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Cheryl Arcibal

Salina Li

Hong Kong developers are likely to report weak earnings this year and next despite recent stimulus measures, as the commercial market prepares for a supply glut and residents seek to splurge either on the mainland or overseas, according to ratings agency Moody’s.
The forecast comes a week after Chief Executive John Lee Ka-chiu unveiled a more liberal mortgage-financing policy, which added to the optimism that was sparked by global central banks starting to raise interest rates.
The less than optimistic outlook is also shared by other analysts from S&P and Morningstar.
“We expect aggregate [earnings before interest, taxes, depreciation and amortisation] to decrease by 5 per cent for full-year 2024 and remain at around the same level in 2025, compared with a 7 per cent fall in 2023,” the agency said in a report on Wednesday.
The report covered 11 property companies that Moody’s rates: Sun Hung Kai Properties (SHKP), CK Asset Holdings, Link Reit, Swire Properties, IFC Development, Wharf Reic, Hongkong Land, Wheelock, Hysan Development, Champion Reit and Nan Fung International Holdings.
In particular, the firm said, the office and retail property segments are likely to remain under pressure, although the residential market is expected to stabilise.


“Persistent challenges, such as high supply and weak leasing demand in the office segment and reduced tourist and local shopping expenditure in the retail segment will continue to put pressure on profits,” Moody’s said.
The office segment will struggle with another 3 million sq ft of new completed projects next year, including SHKP’s 2.11 million sq ft International Gateway Centre in Tsim Sha Tsui. The new supply is expected to exacerbate the current record-high vacancy rates in the city’s premier business zones, according to CBRE.
Moody’s said office rental income will drop 5 per cent to 10 per cent in the next 12 to 18 months “because of a supply glut and low corporate expansion”.
“These two factors will lower spot market rents by about 10 per cent, which will continue to drive negative rental reversion,” it said.
Rents for grade A and grade B offices have fallen 33 per cent and 17 per cent, respectively, from their peaks in 2018 and 2019, according to Midland IC&I.
The retail market is also under pressure. In the first eight months of the year, retail sales in the city dropped 7.7 per cent from a year earlier to about HK$250 billion (US$32.16 billion), according to official data.
“Retail rental income from existing Hong Kong portfolios is projected to decrease by a low-single-digit percentage over the next 12-18 months,” the report said. “Lower tourist shopping expenditure and a rising trend of locals shopping on the mainland will continue to weigh on Hong Kong retail sales.”
Hong Kong’s retail sales are expected to decline by about 10 per cent this year and another 5 per cent in 2025, Moody’s added.
The agency also said residential prices will slip by 5 per cent to 10 per cent this year, owing to huge unsold stock held by developers, but will improve next year.
“Prices will gradually stabilise in the first half of 2025 because of the easing of Hong Kong’s mortgage rules and interest rate cuts that will reduce monthly mortgage payments and boost investment demand as rental yields become more attractive,” Moody’s said.
S&P Global, on the other hand, said home prices are likely to remain soft amid elevated supply of primary residential properties.
The agency also revised to negative its outlook on SHKP last month.
“The negative rating outlook reflects our expectation that SHKP’s margins and leverage remain strained over the next 12-24 months,” S&P said. “However, we expect the company to temper land acquisitions and reduce debt.”
With 108,000 new flats estimated to be completed in the next four years, margins will remain “under pressure as developers continue to offer attractive pricing to move inventory”, said Xavier Lee, an equity analyst at Morningstar.


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Moody’s says office and retail property segments are likely to remain under pressure


Moody’s says office and retail property segments are likely to remain under pressure.


Hong Kong developers CK Asset, Sun Hung Kai, Swire to feel earnings pain: Moody’s

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Moody’s says office and retail property segments are likely to remain under pressure

Moody’s says office and retail property segments are likely to remain under pressure