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.