NWD and Ares slash HK commercial complex prices by 57% as distress deepens

The joint venture cut prices on the Cheung Sha Wan property to as low as HKD 5,600 per sq ft after discounts, down from HKD 13,000 at launch last year, Bloomberg reported, citing people familiar.

"After factoring in various discounts and cash rebates, the latest asking price for certain units is HKD 5,600 per sq ft," the people told Bloomberg. Other units in the 83 Wing Hong Street complex are currently priced at around HKD 7,000 per sq ft, they said.

The 57 percent decline marks one of the steepest markdowns in Hong Kong's commercial property market in recent years. The current price sits well below the HKD 8,000 per sq ft accommodation value New World Development paid when it acquired the site in 2017, according to company filings. The complex, located adjacent to Lai Chi Kok MTR Station in Cheung Sha Wan, occupies an industrial neighborhood that has seen a wave of commercial redevelopment projects from developers including Sun Hung Kai Properties and Henderson Land.

The price cut shows deepening distress in Hong Kong's commercial real estate market, where elevated interest rates and tepid tenant demand have forced developers to sell assets at a loss. For New World Development, selling below its land cost threatens to further pressure its balance sheet and credit profile. The developer's stock fell 3.4 percent on the news, with short selling reaching 41.5 percent of trading volume on June 26, according to exchange data.

The markdown reflects a broader repricing across Hong Kong's commercial property sector. The last time New World Development sold a major Hong Kong asset below its acquisition cost was during the 2003 SARS downturn, when property prices fell more than 60 percent from their 1997 peak, according to historical company disclosures. The current price of HKD 5,600 per sq ft is roughly 30 percent below the average commercial land premium paid by developers in the Cheung Sha Wan area over the past five years, based on government land sale records. JPMorgan has warned that prolonged weakness in the Hang Seng Index poses the biggest downside risk to Hong Kong property prices in the second half of the year, according to a recent research note.

The joint venture's aggressive price cut may force other developers holding commercial assets in the area to reassess their valuations. Ares Management, which partnered with New World on the project, is likely seeking to exit the position and redeploy capital, the people said. With Hong Kong's borrowing costs remaining elevated and the city's economic growth slowing, further price adjustments in the commercial segment are expected in the coming quarters. The Hang Seng Property Index has declined this year as investors priced in lower asset values across the sector, with peers such as CK Asset Holdings and Sino Land also facing headwinds from the weakening market.

The price cut comes at a challenging time for New World Development, which has been selling non-core assets to reduce leverage, including the disposal of a stake in its Kai Tak sports complex project earlier this year. Selling the Cheung Sha Wan commercial units at a loss will provide immediate cash but may trigger impairment charges that could affect its reported earnings. The developer's elevated short selling ratio of 41.5 percent suggests investors are betting on further downside, while its stock has declined more than 30 percent over the past 12 months. The company's high debt levels relative to peers have made it particularly vulnerable to the downturn in Hong Kong's property market, and further asset sales at distressed prices could accelerate the cycle of deleveraging.

This article is for informational purposes only and does not constitute investment advice.