Hong Kong's office market is engulfed in an unprecedented "asset impairment storm." Recently, the market has been shocked by a series of incidents. Firstly, the 299 QRC office building in Sheung Wan changed hands for HK$610 million, a 70% drop from its peak purchasing price of HK$2.1 billion in2018. Then, the Grade A office building "Hong Kong NEO" in Kwun Tong was taken over by its mortgaged bank due to insolvency. This property, which sold for HK$9 billion in 2018, is now valued at only HK$3 billion. Behind these chilling figures exposed the collapse of Hong Kong's commercial real estate myth and the incoming write-off crisis faced by the banking system.
This "burnout wave" of office market is spreading from isolated units to the En Bloc office building. For many years, the property investment market has been relying on high leverage, and many Chinese consortia or local investors borrowing beyond credit limit to enter the market. However, under the dual pressures of a persistently high global interest rate environment and a record-high 
vacancy rate in commercial buildings, property valuations have been halved in general. In 2018, the buyer of 299 QRC was granted a loan by the Industrial and Commercial Bank of China (Macau). If the loan amount had approved by HK$1 billion, the bank will suffer a direct loss of HK$390 million from this single transaction. The case of Hong Kong NEO is even more alarming. At a conservative estimate, the syndicated loan reached HK$5 billion, the participating Bank of China and related financial institutions will face losses of HK$2 billion.
The most dangerous signal currently is the shift in banks' attitudes. In the past, the banks tried every means to avoid these unmanageable debts to explode .So banks often adopted an "extend and pretend" strategy for large debtors. Facing with the collateral depreciated by 50% and borrowers' passive repayment attitudes; banks were forced to protect themselves. Industry estimates that 30 to 40% of commercial building landlords in Hong Kong have already become negative equity owners.
When banks no longer tolerate defaults and begin "calling loans" to repossess these mortgaged properties, a wave of defaults have been erupting. This crisis is a structural change. While companies downsize, and the work from home is popular, office property investment is no longer a guaranteed profit taking trick. For tens of thousands of insolvent owners, this is a long and harsh winter. For banks, it is a commercial blunder resulting in heavy losses due to a loophole-ridden lending policy. This brutal script of asset devaluation will plunge many real estate tycoons into an abyss of perdition.
