The leading index of secondary property prices in Central China (CCL) has been falling for 5 consecutive weeks, indicating challenges for developers selling new properties. Despite reflecting only secondary property prices, the continued decline puts pressure on developers to offload their inventory. Recent reports suggest that the rental rate at Phase II of the Chang Jiang Center is only 10%, with a quarter of the floor space vacant over the past year. With a weak retail market and missed opportunities for property sales and leasing, the future of the real estate market in Hong Kong remains uncertain.
The CCL, a key indicator of secondary property prices in Hong Kong, has dropped for 5 weeks in a row, reaching 143.78 points, well below the level of 114.19 points when government control measures were lifted. Bloomberg reports that the rental rate at Chang’s Phase II stands at only 10%, with only a small portion of its 41 floors leased out. A report by Savills showed that Hong Kong’s overall vacancy rate hit a record high of 16.7% in the first quarter of this year, leading to a 1.2% quarterly drop in rents for the 20th consecutive quarter. Additionally, Hong Kong’s retail sales for April dropped by 14.7% compared to the same period last year. The major developers in Hong Kong specialized in residential, office, and retail sectors are now facing significant challenges.
Financial data from the major property developers show that the debt-to-equity ratios of two companies are trending upwards. As of the end of 2023, New World Development’s debt-to-equity ratio rose to 49.9%, a 2.2 percentage point increase from the previous year, making it the highest among the four major property developers. Sun Hung Kai Properties also saw a 3-percentage point increase to 21.2%. The lowest debt-to-equity ratio belongs to Cheung Kong Group, at only 3%. Henderson Land Development’s debt-to-equity ratio in the past fiscal year dropped by 1.4 percentage points to 22.6%.
New World and Sun Hung Kai are facing heavy debt burdens. New World Development, facing debts of HK$61.98 billion coming due within a year from the end of 2023, with cash and bank deposits (including restricted deposits) totaling HK$38.98 billion, even with available bank loans of around HK$13 billion, there might not be sufficient funds to repay the debts. The Executive Vice Chairman and CEO, Adrian Cheng, stated plans to accelerate property sales and capital retrieval following the withdrawal of control policies. In March this year, New World sold the entire stake of the Park Island Shopping Mall to the Chinachem Group for HK$4.02 billion, emphasizing plans to continue selling non-core assets and businesses.
As for Sun Hung Kai Properties, with HK$20.29 billion in debts coming due within a year, and cash and bank deposits totaling HK$7.93 billion, the peak debt period will be in two to five years, reaching HK$75.033 billion, highlighting significant cash shortfalls.
The real estate market is rapidly reacting to the withdrawal of property control policies by the Hong Kong government, with expectations of limited policy support in the near future. Property asset prices are heavily influenced by interest rates, and the prolonged rate cut uncertainty by the U…
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