Sun Hung Kai Properties

Tycoon warns of squeezed profits

PUBLISHED : Friday, 20 July, 2012, 12:00am
UPDATED : Friday, 20 July, 2012, 12:00am

Tycoon Lee Shau-kee yesterday cast a note of caution over the profitability of the city's real estate sector, warning that developers' profit margins would be squeezed by rising construction costs and increased land supply.

'Construction costs now are very high - surging to HK$3,000 per sq ft or even more. Developers are finding it hard to run their businesses and will not make big profits,' said Lee, chairman of Henderson Land Development, one of Hong Kong's largest developers. 'Supply will definitely increase in future, together with subsidised housing and public housing.'

Facing such an unfavourable business environment, Lee said developers would not be aggressively bidding for land sites. He said Henderson Land had a sufficient land bank and while it would continue to submit bids for government sites it would not offer aggressive bids.

His remarks came in the wake of the MTR Corporation's decision to withdraw from sale a residential site at Tai Wai station in the New Territories, and the sale of the former North Point Estate site for a lower-thanexpected HK$6.91 billion.

Speaking after a luncheon meeting of the Pei Hua Education Foundation, a non-profit making organisation involved in training on the mainland, Lee said home prices in Hong Kong were unlikely to plunge because of high construction costs. But increased supply, especially in the mass housing market, could weigh on price rises.

Ten years ago, construction costs in Tuen Mun were HK$600 per square foot. That had jumped to HK$3,000.

A government spokesman yesterday denied media reports that it planned to increase the development plot ratio of sites on the Lands Application List as a way of increasing land supply. 'The plot ratio of the sites on the list have been finalised. We have no plan to revise it. Even if we wanted to revise it, we would have to go through the procedure of the Town Planning Board,' he said.

Alnwick Chan Chi-hing, head of valuation and professional services at Kight Frank, said it would be difficult to increase the plot ratio in urban areas as the government wanted to improve air flow and avoid the 'wall effect' created by gigantic buildings.

But he said it would be alright to increase plot ratios in some districts such as the New Territories' Kwun Tung.

Separately, Lee, also deputy chairman of Sun Hung Kai Properties, refused to comment on the corruption probe that has rocked Sun Hung Kai.

But he believes the two sons of the billionaire co-chairmen - Thomas Kwok Ping-kwong and Raymond Kwok Ping-luen - have the competence to take up new posts within the company.

Sun Hung Kai Properties last Friday announced that it had appointed the two sons of the billionaire co-chairmen as alternate directors, in what was seen as a contingency plan for a worst-case scenario.

The Independent Commission Against Corruption on the same day charged Thomas and Raymond Kwok and ex-chief secretary Rafael Hui Si-yan with bribery and public misconduct.