HKMA: HK Commercial Real Estate Still Facing Challenges

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00:00We were just talking to Shodos about the dinner that you guys had last night.

00:03There's just such a resurgence that we're feeling here in Hong Kong now.

00:07Does it feel different to you this year?

00:09Yeah, if you remember, this is already the fourth investment summit.

00:14If you remember, our first summit was held four years ago.

00:17It was meant to be just a one-off COVID exit event.

00:21But we didn't realize that it's now turned into an annual tradition

00:25with more than 100 global CEOs coming to join us year after year.

00:31And we're glad about that.

00:32Last night was really fun.

00:35We put up a welcome dinner at the Palace Museum with organized technology.

00:41We've got a little robot boxer pulling punches and cakes and all that.

00:46But at the feature presentation, we presented the hiking trails of Hong Kong.

00:52We invited the director and the runners in the Four Trails documentary to come over.

00:58And we also showed an edited two-minute documentary to the audience.

01:03We really want them to see the other beautiful side of Hong Kong.

01:07But overall, last night, it was not just about the dinner, the feature presentation,

01:13but it was the vibe and the energy that you can feel when people are just going around,

01:17talking to each other and chatting,

01:18talking about all the opportunities that's available in Hong Kong,

01:23talking about the changing world.

01:24There seems to be a hiking theme, right, with the theme,

01:27trekking through shifting terrain.

01:28Shifting terrain, right.

01:29You can tell from our theme.

01:32Because when you think about how we navigate through this changing world,

01:37it's a bit like hiking,

01:38where you really have to demand your attention on what you're stepping on,

01:44evolving, changing all the time when you walk different terrains.

01:47So there's a bit of similarity there.

01:50But the main thing is we want to promote Hong Kong's hiking trails.

01:53It's really an attraction.

01:55Well, I mean, to the point you were making,

01:56our earlier guest also just mentioned Four Trails.

01:59And this is the fourth edition, of course, right?

02:01Oh, that's true.

02:01Of the fourth edition.

02:02And I can't think, so we were at the last few ones as well.

02:06I can't think of anything.

02:09The conditions now are so much better.

02:10Equity markets are doing well.

02:12The economy grew 3%.

02:14IPO markets are back.

02:15The IPO markets are back.

02:16COVID is obviously something that we can put to history books, hopefully.

02:22And we're coming off this historic meeting between U.S. President Trump

02:26and Chinese President Xi Jinping.

02:28Right.

02:28Is there a risk still that you're thinking about?

02:32Or is it really more opportunity now at this point in time?

02:34Well, if you're confronting different changes in the macro environment,

02:39in the markets,

02:40of course there will be risks here and there.

02:42But I think the important point for all of us is really just to address the risk,

02:47manage the risk.

02:48But at the same time, we are seeing loads of different opportunities.

02:51You talk about how our capital markets are really getting very vibrant.

02:56But it's not just the equities market.

02:58It's also the bond markets.

02:59If you look at the issuance of dim sum bond, one-time bond, green bonds,

03:03it's broken all the records.

03:04So I thought the market sentiment here is really vibrant.

03:10Plus, the new opportunities regarding the various connect schemes,

03:15whether it's global investors using Hong Kong as a platform to get into Chinese assets

03:19because of diversification,

03:21or Chinese capital coming out to reach the world's global assets through Hong Kong,

03:27also because of diversification.

03:28We are seeing a lot of opportunities like that,

03:31not to mention Hong Kong being the largest offshore R&B center.

03:37We are putting out a FinTech 2030 strategy with lots of initiatives on technology.

03:45So I think there are loads of things that people can explore in Hong Kong.

03:49There's a lot to explore.

03:50There's also still some troubles in the real estate market, for sure,

03:55when we're talking about commercial real estate in particular.

03:57What do you think is sort of the state of play here right now?

04:00Do you think the worst is over?

04:02Well, if you look at the residential property market, it's already stabilized.

04:06If you look at the first nine months of this year,

04:09the residential property market, the index has gone up very slightly by 1%.

04:13But that means stabilization.

04:15So we're not worried at all.

04:17For the commercial real estate, again, it's continuing to confront some challenges.

04:23But the important point for us is that the banking sector,

04:26in terms of the risk, is totally manageable.

04:28One is that there's no concentration.

04:30It's spread across different banks.

04:33And it's also mainly some medium or small-sized developers.

04:37The large ones are okay.

04:39And also, if you look at the provisions that they've already made, it's very high.

04:44But after making those provisions, their capital remains very high at 21%.

04:48Their probability remains very high.

04:52If you look at the first half of this year, profits of banks in Hong Kong went up by something

04:57like an average of 15%.

04:58So I think the risks are manageable.

05:00But it's something that we need to continue to monitor.

05:02Right.

05:02And just to close the loop on that one, are banks capitalized enough?

05:06Do you see a need for more capital raising, given the amount of debt there?

05:12The average capital adequacy ratio of banks in Hong Kong is more than 21%,

05:16against the international standard of just 8%.

05:19So to me, it's really already a very strong buffer that can allow them to go through any

05:25shocks or any challenges in any sector.

05:29You mentioned about fintech.

05:30Obviously, stablecoins has been the big thing for Hong Kong this year.

05:32We're also hearing when it comes to how Chinese authorities are looking at it.

05:36And reportedly, a source is telling us that maybe that they are actually telling Chinese

05:40companies to stay off stablecoin.

05:42Have you heard of anything like this?

05:44Well, let me just get to the stablecoin innovation.

05:48If you think about stablecoin, it's actually just one of the various blockchain-driven innovations.

05:54Of course, there's crypto, which is highly speculative.

05:57There's stablecoins.

05:57And the other side of the spectrum that we place even more emphasis as an enabler is actually

06:04tokenized assets.

06:05And we can get into more of that.

06:07For the stablecoin and crypto, in fact, our focus is on regulation.

06:12And that's why for stablecoins, which is a means of payment, we pull up a legislation

06:16which has become effective in August.

06:18And we are inviting applications from different entities who are interested.

06:22And whether it's Chinese or overseas or local, we welcome them all.

06:28And so far, we've got around 37 applications.

06:32And we are now doing an assessment.

06:35We expect that the first licenses probably will come out in the beginning of next year.

06:41But again, what we are telling...

06:43How many are you looking to give out?

06:44I'm curious, out of the 37.

06:45What we're telling everybody is that we want to go cautious in the beginning.

06:50So we will be handing out no more than a handful of licenses, maybe just two or three.

06:56But we'll see how the assessment goes.

06:58We want to just go try it out first.

07:02And our regulations may evolve as we start to see it operating.

07:07And then we can invite more to come.

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