New World Development, "the most indebted" company in 20 years, suffers its first loss! Hong Kong real estate companies across the board are struggling

The continuous adjustment in the property market is still affecting the performance of Hong Kong property developers.

New World Development Company Limited, the most heavily indebted major real estate developer in Hong Kong, is expected to record its first annual loss in 20 years this year.

According to an announcement submitted to the Hong Kong Stock Exchange on Friday, the company expects to incur a loss of HKD 19 billion to 20 billion (approximately USD 2.4 billion to 2.6 billion) for the fiscal year ending in June. The company attributes the loss to asset impairment, investment losses, and rising interest rates.

In recent years, New World Development, controlled by the billionaire Cheng family, has attracted widespread market attention due to its high debt levels.

Due to concerns about its debt levels, the market's worries about its financial condition, and investors' pessimism about the real estate market, New World Development's stock price has plummeted by 35% this year, making it one of the worst-performing real estate company stocks in Hong Kong, far behind the 5.5% increase in the Hang Seng Index during the same period.

Reasons for the huge loss: Insufficient revenue recognition and two large provisions

New World stated that insufficient revenue recognition from major projects such as Pavilia Bay I and Pavilia Bay II has affected the company's core profits.

In addition, two large asset impairment provisions are also the main reasons for the company's "shrinking" profits.

New World stated that the revaluation of investments and development properties, including goodwill assessment, will result in non-cash losses of up to HKD 8.5 billion to 9.5 billion.

Furthermore, in June last year, the Cheng family proposed to acquire a business from New World to help reduce the company's debt. This transaction involved transferring cash from the family's investment holding company to New World, but it also resulted in a one-time non-cash loss of nearly HKD 8.3 billion for the company.

A company spokesperson stated that all one-time non-cash revaluations and provisions do not affect the company's cash flow, preparing it for a fresh start in the future. The company has also completed over HKD 50 billion in loan arrangements and debt repayments this year, maintaining overall financial stability.

"Overall bleak" situation for Hong Kong property developers

Not only New World Development, but the entire Hong Kong property market is in a predicament under the dual pressures of high borrowing costs and economic downturn.

Property prices are at their lowest point in eight years, putting pressure on developers like New World. Meanwhile, the office market vacancy rate has hit a historic high, further suppressing the rental income of major developers.

Recently, Hongkong Land, Henderson Land, Wharf Real Estate Investment, and Swire Properties, among other Hong Kong property developers, have successively released their performance for the first half of 2024.

Among them, Hongkong Land reported a net loss attributable to shareholders of USD 830 million in the first half, with losses further widening; Wharf Real Estate Investment recorded a loss of HKD 1.052 billion in net profit attributable to shareholders in the first half, a 158.28% year-on-year decline; Henderson Land reported a net profit attributable to shareholders of HKD 1.061 billion in the first half, a 55.68% year-on-year decrease; Swire Properties reported a net profit attributable to shareholders of HKD 1.796 billion in the first half, a 19% decrease year-on-year