Mainland developers offer no-frills properties
While Hong Kong developers lure home buyers with pricey kitchens and bathrooms, a growing number of mainland developers are returning to low-cost basics.
For some, with their cash flows squeezed and loans unavailable, that means building 'bare shell' flats in a bid to cut costs and put cheaper homes on the market to promote quick sales.
Michael Choi Ngai-min, the chairman of property agency and consultancy Land Power International, said a number of developers had revised their original designs to include bare-shell homes that are sold with bare floors and walls and without interior fittings such as toilets and bathroom fittings. They were forced to adopt the practice because of growing difficulties in raising the finance needed to build projects with fully fitted homes.
'Many developers are facing cash-flow problems as a result of declining sales and credit difficulties. They've had to come up with a strategy to speed up the asset turnover to keep themselves afloat,' Choi said.
It also cuts six months off the time it takes to build a conventional project, which means quicker inventory turnover.
'Because of the lower cost, developers can offer the homes for 3,000 to 4,000 yuan (HKD$3,700 to HK$4,900) per square metre cheaper than fully fitted units. That has made them more attractive to price-sensitive buyers.
'The money the buyers have saved can be used for decorating their flats according to their budget,' he said. Still, sales remain slow because of the depressed market.
Choi said the switch to selling bare-shell homes could help developers comply with the central government's cap on rises in home prices - one of a number of moves to cool the red-hot property market.
'The introduction of price limits will force developers to offer-bare shell units again, as such flats can be offered at cheaper prices than fully fitted homes,' said Hermit Poon, a director at Centaline in Zhongshan, in the Pearl River Delta, where authorities suspended the registration of homes sold for 6,590 yuan per square metre or more from January 23 (the cap was previously 5,800 yuan per square metre, but developers were unwilling to build new flats or sell existing ones at such a low price and buyers feared the resale price of flats would be depressed).
In Guangzhou, according to the mainland's biggest property website, Soufun, fully fitted units accounted for 75 per cent of new supply in 2010, but only 50 per cent last year. In other words, the proportion of bare-shell units sold doubled in one year.
In Shanghai, just 14.6 per cent of new-home supply last year comprised fully fitted units, down from 18.2 per cent in 2010, the newspaper National Business Daily. In other words, 85 per cent of new flats put on the market in the city were bare-shell.
With home sales down as much as 70 per cent since the austerity measures were introduced, developers have been engaged in a price war since September.
To drum up sales, China Vanke, the mainland's largest listed developer, sold 30 bare-shell flats of 112 square metres each at Vanke City in Huizhou, east of Guangzhou, for 700,000 yuan each, about 100,000 yuan cheaper than those with interior fittings, in November. When it was launched early last year, all the flats there were supposed to be fully fitted.
In marked contrast to the mainland trend, Sun Hung Kai Properties said it spent HK$250 million on kitchens and bathrooms alone at its new project, The Wings, in Tseung Kwan O, while K Wah International said it paid HK$100 million for kitchens from German home-appliance manufacturer Miele for its joint-venture project, Marinella, in Aberdeen.
Choi said: 'There will be more bare-shell projects on the mainland this year.'
David Ma, a director and general manager of Hon Kwok Project Management, a subsidiary of Hon Kwok Land Investment, said a growing number of developers in Guangzhou had lowered their budgets for interior decoration in order to reduce flat prices.
'Previously, some developers would promote their new projects by spending 6,000 to 8,000 yuan per square metre for interior fittings and advertise that they featured imported air conditioners and refrigerators.
'But now they have changed to using cheaper domestic brands and cut the selling prices by 1,000 yuan per square metre. That will appeal to homebuyers,' he said.
Alan Chiang Sheung-lai, head of residential for Greater China at DTZ, said that while projects in Shanghai and Beijing would continue to offer fully fitted new flats, the nationwide market would be dominated by bare-shell units.
He said most small flats aimed at investors would still be fully fitted, so buyers would not need to expend time and money decorating them and fitting them out before letting them.
Shanghai accounts for this share of the nation's residential property value, but just 1.5 per cent of its population.