2025-11-18

Bloomberg called!

Last week I had the pleasure of trading emails and having a phone call with Apple Ka Ying, and Pearl Liu from Bloomberg about how the HKMA is handling exposure of local lenders to the commercial real estate market.

Our conversation was part of their excellent reporting that culminated in their piece: “Hong Kong Property Concerns Deepen Among Bankers and Regulators”. I’m impressed by the sheer number of interviews their team conducted to get a sense of what banks are doing. While I can’t take credit for any of their hard work, I did enjoy the quote they picked from our conversation: “I don’t see any evidence of impending market collapse in the HKMA’s activities, but regulators are always concerned about the potential for a lot of players trying to exit all at once. Think of the HKMA as air traffic control, they want to make sure everyone doesn’t come in for a landing at the same time.”

While market collapse, a la the Great Financial Crisis or the Asian Financial Crisis, were not the topic of the article, they were the topic of our conversations. This line of questions is what my quote is really responding to. For a crisis that would justify those analogies to occur, I would need to see a rising trend in local commercial real estate prices, and see lots of people making leveraged bets that the prices will continue to rise. This just isn’t happening. The last time Hong Kong Real Estate was hot at all was before the pandemic (circa 2018), and the HKMA has been talking about this decline for at least a decade. So, while some folks are certainly going to loose money, I don’t see any evidence that justifies these analogies (which, to be clear, the final story does not make).

What I see, instead, is a de facto central banker trying to make sure that institutions unwind their positions in a way that destabilizes local markets. This is precisely what their mandate is, and it’s exactly what I expect them to do in a situation like this. “Extend and pretend” is, perhaps, an uncharitable way to characterize this—even though I think it is more or less what the HKMA wants to happen. Given that everyone in the market knows that the banks want these investments off of their books, the HKMA is just riding the clutch a little (if you’ll forgive another metaphor) to keep the reorganization of this market is smooth.

While this is a little more hands-on than I would expect, given my background/training in the US, Hong Kong is a small place and the HKMA has far fewer levers than, say, the US Fed. to achieve their stability mandate. So, again: for me, there’s no reason to expect a crisis, just a slow hopefully orderly reorganization of the commercial real estate market.