Peter Kwok Sze-chi, the Vice-Chairman of the Hong Kong Stock Analysts Association, stated that the market set a new high within the month during yesterday's (27th) fluctuations. The Hang Seng Index opened lower at 17,663 points in the morning, then dropped further to 17,624 points before gradually stabilizing. Due to the unclear selling pressure and the emergence of stabilizing bid orders, the entire market started to turn around. By the afternoon, the Hang Seng Index even rose by 81 points to 17,879 points, once again reaching a new high within the month. Compared to the low point of the month on the 5th at 16,441 points, the intra-month volatility has expanded to 1,438 points. Although the Hang Seng Index broke through the 100-day moving average (approximately near 17,746 points) at that time, the market seemed to be aiming for 18,000 points, but the trading volume remained relatively light. As of the moment of writing, the market's momentum was not quite matching. The Hang Seng Index closed at 17,874 points, up 75 points from the previous day, with a total daily turnover of 91.9 billion yuan.

It is an indisputable fact that the Hong Kong property market is not doing well, with instances of discounted transactions for second-hand units and some developers setting the goal of "break-even for survival." However, this is not an empty threat, as the profits of many property stocks have declined year-on-year, especially a significant drop in net profit, with well-known Hong Kong developers such as Wharf REIC (01997.HK), Henderson Land (00014.HK), and Chinese Estates Holdings (00127.HK) continuously issuing profit warnings. Over 10 Hong Kong developers are now in the red, and the performance of Hong Kong property stocks is seen to have peaked before the rate cut.

In the latest statistics, Kerry Properties (00683.HK) reported a 55% drop in interim net profit to 0.788 billion Hong Kong dollars in 2024, while K. Wah International (00173.HK) saw a 68% decrease in net profit to 0.154 billion Hong Kong dollars. Including earlier declines in net profit for both Hang Lung Properties (00101.HK) and Wharf REIC, resulting in a 56% drop and a profit turn to loss of 1.052 billion Hong Kong dollars respectively. As for House Rental Companies, the revaluation losses on investment properties in the first half of this year have reached 4.4 billion Hong Kong dollars, which is 2.86 times higher than the full-year figure of 1.147 billion Hong Kong dollars in 2023. If we include the revaluation losses on investment properties from 2022 to the first half of this year, the total exceeds 20 billion Hong Kong dollars.

Currently, property prices in mainland China and Hong Kong have significantly declined. Looking at the various classes of private residential unit price indices published by the Rating and Valuation Department, the prices have dropped from 316.3 in the fourth quarter of 2023 to 305.7 in the second quarter of 2024 (temporary figures), representing a decrease of about 3%. If we consider the high point of 397.9 in the third quarter of 2021, the drop is 23%.

Currently, Hong Kong is clearly affected by the revaluation of property prices, making it difficult for property stocks to perform well. In the case of Kerry Properties' interim performance, the fair value of investment properties increased by 0.146 billion Hong Kong dollars in the first half of 2023, but decreased by 0.239 billion Hong Kong dollars in the same period of 2024, resulting in a difference of nearly 0.4 billion. This adjustment does not involve operational issues but is purely related to accounting changes. Hence, after excluding a one-off provision and the non-cash fair value changes of investment properties in the first half of 2024, Kerry Properties' underlying net profit only decreased by 19% to 1.4 billion Hong Kong dollars. One of the main reasons for this decline in net profit is the comprehensive income statement of property stocks, which includes changes in the fair value of investment properties. This mainly occurs when the properties held by property stocks are revalued at market prices, resulting in fluctuations in property values over the years.

In times of deteriorating economic conditions, property stocks tend to make substantial provisions for asset impairment, as losses are deemed inevitable. When a listed company foresees poor profitability for the fiscal year and the market has no high expectations for its performance, some companies may opt for a "Big Bath" strategy. This involves taking a significant hit on the current year's performance to boost profitability projections for the following year and reassure investors. If some property companies have multiple property launches this year, resulting in decent market response, but their performance falls below market expectations, it does not necessarily mean that their business performance is weak; it may just be a strategic move to realign circumstances for better results next year.