Hong Kong’s real estate market slump is impacting even top developers. One of Hong Kong’s largest real estate developers, New World Development Limited (referred to as New World), recently announced that due to the sluggish property market in Hong Kong, the company expects to incur a whopping loss of HK$20 billion (approximately $2.6 billion USD) for the year up to June. This marks the first loss in twenty years for the company, with its stock price plummeting by 13% on Monday.
According to a report by the Financial Times on Monday (September 2), last Friday, New World submitted documents to the Hong Kong Stock Exchange after trading hours, indicating an anticipated reassessment loss of HK$8.5 billion to HK$9.5 billion for investment and development projects. This marks the first annual loss for New World since 2004.
UBS analysts have described New World’s HK$20 billion loss as “enormous,” and they predict that the company’s debt-to-equity ratio will increase.
New World’s assets include large-scale residential properties, shopping centers, and office buildings, with approximately 60% of its revenue coming from property development and investment projects in Hong Kong last year, while the rest comes from mainland China.
Reports indicate that since 2022, office rents in major Hong Kong buildings have dropped by around 15%. Official data shows that during the same period, Hong Kong property prices have fallen by 20%.
US financial media reported that data reveals significant decreases in office rents for many buildings in Hong Kong, such as the office buildings of the Cheung Kong Group owned by Hong Kong’s richest man Li Ka-shing. The rental price of the “Cheung Kong Center” dropped by over 33% since 2019, and there was a 25% vacancy rate last year. The newly completed phase two of the “Cheung Kong Center” has a rental rate of only around 10%.
Data from prominent real estate service group CBRE Group shows that the vacancy rate of Hong Kong’s commercial office buildings soared to 16.7% in the first quarter of this year, hitting a historical high. This underscores the unprecedented downturn in Hong Kong’s commercial real estate sector, driven by the recession and the exodus of multinational corporations.
Other major real estate developers in Hong Kong have also reported losses. In August, Henderson Land Development revealed that both completed and ongoing properties recorded a reassessment loss of HK$2.3 billion in the first six months of this year.
Sun Hung Kai Properties showed in their annual report last week that profits for the year up to the end of June decreased by 25% compared to the same period last year, with an investment portfolio reassessment loss of HK$580 million.
Former chairman of Hang Lung Properties, Ronnie Chan, stated that the real estate industry in Hong Kong is currently undergoing the largest structural changes in fifty years. Both UBS and Citigroup believe that property prices in Hong Kong will continue to decline this year, with a potential decrease of up to 10%.