High building costs to limit price falls

Rising construction costs will act as a brake on falling property prices, limiting any declines to about 10 per cent, says New World Development chairman Henry Cheng Kar-shun.

"The fall in prices will be limited because construction costs have continued to increase. About 60 per cent of the development cost of a residential project is construction cost. We can only cut our profit margin or the land price drops [to lower the investment cost]," Cheng said yesterday, as the developer reported a 26.1 per cent jump in underlying profit for the year to June.

He said any falls in land price would be greater than those for property prices, adding that property prices might even go up because of a tighter supply of new housing.

Cheng believes the government should maintain its cooling policies for the property market, but with some "fine-tuning", such as exemptions from extra stamp duties for those buying properties through companies.

The latest round of cooling measures released on February 22 - which included the extra stamp duties - has led to a sharp decrease in property sales. New World's contracted sales in Hong Kong dropped more than 5 per cent to HK$8.7 billion during the past fiscal year, well short of its HK$11.04 billion target.

Joint general manager Adrian Cheng Chi-kong said the sales targets for this year were HK$10 billion for Hong Kong and HK$17 billion for the mainland.

"We have generated HK$4.2 billion from contracted sales since July, which is about 40 per cent of our sales target," he said, adding that the revenue came from the sale of 900 flats.

The company is aiming for total sales of 1,400 flats.

The developer's 26.1 per cent rise in underlying profit, excluding a property revaluation gain, amounted to HK$6.33 billion. Revenue rose 31.3 per cent to HK$46.78 billion, while net profit grew 39.5 per cent to HK$14.15 billion.

The strong growth was attributed to an increase in property sales in Hong Kong and on the mainland. Revenue from the property sales jumped 92 per cent to HK$24.25 billion.

Turnover from Hong Kong property sales surged 300 per cent, while mainland sales grew 40 per cent. The major contributors in Hong Kong were the Signature project in Tai Hang, Riverpark in Sha Tin and Double Cove in Ma On Shan.

While Sun Hung Kai Properties and K Wah International have flagged they will build more mass residential projects, Henry Cheng said the location of sites and demand would determine how they were developed. He added there was still demand for luxury flats.

The firm's gross rental income from Hong Kong investment properties rose 10.9 per cent to HK$1.46 billion.

The company will pay a final dividend of 30 HK cents a share.

New World shares fell 1.16 per cent to close at HK$11.88 yesterday.