Hong Kong property developer warns of first annual loss in 20 years

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Certainly one of Hong Kong’s largest property builders mentioned it anticipated to put up its first annual loss in twenty years as a result of territory’s actual property downturn, sending its shares decrease by 13 per cent on Monday.

New World Development, one of many territory’s largest property teams managed by the Cheng household and run by third-generation scion Adrian Cheng, mentioned it anticipated to put up a lack of as much as HK$20bn (US$2.6bn) for the complete yr led to June.

In a submitting to the Hong Kong inventory alternate after the market shut on Friday, the corporate mentioned it anticipated to guide a revaluation cost of between HK$8.5bn and HK$9.5bn for its funding and improvement tasks, marking its first annual loss since 2004.

UBS analysts mentioned New World’s HK$20bn loss could be “substantial” and that it anticipated the corporate’s debt-to-equity ratio to develop.

Hong Kong tycoons together with the Cheng household have been reeling underneath strain from a years-long stoop within the territory’s property market as greater US charges and China’s financial slowdown weigh on town’s business rents and residential costs.

Banks within the territory — the place the forex is pegged to the US greenback — have raised mortgage charges, additional miserable demand, whereas investments from rich mainland Chinese language have slowed down.

New World, whose property embrace main residential tasks, buying malls and workplace buildings, generated about 60 per cent of its income from property improvement and funding tasks from the territory final yr, with the remainder from mainland China.

Prime workplace hire in Hong Kong has fallen about 15 per cent since the US Federal Reserve began raising rates in 2022, in accordance with business property adviser Cushman & Wakefield. Residence costs in Hong Kong have fallen greater than 20 per cent over the identical interval, official knowledge confirmed.

Gary Ng, a senior economist at Natixis, mentioned he anticipated builders to return underneath extra strain. “If costs and rents proceed to fall, extra write-offs should be on the playing cards,” he mentioned.

Regardless of the opportunity of decrease US charges, the market will not be ready to soak up new provide, particularly in long-term property together with business properties, Ng mentioned.

New World mentioned the writedown was a “proactive transfer” which “doesn’t have an effect on our money circulation and liquidity”.

It added: “This can higher place us for the upcoming rate of interest reduce cycle the place the general property market is anticipated to rebound.”

Different main Hong Kong builders are additionally exhibiting indicators of strain because of the property stoop.

Henderson Land Improvement, managed by the Lee household, in August reported a revaluation lack of HK$2.3bn within the first six months of the yr for its accomplished and creating funding properties.

Sino Land mentioned throughout its annual earnings report final week that its revenue for the yr ending in June dropped 25 per cent in contrast with the identical interval earlier than and recorded a revaluation loss on its funding portfolio of HK$580mn.

China’s weakening consumption and workplace market downturn have additionally hit Hong Kong builders. Grasp Lung Properties, which makes greater than half of its income from property leasing in mainland China, mentioned in July that income from the mainland fell greater than 5 per cent within the first six months of the yr in contrast with the identical interval in 2023.

Tenant gross sales at Grasp Lung’s flagship Plaza 66 mall in Shanghai have dropped considerably, with the group saying that “lower-tier clients have been extra cautious on luxurious spending”.

“There was rising strain,” mentioned a senior govt at one of many main Hong Kong-based builders. “China’s financial growth is slowing. The long run will not be brilliant, and individuals are spending much less. The state of affairs is worrying throughout completely different industries.”