Opinions vary on outlook for property developers

PUBLISHED : Monday, 23 April, 2012, 12:00am
UPDATED : Monday, 23 April, 2012, 12:00am


Analysts are divided over the outlook for share prices of Hong Kong property developers under the new administration of chief executive-elect Leung Chun-ying.

In a report on the local property market released last week, investment bank CLSA said a proactive policy on boosting property supply promised by the new chief executive could see residential price growth halve over the next decade and erode investment returns offered by property shares.

But other analysts disagreed with this view, arguing that under the new policy land costs would fall and developers could maintain margins by selling more flats.

In the CLSA report, researchers led by Nicole Wong noted that following on the decade that ended in 2010, during which property prices grew at an annual average rate of 5.2 per cent a year, the current decade could see average annual price growth slow to 2.6 per cent.

Since investments in listed property developers had generated returns of just 3 to 8 per cent over the decade of phenomenally high price growth in the residential market, there could be little reason to continue holding property stocks over the next five years, the report added.

But while earnings in the property sector had peaked and were now due to slow, Hang Lung Properties, Wharf Holdings, and Hongkong Land could generate somewhat stronger earnings growth, analysts said.

Commenting on the CLSA caution on investing in property stocks, Eric Yuen Chi-fung, head of research at Guoco Capital, said developers did not only rely on growth in property prices to make money. He also said it would take at least three to five years for the market to feel the impact of the new policy.

'In the meantime, the performance of the mainland economy, the influx of money, and movements in interest rates will have a greater impact on Hong Kong property prices.'

Cusson Leung Kai-tong, an equity analyst at investment bank Credit Suisse, said property developers could lift the supply of housing to counter falling prices and thus maintain their revenue growth.

'When housing supply is tight, developers can sell their flats at higher prices. When housing supply increases, they can increase their production. So even if property prices fall, they can maintain their revenues, as land costs will fall at the same time.'

Leung said he believed the new chief executive would aim to maintain stable property prices.


The average annual rate at which Hong Kong property prices increased in the decade that ended in 2010