Hong Kong-funded real estate developers are also starting to lose money丨2024 interim report observation
2024-08-20
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The performance of Hong Kong-funded real estate developers is collectively declining.China Real Estate News reporter Xu Qian丨Beijing reportThe once prosperous Hong Kong-funded real estate giant can no longer withstand market pressure and has started to lose money.Recently, many Hong Kong-funded real estate companies disclosed their semi-annual results for 2024, and their profits all showed a decline or loss. As one of the largest real estate developers in Hong Kong, Cheung Kong Group's revenue and profit both declined in the first half of the year, with revenue of HK$22.008 billion, a year-on-year decrease of 10.55%; profit attributable to shareholders was HK$8.603 billion, a year-on-year decrease of 16.7%.Another major Hong Kong-owned real estate giant, Henderson Land Development, suffered a loss of HK$69 million in the first half of 2024, a further increase from the HK$18 million loss in the first half of last year. Hong Kong Land's net profit attributable to the parent company in the first half of the year was -US$830 million, and its losses also widened.Hang Lung Properties, the "big brother" of Hong Kong-funded commercial real estate, saw its operating income increase by 16.7% year-on-year to HK$6.1 billion in the first half of the year, but its net profit plummeted by 56% to HK$1.06 billion. Swire Properties, the "leading" rental company, was no exception, with its profit attributable to shareholders of HK$1.796 billion in the first half of the year, down 19% year-on-year.The two listed platforms under Wharf Holdings, Wharf Group and Wharf Property, suffered losses of HK$2.673 billion and HK$1.052 billion respectively in the first half of 2024, a reversal of the profits of HK$696 million and HK$1.805 billion in the same period last year.The adjustment pressure of the mainland real estate market has spread to Hong Kong-funded real estate developers. Should they reduce investment in the mainland or wait for an opportunity to buy at the bottom? Different choices have emerged among Hong Kong-funded real estate developers. Unlike Li Ka-shing's investment strategy of selling off and withdrawing from the mainland, Hong Kong-funded real estate developers such as Swire Properties and Hang Lung Properties have stated that they are still optimistic about the mainland market in the long term and will continue to increase investment in the mainland.━━━━
Performance collectively declinedThe performance of Hong Kong-funded real estate developers is collectively declining.The interim results of Cheung Kong Group in 2024 show that the confirmed property sales revenue in the first half of the year was HK$4.635 billion, a sharp drop of 48% year-on-year, but it still earned a net profit of HK$8.603 billion. This is due to the fact that Cheung Kong Group has repeatedly discounted the sale of buildings. In the first half of the year, it has successively discounted the Hong Kong Flood Bridge project, Tuen Mun Feiyang project, and Guangdong Dongguan Haiyi Mansion project. Among them, the average price of the Dongguan Haiyi Mansion project has dropped from a high of more than 30,000 yuan/square meter to 14,000 yuan/square meter, a drop of more than 50%."As the group has acquired fewer land plots in the past period of time, we are not surprised by the decline in property sales in the first half of the year. This is a very good result given the challenges of the volatile global business environment, geopolitical conditions and high interest rate environment," said Li Ka-shing, chairman and managing director of Cheung Kong Group, at the results meeting.Some Hong Kong-funded real estate developers have made large impairment provisions. Hong Kong Land's losses in the first half of the year widened to US$830 million, mainly due to a one-time provision of US$295 million for mainland development properties. It is worth noting that in the past two years, Hong Kong Land has changed its previous slow pace and has significantly accelerated its layout in the mainland, especially in Chongqing and Shanghai.As sales revenue declined, rental income, which accounts for the bulk of Hong Kong-funded real estate companies' operating income, also shrank. For example, Hang Lung Properties' office building portfolio on Hong Kong Island saw revenue drop by about 14%; Wharf Properties' Harbour City and Times Square office buildings saw revenue drop by 2% and 8% respectively. Financial reports from several Hong Kong-funded real estate companies show that due to oversupply and insufficient demand, the Hong Kong office market is quite sluggish, and rental income has declined.In the operating income map of Hang Lung Properties, property sales revenue was HK$1.228 billion, and property leasing revenue fell 7% to HK$4.886 billion. In the property leasing sector, mainland business revenue fell 6% to HK$3.338 billion, and Hong Kong business revenue fell 8% to HK$1.548 billion. Mainland business is undoubtedly the core of Hang Lung Properties. Hang Lung Properties' high-end shopping malls in the mainland are mainly distributed in cities such as Shanghai, Shenyang, Wuxi, and Wuhan.Hang Lung Properties said that the first half of 2024 will be particularly challenging for Hong Kong. On the one hand, the retail market is impacted by changes in consumption and tourism patterns; on the other hand, the office market is also experiencing a downward trend in rents due to an imbalance between supply and demand."Although some office buildings and shopping malls in Hong Kong are currently increasing their occupancy rates at low prices, the vacancy rate is still high," said a person from a Hong Kong-funded enterprise.Against the backdrop of the real estate industry's downward trend, the value of investment properties has also shrunk significantly."Recovery stagnation, dragging down property valuations" is the mid-year summary given by Wharf Properties to itself in 2024. After accounting for the revaluation impairment of investment properties, Wharf Properties' shareholders' attributable profit loss was HK$1.052 billion; if this factor is excluded, the company's overall revenue and profit are basically the same as