(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)
By Chan Ka Sing
HONG KONG, March 22 (Reuters Breakingviews) - Hong Kong's property market looks ripe for a rebound - if the finance hub's last major real-estate slide were any guide, that is. Home prices have slumped 20% over the past two years, helping to drag valuations of Hong Kong’s real estate blue chip companies to the lowest since 2003. Back then, it prompted controlling shareholders-cum-managers like Henderson Land Development's
Lee Shau Kee and New World Development's Henry Cheng to engage in a raft of buyouts and other deals. This time round, though, property magnates are still on the sidelines.
The seven Hong Kong-focused property constituents of the benchmark Hang Seng Index trade at an average of just 35% of net asset value, per LSEG, with one of them, New World, at a lowly 13%. Shares in CK Asset Holdings fell more than a tenth in early Friday trading after the $15 billion developer's core businesses reported a 10% earnings decline for 2023.
All are now cheaper than two decades ago, when six years of deflation after the Asian financial crisis, then the deadly SARS outbreak, wiped 65% off Hong Kong home prices.
At the time nearly all real estate majors took the chance to either take businesses private or restructure undervalued assets in their listed firms. Both Henderson Land's separately listed property investment unit, as well as Kerry Properties , became buyout targets for their controlling shareholders. New World shunted a set of undervalued assets into a new unit in a revamp to cut debt.
There were good reasons to be bullish: China’s economy was on an upward trajectory after becoming a member of the World Trade Organization. Hong Kong’s property market, meanwhile, was poised for a strong rebound as Beijing started to lift visa controls on its own citizens.
Now, though, property tycoons are staring at more structural challenges, such as Hong Kong consumers’ growing preference to go to Shenzhen for their shopping and leisure needs. Chinese tourists' tastes are changing, too: many of them are now spending more time snapping photos of Hong Kong's cultural heritage than buying luxury goods in large malls. Revenue for Times Square, the crown-jewel retail asset of Wharf REIC, fell another 3% last year - and its stock plummeted more than 40% - despite Hong Kong’s border reopening in early 2023 after the pandemic.
Hong Kong's government is trying to inflate the market again. Last month it removed a bunch of homebuying restrictions such as special stamp duties that had been in place for more than 10 years. Lower interest rates in the U.S. and an improving economy in China would also help.
In 2003 property tycoons were a bellwether for the city's resurgence. Twenty-one years later, by waiting rather than acting, they and their rivals are sending another strong signal: the market has further to fall.
CONTEXT NEWS
CK Asset Holdings, one of Hong Kong's biggest homebuilders, reported on March 21 an 11.6% drop in its 2023 net profit to HK$17.3 billion ($2.2 billion) as revenue from property sales fell by 49% last year to HK$13.2 billion.
Home prices in Hong Kong have fallen an average of 20% from a peak in 2021, according to the Hong Kong government. The slump has pushed the share price of property companies such as New World Development to the lowest since 2003. The sector is now trading at a 65% discount to net asset value, per LSEG. S&P Global said on March 6 it still expects home prices to fall by 5% to 10% this year.
<^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^ Graphic: Hong Kong developers' price-to-book value
^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
(Editing by Antony Currie and Katrina Hamlin)
((For previous columns by the author, Reuters customers can click on KaSing.Chan@thomsonreuters.com; Reuters Messaging: KaSing.Chan.thomsonreuters.com@reuters.net))
Comments