• Fri
  • Nov 28, 2014
  • Updated: 11:32pm
NewsHong Kong

Midland Holdings reports first-half loss as property measures bite

Midland warns that worst is yet to come as it downsizes its branch network and workforce

PUBLISHED : Saturday, 24 August, 2013, 12:00am
UPDATED : Saturday, 24 August, 2013, 8:21am

Midland Holdings, one of the city's leading property agents, has sunk into the red with a six-month loss of HK$88.73 million, and the company warned the worst is yet to come. The firm made a profit of HK$147.3 million in the first half of 2012.

The loss came as property transactions in Hong Kong in the first half dropped to the lowest level in a decade.

There were 39,077 property transactions lodged with the government registry in the first half as a series of housing policy measures and the continued tightening of mortgage requirements weighed on the real estate industry.

It is the lowest since 35,200 deals were recorded in the first half of 2003.

Despite healthy economic conditions, the demandsuppressing policies launched by the government and the upward pressure on costs posed serious challenges to business operations, Midland said in its result announcement.

Chairman Freddie Wong Kin-yip said the market had not yet seen the worst.

"It is just the beginning," Wong said after the result announcement press conference. "Prices will fall further when interest rates rise and liquidity in the market tightens."

In the first half of 2013, the company's revenue fell 9 per cent to HK$1.72 billion compared with the corresponding period last year. The firm did not declare an interim dividend.

In response to the market slowdown, Midland has been downsizing its branch network and cutting the number of employees through natural attrition.

The company said against a backdrop of a low unemployment rate and healthy economic growth, the property market would have performed better if the interventions had been less intense.

Since October, the government has introduced a 15 per cent additional stamp duty called buyer's stamp duty on property purchases by non-permanent residents and companies, and increased from two to three years the period during which additional stamp duty, called special stamp duty, is payable on quick resales of property. It also raised the rates of those duties, doubling the stamp duty payable on purchases of all property worth at least HK$2 million and tightening mortgage lending.

Last month, thousands of real estate agents took to Hong Kong's streets in protest at government efforts to curb soaring property prices, saying new transaction taxes and other measures were threatening their business.

Meanwhile, Midland Holdings announced that Vincent Chan Kwan-hing had resigned as its executive director from yesterday.



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Revenue in H1 2012: 1.89bn HKD
Revenue in H1 2013: 1.72bn HKD
Difference: (170m) HKD

Profit (Loss) H1 2012: 147m HKD
Profit (Loss) H1 2013: (88m) HKD
Difference: (235m) HKD

Conclusion: profits have fallen much more than revenues. Therefore, don't just blame the 9% drop in revenues. When the cooling measures were announced in October last year, did you really think that would lead to a decline in revenues? I don't work in property, and I could have told you that 9% drop was coming back then. In fact, I'd say 9% decline is actually not too bad at all, given the highs it is coming from.

This is mostly a tale of failing to slash costs (read: premises and agents) aggressively enough. Chairman Freddie Wong Kin-yip, despite the noise makes about 'worse to come' apparently doesn't really believe this. If he did, he would already have taken many more steps to ensure his costs would have declined by at least 9% as well. Closing 1 in 10 Midland Agencies would not be that radical, would it? There is one on every street corner after all.

The loss at Midlands is first and foremost due to bad executive management, not because of that ever-convenient scapegoat of 'market circumstances.'

The BSD is specifically designed to discourage foreign purchases of residential property in Hong Kong. How can this be a bad thing? Since HK permanent residents are exempt, the BSD does not discourage them from purchasing. If there are fewer transactions now, then part of the reason is that demand HK permanent residents is just not that high, meaning price must drop in order to reach equilibrium.

Moreover, this proves that BSD is an effective policy tool and ought to be maintained on a permanent basis with possible consideration of increasing the rate to further deter speculation in the property market.
Good. Time to cut staff, shops? Don't need 9m agents in a population of 7m


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