Inflation eating up profits of developers, says expert
Soaring inflationary pressure has become one of the greatest concerns for the region's developers, warns property adviser Peter Churchouse.
'It has been eating up profit margins and increasing operating risks,' Mr Churchouse said.
'The impact on Asian developers is now,' said Mr Churchouse, who is an executive director for property investment advisory and hedge fund manager LIM Asia.
He added that Hong Kong developers would also be hit if soaring inflation in the city continued.
His concerns came as consumer prices were racing ahead by more than 20 per cent from a year earlier in Vietnam and by more than 8 per cent in China and Indonesia. In Singapore inflation is at a 26-year high and India is also seeing inflation rising worryingly.
Hong Kong's inflation is by comparison relatively low at a rate of 5.7 per cent in May over the same month last year.
Inflation had pushed up the cost for awarding a construction contract in Singapore by 40 to 50 per cent over the past two years, Mr Churchouse said, while in the Philippines these costs were 25 per cent higher than six months ago.
Developers which had pre-sold units but not awarded construction contracts for the site developments would feel the pain as soaring construction costs would eat into profits, he warned.
Situations such as this were very common among developers in Asian countries such as Thailand, the Philippines and Malaysia, he said.
In addition, developers awarding fixed-price construction contracts might be affected if contractors chose to walk off their jobs if material costs such as steel and cement kept rising, Mr Churchouse said.
Hong Kong developers had locked up earnings for this year through pre-sales last year and would not face immediate pressure on profitability.
However, if inflation continued, the effects could be felt next year, he said.
Mr Churchouse's concerns were echoed by USI Holdings' executive director Dennis Au, who said recently that he was concerned about the impact of soaring inflation and higher interest rates on the housing market in Hong Kong and other cities.
Online property research house Global Property Guide also said in a report that rising inflation was affecting Asia and global markets.
In nominal terms, 28 countries saw their housing prices rise during the first three months of this year , while only six saw prices fall.
However, when property prices are adjusted for inflation, the picture looks entirely different.
In real terms, property prices in the first quarter this year saw a year on year fall in Estonia, Greece, Indonesia, Israel, Lithuania, New Zealand, Norway, South Africa, South Korea and Spain despite nominal price rises in all these countries.