the same period last year. Wharf Properties believes that the substantial decline in the fair value of investment properties is the main reason for the company's performance turning from profit to loss in the first half of the year.As a "younger brother" of Hong Kong-funded commercial developers, Shui On Land's net profit attributable to shareholders in the first half of the year was no more than 100 million yuan, compared with 618 million yuan in the same period last year. Shui On Land believes that the main reason for the decline in net profit is the decline in residential completions during the reporting period, which led to a decrease in property sales revenue and profit recognition. Although the company's goal is to complete and deliver Phase III of Wuhan Tiandi Yunting to buyers in the second half of this year, it is expected that the overall level of residential completions in 2024 will be lower than the same period in 2023.The rare turnaround is Sun Hung Kai Properties, whose shareholders' shareholding comprehensive profit in the first half of 2024 will not exceed HK$80 million, compared with a loss of HK$288 million in the first half of last year. However, this profit is mainly due to a reduction in net losses on financial instruments, not from improvements in operations.Liu Shui, director of corporate research at China Index Academy, analyzed that the decline in performance of some Hong Kong-funded real estate companies was mainly affected by the adjustment of the mainland real estate market. For example, 70% of the business income of Wharf Holdings and Hang Lung Properties comes from the mainland, and half of New World Property's sales come from the mainland. He predicts that the performance challenges of Hong Kong-funded real estate companies may continue for some time, and the greater the proportion of mainland business income, the greater the impact.━━━━
Contraction or waiting for an opportunity to buy at the bottom?Compared with the mainland real estate companies that have been shrinking their balance sheets for more than two years, the impact on Hong Kong-funded developers in the mainland has just begun. As a result, some Hong Kong "old money" may start to slow down their investment in the mainland.Wharf Holdings has stopped acquiring land in the mainland in the past few years. Its chairman, Wu Tianhai, said at the interim results conference that he did not see any suitable investment opportunities. Earlier this year, the core management of Sun Hung Kai Properties visited Shanghai to inspect the project and decided to slow down the development of Xujiahui Center.Wharf Properties said in its financial report that the mainland is facing challenges such as high leverage and high inventory in the real estate industry, as well as weakening consumer sentiment and rising savings rates; in Hong Kong, the strengthening of the Hong Kong dollar and tight financial conditions also hinder economic recovery. The group will continue to manage its finances prudently, seize opportunities in economic adversity, and improve business performance.Hang Lung Properties hopes to reduce its debt level to 30% or below in a few years through various measures. The management of Hang Lung Properties believes that it is necessary to be cautious in business operations now and it is not a good time to expand.Hongkong Land revealed that it is conducting a comprehensive strategic review of its overall business strategy and commercial properties, which is expected to be completed by the end of 2024. Some analysts said that this move shows that Hongkong Land is re-evaluating its development strategy and does not rule out the possibility of slowing down.Shui On Land has made it clear that considering the continued weakness of the mainland real estate market and the imbalance in the offshore loan market, the company remains cautious about its recent business prospects, as overall liquidity in the real estate industry may remain tight. The company will continue to manage its finances prudently and adopt the best strategy to maintain long-term growth.Although Li Ka-shing has withdrawn from the mainland real estate market, he still holds on to real estate in Hong Kong and other places. Li Zeju said at the interim performance meeting of Cheung Kong Group that the Hong Kong market often changes very quickly, and historical experience shows that people who bet on Hong Kong's long-term poor performance are usually disappointed, so Cheung Kong Group is still interested in bidding for new projects in Hong Kong.As domestic real estate developers are facing financial pressure, some established Hong Kong-funded real estate developers are actively seizing the opportunity to increase their investment in the mainland market. In the first half of the year, Wharf Holdings, Swire Properties, New World Development, Kerry Properties, and K. Wah International Holdings continued to acquire land for expansion in first-tier cities in the mainland. From the perspective of market performance, the luxury housing market in cities such as Shanghai and Beijing has developed an independent trend, and the profit margin is still considerable.Hang Lung Properties revealed that it will reorganize its growth momentum in the face of macro challenges. Its multi-city layout strategy is playing a beneficial role. Once market confidence recovers, it will not be difficult to achieve ideal results.Swire Properties previously announced a HK$100 billion investment plan. By the first quarter of this year, it had invested more than HK$37 billion in the mainland, with investment areas concentrated in first-tier cities such as Beijing, Shanghai, and Guangzhou. At the same time, it is still testing the waters in regional potential cities such as Xi'an and Sanya. Swire Properties said it will continue to look for project development opportunities in first-tier and emerging first-tier cities and double the total floor area in the mainland by 2032.Judging the situation and looking for opportunities in crisis, the attitude of Hong Kong's "old money" represents a certain confidence to a certain extent. Their stability is very important to the mainland's real estate market and economic stability.Editorial Board Member on Duty: Li Hongmei
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