The US commercial real estate sector has been under pressure as interest rates have risen over the past two years.
As a result, many property developers are struggling to refinance their debts, forcing some banks to boost their reserves for loan losses. The adverse-stress scenarios include a severe downturn in the US economy and strains in the banking system triggered by the commercial real estate crisis, among other factors.
Hong Kong accounts for $18 billion or 20 per cent, down from $19 billion in the third quarter. About $13 billion is in mixed-use projects, and the remaining $5 billion is split equally between retail and office, Mr Gupta said. The most obvious distress stems from Singapore-listed Reits with exposure to US commercial real estate, such as Manulife US Reit, whose portfolio was hit by low occupancy and sliding asset valuations. It recently announced the resignation of its senior management, effective on June 30, even as it completed its recapitalisation plan.
But what was deemed a safe-haven investment before the pandemic has now soured as companies transitioned to hybrid working arrangements, resulting in a sharp decline in the need for large office spaces and a fall in demand for commercial real estate in the US.