HSBC warned Monday that China’s property market has “potential for a further deterioration” as it reported profits that fell short of expectations, partly because of a $500 million charge to cover potential losses on commercial real estate loans.
Third quarter pre-tax profit at Europe’s biggest bank more than doubled to $7.7 billion. Revenue rose 40% year-on-year to $16.2 billion as the lender reported higher interest income.
The results, however, fell shy of expectations from analysts, who had projected about $8.1 billion in pre-tax profit and revenue of $16.3 billion.
HSBC has benefited from the higher costs of borrowing in recent months. In the third quarter, “there was good broad-based growth across all businesses and geographies, supported by the interest rate environment,” CEO Noel Quinn said in a statement.
But the UK-based bank also warned of ongoing risks that could affect its lending business, flagging an exposure to China that caused a hit to another Asia-focused lender, Standard Chartered, last week.
In the third quarter, HSBC (HSBC) said it had adjusted its expected credit losses — the money it sets aside for defaults on loans — to include a charge of $500 million related to commercial real estate in mainland China.
The charge was “related to heightened economic uncertainty, inflation and rising interest rates, as well as from ongoing developments” in the sector, according to the bank.
This year, China’s property crisis has once again become a sore point for investors as developers continue to bleed cash and fight a protracted sales slump.
This aerial photo taken on October 18, 2023 shows buildings of China’s developer Country Garden Holdings in Suqian, in China’s eastern Jiangsu province. (Photo by AFP) / China OUT (Photo by STR/AFP via Getty Images)
Stringer/AFP/Getty Images
How Country Garden became the new face of China’s spiraling property crisis
HSBC said it expected Chinese government support to lead to a gradual improvement in sales in parts of the market, such as housing, but it continued to see risks from “sustained stress in the mainland China commercial real estate market.”
“We continue to closely monitor, and seek to proactively manage, the potential implications of the prolonged recovery of the real estate sector and the overall Chinese economic outlook for our customers and our business,” HSBC added.
“There is potential for a further deterioration in credit conditions during the last three months of the year given the continued uncertainty around liquidity support.”
On an analyst call Monday, Quinn said while the industry could bear some further losses, “I think the market itself has bottomed.”
“Now we’re in a period of readjustment for the new norm,” he added. “I don’t see a big swing back … I see it as fine tuning from this low base.”
The conditions have put similar pressure on Standard Chartered, which last Thursday also reported a $186 million credit impairment charge related to commercial real estate in mainland China.
HSBC has fared better, with its latest results showing strength overall, Jefferies analysts wrote in a note Monday.
In a sign of renewed confidence, HSBC said Monday it would conduct another share buyback of up to $3 billion, following similar announcements in recent months. It also announced another interim dividend of 10 cents per share, its third so far this year.
HSBC shares were little changed in London following its results, while its stock listed in Hong Kong closed down 1.5%.
TORONTO – One expert predicts Ottawa‘s changes to mortgage rules will help spur demand among potential homebuyers but says policies aimed at driving new supply are needed to address the “core issues” facing the market.
The federal government’s changes, set to come into force mid-December, include a higher price cap for insured mortgages to allow more people to qualify for a mortgage with less than a 20 per cent down payment.
The government will also expand its 30-year mortgage amortization to include first-time homebuyers buying any type of home, as well as anybody buying a newly built home.
CIBC Capital Markets deputy chief economist Benjamin Tal calls it a “significant” move likely to accelerate the recovery of the housing market, a process already underway as interest rates have begun to fall.
However, he says in a note that policymakers should aim to “prevent that from becoming too much of a good thing” through policies geared toward the supply side.
Tal says the main issue is the lack of supply available to respond to Canada’s rapidly increasing population, particularly in major cities.
This report by The Canadian Press was first published Sept. 17,2024.
OTTAWA – The Canadian Real Estate Association says the number of homes sold in August fell compared with a year ago as the market remained largely stuck in a holding pattern despite borrowing costs beginning to come down.
The association says the number of homes sold in August fell 2.1 per cent compared with the same month last year.
On a seasonally adjusted month-over-month basis, national home sales edged up 1.3 per cent from July.
CREA senior economist Shaun Cathcart says that with forecasts of lower interest rates throughout the rest of this year and into 2025, “it makes sense that prospective buyers might continue to hold off for improved affordability, especially since prices are still well behaved in most of the country.”
The national average sale price for August amounted to $649,100, a 0.1 per cent increase compared with a year earlier.
The number of newly listed properties was up 1.1 per cent month-over-month.
This report by The Canadian Press was first published Sept. 16, 2024.
MONTREAL – Two Quebec real estate brokers are facing fines and years-long suspensions for submitting bogus offers on homes to drive up prices during the COVID-19 pandemic.
Christine Girouard has been suspended for 14 years and her business partner, Jonathan Dauphinais-Fortin, has been suspended for nine years after Quebec’s authority of real estate brokerage found they used fake bids to get buyers to raise their offers.
Girouard is a well-known broker who previously starred on a Quebec reality show that follows top real estate agents in the province.
She is facing a fine of $50,000, while Dauphinais-Fortin has been fined $10,000.
The two brokers were suspended in May 2023 after La Presse published an article about their practices.
One buyer ended up paying $40,000 more than his initial offer in 2022 after Girouard and Dauphinais-Fortin concocted a second bid on the house he wanted to buy.
This report by The Canadian Press was first published Sept. 11, 2024.
