The Hong Kong developer suffers a historic loss following the Xi Jinping crackdown

One of Hong Kong’s biggest developers is bracing for its first loss in two decades as President Xi Jinping’s crackdown on China’s property market and an exodus of Western business weigh on the sector.

New World Development, owned by billionaire Cheng’s family, said it expected to post a loss of up to HK$20bn (£2bn) for the financial year ending in June.

The developer blamed losses on investments and developments, higher interest rates and the “depreciation of the renminbi” for the steep decline. Core profit is expected to fall by as much as 23%.

New World shares fell to a 21-year low of about $6.80 on Monday following the update.

Founded in 1970, the company’s investments span residential developments, shopping malls, offices and hotels, and as such can be seen as an indicator of Hong Kong’s economic health.

The special administrative region has been in and out of recession since the pandemic, during which Beijing took greater control over Hong Kong by pushing a controversial security law.

The power grab had a chilling effect on civil society, with pro-democracy activists forced into exile. As a result, many Western companies have pulled out of Hong Kong.

Investments have also suffered. Writing in the Financial Times earlier this year, former Morgan Stanley Asia chairman Stephen Roach said: “It pains me to admit it, but Hong Kong is over,” referring to the region’s Hang Seng stock exchange.

The area’s real estate market has also been affected by the prolonged slowdown in the mainland economy. China’s property sector has been in crisis since 2021, when the government introduced rules restricting the amount developers could borrow.

The tighter rules have triggered a crisis in the debt-laden sector, with some of our biggest developers going back into debt. The most prominent was Evergrande, which was forced into liquidation earlier this year after racking up a debt pile of HK$328 billion.

House prices in Hong Kong are expected to fall by up to 10% in the rest of the year, according to the latest data from CBRE. Official government data shows residential prices fell by 3.1% in the first half of 2024.

New World is the latest developer to show signs of tension. Henderson Land Development, another Hong Kong developer, posted a half-year loss of US$2.3 billion last month.

President Xi has recently sought to boost the struggling real estate sector, albeit to no avail.

In May, the government unveiled a policy package that included relaxing mortgage rules to tempt buyers back into the market. Its central bank introduced a 300bn yuan (£32bn) “re-lending” facility to finance state-owned enterprises buying unsold commercial flats for affordable housing.

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However, the measures failed to allay concerns. UBS downgraded its forecasts for the Chinese economy last week, partly because of the prolonged property slump. The investment bank cut its growth forecast for next year from 4.6% to 4%.

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