New World Development sales top HK$20 billion amid market divergence

(P1) New World Development's robust sales of HK$20 billion this year, a 1.7-fold increase from 2025, are painting a picture of resilience in Hong Kong's high-end property market, even as analysts flag caution on the stock and mainland China's real estate sector remains mired in crisis.

(P2) The outlook for Chinese equities is positive, with A-share companies expected to see a 17 percent average profit increase in 2023, according to Kinger Lau, Goldman Sachs' chief China equity strategist. However, the bank's analysts also recently trimmed their price target on New World Development, reflecting the complex and divergent sentiment surrounding the sector.

(P3) The developer's year-to-date contracted sales involved approximately 1,300 units, a significant jump from the HK$7.5 billion recorded in the same period last year. A key driver was Phase 3 of the Pavilia Farm residential project, co-developed with MTR Corporation, which sold 358 units for over HK$5.7 billion. Despite the strong sales report, New World Development's stock fell 3.45 percent.

(P4) The key question for investors is whether NWD's success represents a durable, localized recovery in Hong Kong's prime housing or an outlier fueled by a flight to quality. The performance stands in stark contrast to mainland China, where major developers like Evergrande and Country Garden face winding-up petitions, and new home sales have plummeted, testing the nation's long-standing culture of homeownership.

A Tale of Two Markets

The struggles in mainland China's property sector are well-documented. Since the government moved to rein in excessive developer debt in 2020, the market has seen a wave of defaults and stalled projects, shaking buyer confidence. New home sales by value halved in 2022 from their 2021 peak, and the downward trend continues, according to Macquarie economists. Prospective buyers, worried about job security and the overall economy, are hesitant to take on mortgages, creating a significant drag on what was once nearly a third of the country's economic activity.

In contrast, New World's results suggest demand for well-located, high-quality residential projects in Hong Kong remains firm. The success of Pavilia Farm, located atop a major transit station, underscores the premium buyers place on convenience and quality. This divergence highlights a potential fragmentation of the Chinese real estate market, where Tier-1 global hubs like Hong Kong may decouple from the broader trends affecting the mainland.

Investor Crosscurrents

Despite the strong top-line sales, investors and analysts remain cautious. The target price cut from Goldman Sachs, mentioned in conjunction with the sales data, suggests concerns about profitability, margins, or future project pipelines. This caution is juxtaposed with a more bullish general sentiment from foreign investors towards Chinese assets. Net inflows into the A-share market via the Stock Connect program have already surpassed the full-year total for 2022, reaching $23 billion year-to-date, according to Goldman Sachs.

Supportive policy measures from Beijing, such as the People's Bank of China cutting the reserve requirement ratio for banks, are aimed at ensuring liquidity and supporting economic growth. Global investors, wary of recession risks and banking instability in the U.S. and Europe, are increasingly looking for opportunities outside of Western markets. For now, they appear to be bifurcating their approach, selectively buying into mainland Chinese equities while remaining circumspect on specific property developers, even those with strong sales figures like New World Development.

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