One in every of Hong Kong’s largest property builders stated it anticipated to publish its first annual loss in twenty years because of the territory’s actual property downturn, sending its shares decrease by 13 per cent on Monday.
New World Growth, one of many territory’s largest property teams managed by the Cheng household and run by third-generation scion Adrian Cheng, stated it anticipated to publish a lack of as much as HK$20bn (US$2.6bn) for the complete yr resulted in June.
In a submitting to the Hong Kong inventory change after the market shut on Friday, the corporate stated it anticipated to guide a revaluation cost of between HK$8.5bn and HK$9.5bn for its funding and improvement initiatives, marking its first annual loss since 2004.
UBS analysts stated New World’s HK$20bn loss can 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 below strain from a years-long hunch within the territory’s property market as greater US charges and China’s financial slowdown weigh on the town’s industrial 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 initiatives, purchasing malls and workplace buildings, generated about 60 per cent of its income from property improvement and funding initiatives from the territory final yr, with the remainder from mainland China.
Prime workplace lease in Hong Kong has fallen about 15 per cent for the reason that US Federal Reserve started elevating charges in 2022, in response to industrial property adviser Cushman & Wakefield. Dwelling costs in Hong Kong have fallen greater than 20 per cent over the identical interval, official information confirmed.
Gary Ng, a senior economist at Natixis, stated he anticipated builders to come back below extra strain. “If costs and rents proceed to fall, extra write-offs should be on the playing cards,” he stated.
Regardless of the potential of decrease US charges, the market will not be able to soak up new provide, particularly in long-term property together with industrial properties, Ng stated.
New World stated the writedown was a “proactive transfer” which “doesn’t have an effect on our money stream and liquidity”.
It added: “This may higher place us for the upcoming rate of interest lower cycle the place the general property market is predicted to rebound.”
Different main Hong Kong builders are additionally exhibiting indicators of strain because of the property hunch.
Henderson Land Growth, 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 growing funding properties.
Sino Land stated 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. Dangle Lung Properties, which makes greater than half of its income from property leasing in mainland China, stated 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 Dangle Lung’s flagship Plaza 66 mall in Shanghai have dropped considerably, with the group saying that “lower-tier clients had been extra cautious on luxurious spending”.
“There was rising strain,” stated a senior govt at one of many main Hong Kong-based builders. “China’s financial enlargement is slowing. The long run will not be brilliant, and persons are spending much less. The scenario is worrying throughout totally different industries.”
