A default involving any Hong Kong developer could trigger shock waves throughout the sector, according to a note by S&P Global Ratings released Thursday.

That could mean "Hong Kong's residential property recovery may be slipping out of view," S&P said.

Any distress event could also affect the financial strength of S&P's rated entities and increase risks for bondholders, the debt watcher said.

Should a default take place, the sales volume of primary units in 2025 could halve the 20,000 unit forecast to 10,000 units and clip home prices by 5% to 7%.

Developer margins would see a squeeze and increase debt leverage, S&P said.