New World Development, a prominent Hong Kong-based company, is anticipating its first financial loss in two decades. This development underscores the challenges facing Hong Kong's property sector and broader economy.
The company, owned by the billionaire Cheng family, expects a loss of up to HK$20bn (£2bn) for the financial year ending June 2024. This significant downturn is attributed to several factors, including losses on investments and developments, rising interest rates, and the depreciation of the Chinese yuan. The core profit is projected to decline by up to 23%.
Founded in 1970, New World Development has diverse investments across residential developments, shopping malls, offices, and hotels. As such, it serves as a barometer for Hong Kong's economic health. The company's shares plummeted to a 21-year low of approximately HK$6.80 following the announcement.
This financial setback reflects broader issues affecting Hong Kong and mainland China. The special administrative region has experienced economic instability since the pandemic, compounded by Beijing's increased control through a controversial security law. This political shift has led to an exodus of Western businesses and a chilling effect on civic society.
Hong Kong's property market, known for being one of the world's most expensive, has been significantly impacted by these factors and the extended slowdown in the mainland Chinese economy. The Chinese government's 2021 restrictions on developer borrowing triggered a crisis in the debt-laden sector, with major developers like Evergrande defaulting on their debts.
"It pains me to admit it, but Hong Kong is now over."
The Hong Kong government predicts a further decline in home prices, with expectations of up to a 10% drop for the remainder of 2024. Official data shows that residential prices have already fallen by 3.1% in the first half of the year.
New World Development is not alone in its struggles. Henderson Land Development, another major Hong Kong developer, reported a HK$2.3bn half-year loss last month. These financial challenges are occurring despite recent efforts by the Chinese government to boost the property sector, including relaxed mortgage rules and a 300bn yuan re-lending facility for affordable housing projects.
The ongoing property slump has led to downgraded economic forecasts. UBS recently reduced its growth projection for China in 2025 from 4.6% to 4%, citing the protracted property market issues as a key factor.
As Hong Kong grapples with these economic headwinds, its status as a global financial hub is being tested. The city, home to about 7.5 million people and known for its impressive skyline of over 150m-tall buildings, faces the challenge of maintaining its position in an increasingly complex geopolitical and economic landscape.