Hong Kong faces China's other consumption slump

Hang Lung Properties

14/08/2024 12:00

(The author is a Reuters Breakingviews columnist. The opinions
expressed are his own.)
    By Chan Ka Sing
       HONG KONG, Aug 14 (Reuters Breakingviews) - Consumption
is weak in China but things are worse in Hong Kong. The
financial hub is grappling with a double whammy of locals and
tourists spending less. The city's landlords are cutting
dividends - an ominous sign of more pain to come.  
    Once famed for being a “shoppers’ paradise”, the city is
losing its appeal quick. The value of retail sales in June fell
9.7% year-on-year to HK$29.9 billion ($3.83 billion), government
data showed. That marked the fourth consecutive monthly decline
since March. To compare, retail sales on the mainland were up 2%
in the same month, though that's down from over 5% in February. 
 
    Changing consumer behaviour is to blame. More Hong Kongers
are traveling to Shenzhen and other mainland cities to shop or
dine out or go spa at a fraction of the price. Meanwhile,
mainland tourists arriving to the financial hub are spending
less. One big factor is the local currency, which is pegged to a
strong U.S. dollar. In Japan, for instance, a weaker yen means
luxury items like a Prada  1913.F  handbag could be some 30%
cheaper than in Hong Kong, per research from local mall operator
Hang Lung Properties  0101.HK .
    The city's landlords are now feeling the squeeze. The $8.1
billion Wharf Real Estate Investment  1997.HK , which operates
Hong Kong's iconic Times Square shopping mall, has seen its net
asset value fall 16% over the past five years. Over the same
period, its stock has roughly halved.
    Even luxury-focused developers, which have proven to be
resilient amid a slowing economy, are preparing for a prolonged
downturn. Hongkong Land  HKLD.SI , owned by conglomerate Jardine
Matheson  JARD.SI , said in early August it is undergoing a
"comprehensive strategic review" of its business strategy. Last
month, it unveiled a $1 billion plan to revamp its high-end
Central district LANDMARK property.
    More worrying are the rare dividend cuts from property
giants like Wharf. Last month, Hang Lung Properties, which owns
properties across the mainland and the financial hub, slashed
first-half dividends by a third after reporting a 56%
year-on-year plunge in net profit in the six months to June.
Speaking about the Hong Kong property sector's biggest
structural change in five decades, the company's Honorary Chair
Ronnie Chan recently said, "everyone is in hell". That aptly
captures the mood across the city's malls and shops.
        
  
        
  
            CONTEXT NEWS   
    Hong Kong’s retail sales fell 9.7% in June from a year
earlier, government data showed on Aug. 1, marking the fourth
consecutive monthly decline, following double-digit slump in May
and April. 
Wharf Real Estate Investment Co., one of Hong Kong’s biggest
commercial landlords, reported on Aug. 6 a HK$1.05 billion 
($134.80 million) loss in the six months to June 30. It booked a
HK$4.43 billion provision in the value of its investment
properties.


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Graphic: Hong Kong's consumption slump is worse than China's   
https://reut.rs/4fKr9lv
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 (Editing by Robyn Mak and Ujjaini Dutta)
 ((For previous columns by the author, Reuters customers can
click on  CHAN/  
KaSing.Chan@thomsonreuters.com))