As real estate valuations in Hong Kong continue to slide and banks retreat from the sector, private credit managers are filling the gap – eyeing opportunities to deploy capital across one of the world’s most expensive property markets, according to a report by Reuters.
Hong Kong-based firms such as Gaw Capital Partners and Blue Mountain Bridge Capital are actively preparing new private credit vehicles focused on the Asia-Pacific region, including Hong Kong. Despite macroeconomic volatility and lingering uncertainty from US-China trade tensions, appetite for opportunistic lending remains strong.
With traditional financing channels tightening, developers are increasingly turning to alternative lenders to meet refinancing needs and bridge liquidity gaps. Market participants note that while Hong Kong has largely avoided the systemic property crisis plaguing mainland China, sentiment around developer solvency is deteriorating amid a confluence of weak demand, falling prices, and elevated rates.
Private credit, now a $2tn global asset class, is proving a critical source of funding for distressed and underbanked real estate borrowers. Investors are drawn by the potential for double-digit yields – and in some cases, upside in the event of default through collateral recovery, depending on market conditions.
Blue Mountain Bridge Capital is currently raising its debut private credit fund targeting $250m, with $150m expected to close by year-end 2025, according to CIO Raymond Chan.
In January, the firm extended a $33.4m senior loan secured against a newly converted office building, offering a 15% annual coupon at a 63% loan-to-value ratio. It also exited a $64.1m refinancing loan in December with a 15% internal rate of return – above the 11.9% average net IRR reported by global private credit and direct lending funds between 2018 and 2023, per S&P Global.
Meanwhile, Gaw Capital Partners, which manages $34.4bn in assets, is launching a new $2bn fund to invest across private credit and private equity deals in Tier 1 and Tier 2 cities in Asia-Pacific, including Hong Kong.
Alternative investment manager Sun Hung Kai & Co has also expanded into private credit, co-investing in a $100m residential mortgage portfolio last November and preparing to close a second tranche shortly.
The renewed interest in private credit comes as high-profile developers such as New World Development grapple with liquidity issues, raising the spectre of broader contagion in the property sector. According to Moody’s, a combination of plunging sales, surging vacancies, and elevated interest rates has eroded landlords’ debt servicing capacity, prompting banks to tighten credit and scale back refinancing.
Total real estate development and investment loans in Hong Kong have declined 12.6% year-on-year as of end-2024, according to the Hong Kong Monetary Authority.
Commercial properties have borne the brunt of the downturn, with vacancy rates nearing 20% and prices down 40% from 2019 peaks. Distressed sales in 2024 were recorded at discounts of up to 60%, per CBRE data, which also projects a $720m funding gap across the office, industrial, and retail sectors between 2025 and 2027.
Beyond institutional managers, family offices and high-net-worth individuals are entering the space, drawn by returns exceeding those of traditional real estate investments, said Jasmine Chiu, partner at law firm JSM.
However, competition is compressing yields, with private credit interest rates falling from the mid-to-high teens in 2023 to high single or low double digits in 2024. Some managers are proceeding cautiously amid valuation mismatches and structural risk.
