Fire-sale bid to entice buyers
Competition for potential buyers is heating up, with Cheung Kong (Holdings) launching a big residential project in Tseung Kwan O at lower-than-expected prices.
It aims to entice sales as secondary transactions have dropped to their lowest point since the last quarter of 2008.
Li Kwok-suen, a fund manager at Philip Capital Management, expects the strategy will pressure rival developers, particularly when market sentiment has been bruised by fears of a worldwide recession.
'Developers are watching each other before finalising their pricing strategy,' he said.
Li would not be surprised to see rival developers offering their projects at competitive prices.
Secondary residential transactions are expected to plunge 35 per cent to 14,500 in the third quarter, the lowest level since the forth quarter of 2008, at the start of the global financial crisis, according to Hong Kong Property (Services).
Cheung Kong released the price list for the first batch of 108 flats at Lohas Park's latest phase, La Splendeur, on Monday. The average price in terms of gross floor area is HK$5,941 per sq ft, or HK$5,584 per sq ft for cash buyers.
This is as much as 20 per cent below the market expectation of HK$6,000 and HK$7,000 per sq ft.
'It's quite rare that a developer offers new flats at prices which are near or below the secondary homes in the same area in the last one to two years,' said Patrick Wong Chi-leung, an analyst at Samsung Securities.
La Splendeur's launch price is more than 13 per cent less than that for flats at the neighbouring eight-year-old Park Central, where average prevailing prices were HK$6,464.
Sam Cheung Kwok-fung, an assistant sales director at Hong Kong Property, said the launch would cause the number of secondary flat transactions in the area to drop.
Wong, of Samsung Securities, does not rule out that SHKP may lower the prices for its luxury residential project The Wings, which is also in Tseung Kwan O, after Cheung Kong's launch.
The asking prices were similar to that for secondary flats in earlier phases of Lohas Park, showing the developer was prudent amid stock market fluctuations and poor land sales last month.
'The cheapest unit for La Splendeur is only HK$4.54 million. There aren't many new flats with such a low entry price recently,' Wong said.
Cheung Kong is well known for its fire-sale strategy to drum up sales.
In April, 2009, it stunned the market by announcing it was planning to release Central Park Tower II in Tin Shui Wai for as low as HK$2,066 per sq ft, more than 10 per cent below secondary-market transactions in the area. To further sweeten the deal, Cheung Kong - the first developer to launch a new project at below second-hand market prices since the Sars outbreak of 2003 - offered a 5 per cent discount for buyers who paid cash, meaning the cheapest flats were offered for HK$1,962 per sq ft.
In 2008, Cheung Kong sold almost 2,000 flats to raise HK$10 billion at Capitol in Tseung Kwan O at HK$5,100 to HK$5,200 per sq ft, before the economy was hit by the global financial crisis.
La Splendeur, part of the Lohas Park project co-developed by the MTR Corporation and Nan Fung Development, has three blocks with a total of 1,168 flats. The development is expected to be completed in May 2013.
The sale, which may commence as early as Friday, comes after the government sold a site near the Tseung Kwan O MTR station last week to Sun Hung Kai Properties for HK$3.12 billion, or HK$3,935 per buildable sq ft, below pre-auction estimates of HK$3.2 billion to HK$4.12 billion.
But Wong said SHKP would not face huge pressure to cut prices because the group recorded strong sales in other projects this year. The market expected the developer would soon sell the bigger flats at The Wings, ranging from 1,000 to 1,400 sq ft, for HK$10,000 to HK$12,000 per sq ft.
Credit Suisse analyst Joyce Kwock said SHKP's sales strategy would not be affected because La Splendeur targeted end-users, while The Wings was a high-end residential project aiming more at investors and mainlanders who were willing to pay more.
Asked about Cheung Kong's lower-than-expected prices, she said it was common for the first batch of flats to be priced 20 per cent to 30 per cent lower than later batches.
With more new flats in the pipeline and a few government sites in Tseung Kwan O yet to be sold, GuocoCapital's head of research Eric Yuen Chi-fung, said flat price growth in Tseung Kwan O had been always behind the market trend.
Ng Man-yee and her boyfriend sold their flat at Le Prime last month. They bought the 966 sq ft flat for HK$5.05 million about two years ago and sold it for HK$5.35 million, about 6 per cent more.
'Property prices in Hong Kong surged at least 20 per cent in the last two years,' Ng said when asked why they sold the flat.
'Rents are also very low, as the apartment could only be leased for HK$12,000 a month, half of what you would pay for a similar-sized unit in West Kowloon.'