Cheung Kong

Cheung Kong's home price cuts 'will affect market' says analyst

PUBLISHED : Saturday, 09 March, 2013, 12:00am
UPDATED : Saturday, 09 March, 2013, 4:38am

While observers are split over whether Cheung Kong's high-profile price-cutting strategy is a marketing gimmick to drum up sales, or a reflection of the belief of Li Ka-shing, the company's chairman, that the property market has peaked, one analyst said the price cuts themselves would have an effect on the market.

Three weeks after the developer's controversial sale of all 360 hotel units at Apex Horizon in Kwai Chung at a low price of HK$5,400 per square foot, it took the lead again on Thursday and cut the prices of flats at its One West Kowloon project in Lai Chi Kok by 6 to 17 per cent.

Justin Chiu Kwok-hung, an executive director at Cheung Kong, said the group's next project in Tsuen Wan would be launched at discounted prices.

Chiu also said he expected home prices to fall 10 per cent this year.

Cheung Kong plans to release a record 5,238 homes in the city and 2,500 on the mainland for sale this year, in an attempt to generate revenue of as much as HK$40 billion.

Venant Chiang, an analyst at Jefferies Equity Research Asia, wrote in a report: "We conservatively estimate [the supply of new homes] amounts to 16,000 to 18,000 units this year. Cheung Kong's new supply alone accounts for about 30 per cent of our estimate. Therefore, its pricing strategy will have a meaningful impact on the market."

Because of shrinking demand after a couple of rounds of policy tightening, the take-up rate for new supply is uncertain, which could potentially lead to deeper-than-expected price reductions, Chiang said.

However, one developer, who requested not to be named, said Cheung Kong's price cuts were merely a marketing tactic.

Sun Hung Kai Properties and Sino Land said they had no plans to follow suit with price cuts. Victor Tin Sio-un at Sino Land said: "Sales will be slow, but we still see solid demand in the market."

David Ng Ka-chun, the head of China and Hong Kong research at Macquarie Capital Securities, said Cheung Kong was serious about raising its market share, as it planned to sell five projects worth HK$30 billion this year, the most in a decade.

Last year, Cheung Kong ranked No1 for units sold and value. In 2011, it was No1 in terms of units sold but No2 in terms of value, behind SHKP.

"The product mix of Cheung Kong should also be favourable in a down market," Ng said.

Figures from Centaline Property Agency show Cheung Kong sold 3,300 units at an average of HK$7.9 million each last year, while SHKP sold 1,700 units at an average HK$13.4 million.

On February 23, the government doubled stamp duty on the purchase of all properties sold for more than HK$2 million to as much as 8.5 per cent.

Major lenders expect a rise in mortgage rates soon. HSBC and Standard Chartered said regulatory measures had raised the cost of the business.

Chiang's report said: "If this happens, buyer demand will be hit again, given that end users are generally more elastic to cost of purchase.

"On our estimate, a one percentage point increase in mortgage rate will lead to an over 12 per cent deterioration in affordability, which can be offset by around 15 per cent decline in home price."