If there is any doubt that Hong Kong property is slipping into a down cycle, one needs only to look at the evaporation of capital available to the city's big real estate developers.
Once reliably cheap credit is now scarce, forcing real estate consortia to borrow at costs not seen for more than a decade.
Tom Quarmby, senior bank analyst at Barclays Capital, says Hong Kong property developers had enjoyed some of the cheapest corporate credit in the world, but no longer. He says tighter liquidity in the city's banking sector and the withdrawal of European banks - which have Euro560 billion (HK$5.86 trillion) in exposure to Asia - from the Hong Kong loan market are causing a significant contraction in money available for lending to Hong Kong companies.
The extent of this credit crunch was apparent when Sun Hung Kai Properties, the world's most profitable residential developer, and Henderson Land Development attempted last month to refinance a US$2.2 billion IFC-backed joint-venture syndicated loan that was signed in 2007. Banks put up only 29 per cent of the loan the companies were seeking.
A resounding failure by any criteria, the deal's fate provides evidence of the challenges facing property companies. Not surprising perhaps when you consider that Hong Kong's home prices fell 1 per cent in the first week of November, their fifth straight weekly decline.
It was a startling setback for two borrowers with pristine credit records and immaculate balance sheets. As a result of this 'normalisation of credit costs' (as one banker phrased it euphemistically), the two firms are seeking alternative financing.
Banks 'have limited capacity to refinance all the maturing syndicated loans [of the property developers]', Quarmby says.