Even with a $56 billion decline, Hong Kong developers’ shares might not be a great deal because the world’s most overpriced housing market is still far from done.
The MSCI Hong Kong Index’s worst-performing sector, a gauge tracking the city state’s real estate developers, has seen its market value decline by more than a fourth since late January. The property market is dealing with high borrowing costs and the possibility of more price drops, therefore investors are preparing for further declines.
Some developers’ valuations have reached unprecedented heights as a result of the market crash. Two of the biggest developers in the city, Sun Hung Kai Properties Ltd. and Henderson Land Development Co., are less expensive now than they were before the Asian Financial Crisis. According to analysts, it is still too early to declare these stocks clear.
The Hong Kong real estate market is clearly in trouble, according to Dickie Wong, director of research at Kingston Securities Ltd. Therefore, even while prices are appealing, they are insufficient to entice investors when businesses have dwindling profit forecasts and reduced payout ratios.
Due to increased mortgage rates and a weak economic recovery, home prices in the Asian financial capital have fallen 18% from a record high in 2021 to the lowest level in more than six years. In the coming year, Societe Generale SA anticipates a further 10%–15% decrease as buyers remain discouraged by interest rates that are expected to rise for longer.
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In his annual address this month, Hong Kong Chief Executive John Lee is anticipated to loosen a few significant property restrictions. When city residents purchase a second house, the city charges 15% in stamp duty. But investors continue to be dubious.
Even if there is policy easing, it should only be of partial support to the developers as they will still struggle in a high-rate environment,” said Hong Kong-based fund manager Andy Wong of LW Asset Management Advisors.
Dividend reductions from developers are anticipated as a response to higher financing costs and weaker revenue growth. When Sun Hung Kai announced plans to reduce its payout ratio from 60% of underlying earnings last year to 40%–50% this year, New World Development Co. saw a 20-year low in its share price.
“Their dividends are at risk of falling due to a potential profit slump on rising interest costs, and lower home prices and office rents,” Bloomberg Intelligence analyst Patrick Wong wrote in a note last month.
- Published By Team Hongkong Journalist