In the first of a two-part series, Salina Li, Aileen Chuang and Jiaxing Li explore the effects of high interest rates on the city’s tycoons and their trophy real-estate holdings.

The penthouse belongs to tycoon Chen Changwei, chairman of Hengli Investments, who developed residential and commercial projects in China and managed properties in Hong Kong, London and on the mainland.

Adverse conditions in the office market have touched a HK$10.3 billion loan that Gaw and Hengli took out, which was backed by the buildings. Rental income was not sufficient to cover the interest payments, so the two companies had to inject equity into the borrowing entity of the loan to cover the shortfall, people familiar with the matter said. Hengli, however, has not paid its share since late last year, the people said.

This is illustrative of a broader trend. All across Hong Kong – from The Peak to South Island and elsewhere – high-net-worth individuals have found themselves caught in a tight spot between their ritzy, overleveraged properties and a quickly draining pool of liquidity. This is because their businesses are slowing, borrowing costs are high and their financial strains are becoming more severe. Analysts say high interest rates have caused borrowing costs for developers to skyrocket as lenders raised prime rates five times – for a total of 87.5 basis points – to their highest levels since 2007.