Hong Kong developers' tepid bids for site reveal gloomy outlook for prices

Tseung Kwan O site sold at the lowest accommodation value in the area in more than three years, reflecting gloomy expectations

PUBLISHED : Thursday, 27 June, 2013, 12:00am
UPDATED : Thursday, 27 June, 2013, 4:26am

The lacklustre bidding for a Tseung Kwan O residential site on Tuesday shows that developers believe property prices will come under pressure over the next few years, analysts say.

Chinachem's winning tender of HK$3 billion translates into an accommodation value of HK$3,653 per square foot, the lowest in the area in more than three years.

About 4,000 flats in Tseung Kwan O are available for sale, Centaline Property Agency said.

Ken Lee Yuk-cheung, a sales director at the firm, said about 100 flat owners cut their asking price by 1 to 2 per cent after the tender result was released and that around 20 cut their asking price by more than 2 per cent.

"But the news was not so daunting as to make a majority of flat owners cut their asking prices," he said.

Eric Yuen Chi-fung, the head of research at Guoco Capital, said the bidding reflected developers' expectations for property prices three to four years down the road. "They believe property prices have downward potential, and so that's why their offers were conservative," Yuen said.

"Chinachem is a private company and is under no pressure to publicly report its profit. Its offer was the highest of the developers. The others must hold a more negative outlook."

Yuen said he believed developers were pessimistic because interest rates may rise as the US Federal Reserve moves closer to reducing its stimulus programme.

"Development costs will increase if interest rates rise," he said. "As construction costs continue to rise and housing supply increases significantly, developers have turned conservative when acquiring land."

Yuen said he expected property prices to drop, adding that how far they fall depended on the performance of financial markets. "It seems the government hopes property prices will fall 20 per cent," he added.

Charles Chan Chiu-kwok, the managing director of consultancy Savills, said he expected prices to drop 10 per cent to 15 per cent in the second half.

"Property prices face downward pressure, as property sales have stayed at a low level," he said. "Flat owners will have to cut their asking prices to lure buyers, and prices of new homes will be affected by an increase in supply."

Lee Wee Liat, the head of property research at BNP Paribas Securities, said mass residential prices would be flat or rise by as much as 5 per cent.

"Developers submitted conservative offers for the Tseung Kwan O site because there will be plenty of new supply in the area," Lee said. "Demand for mass residential remains strong, and rental yields are still higher than mortgage rates, but the outlook for high-end residential flats is not positive."