Property tycoon Lee Shau-kee last week raised a red flag over concerns that the profit margins of Hong Kong property developers were being threatened by rising construction costs and increased land supply.
But analysts, who say that developers have enjoyed soaring revenues and returns of up to 40 per cent over the past five years, see rises in property prices continuing to outstrip construction costs.
Lee, who is the chairman of Henderson Land Development, warned last week that construction costs were becoming so high that developers would find it increasingly difficult to sustain their profit results.
Data compiled by Centaline Property Agency shows that total sales value in the secondary property market surged to HK$1.59 trillion in the five years to June 30 this year. That was 120 per cent higher than the previous five years, and 130 per cent higher than that registered in the first five years following the city's return to China.
A survey by property consultants Jones Lang LaSalle showed that prices in the mass property market rose by 9.3 per cent in the first half of the year, while a report by surveying firm Davis Langdon & Seah showed that construction costs were up by 7.7 per cent on a year ago (see sidebar) - which suggests that so far developers have been able to maintain their margins, as prices have grown faster than construction costs.
Nicole Wong, regional head of property research at CLSA Asia-Pacific Markets, said that if it was true that developers couldn't make a profit, they wouldn't acquire sites.
'When the property market is booming, developers are able to raise their selling prices sufficiently to cover increased construction costs,' she said. 'If the market is poor, they have to cut their prices.'