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Hong Kong’s property market was once seen as a financial outlier in Asia. It was defined by scarce land, strong legal safeguards and disciplined local developers. Even as mainland China’s property groups were engulfed in a chaotic storm of defaults and debt, investor confidence in Hong Kong’s developers held, thanks to the belief that pricing dynamics and balance sheets in the city were fundamentally more resilient.
But that perception is under renewed scrutiny. Property transactions in Hong Kong fell 28 per cent in the first quarter compared with the previous year, while average home prices have declined nearly 30 per cent from their 2021 peak. Mainland capital controls and weak domestic sentiment continue to depress luxury unit sales, historically a key margin driver for the city’s developers.
Sector shares have been under pressure in recent months, especially after New World Development, one of Hong Kong’s largest property groups, deferred interest payments on several of its perpetual notes earlier this month. Fears of a potential default on a US dollar-denominated bond further weighed on markets until holders of the instruments confirmed a last-minute payment this week.
New World is indeed under financial strain. Best known for its landmark assets such as Victoria Dockside, it has become a symbol of the city’s upscale retail and lifestyle ambitions. But with more than HK$210bn in liabilities, it is the most indebted major developer in Hong Kong. New World’s net debt is more than 28 times its ebitda, a borrowings-to-profit ratio that signals significant distress. Its outlook remains clouded by a once-heavy reliance on a mainland buyer base that has since retreated.
It would be wrong, though, to assume that the whole sector bears these troubles equally. New World’s financial pressures are serious, but they are largely the result of company-specific decisions. Its high liabilities result from a strategy of chasing growth and high-profile projects.
In contrast, peers such as CK Asset and Sun Hung Kai Properties maintain healthier financials. The latter’s net debt is just 3.5 times its ebitda, thanks to relatively stable rental income and a conservative capital structure. CK Asset, with net debt below 5 per cent of its total capital, is diversified into infrastructure and more than three-quarters of earnings come from recurring income.
Those differences are now being reflected in the market. Sure, there are reasons to regard Hong Kong’s property sector with concern. But as the sector undergoes a long overdue stress test, it’s the divide between disciplined and overstretched developers that merits most attention.
