China Overseas Land and Investment yesterday warned the worst was yet to come for the property market as it defended its low-price strategy for the launch of a luxury residential project in Shanghai, saying it would not hurt its margins.
'We have been employing the sales strategy of starting with low prices to appeal to potential buyers and raising prices later,' said chairman Kong Qingping.
Last week, the developer released its luxury residential project, The Amethyst, in Shanghai's northwest Putuo district, at an average price of 38,000 yuan (HK$46,500) per square metre, compared with the land cost of 22,400 yuan per square metre. The offer prices are about 45 per cent lower than what the market has been expecting.
In 2009, China Overseas Land paid 7 billion yuan for The Amethyst site in Shanghai, making it the most expensive land in the city at the time. Taking into account construction cost and interest expenses, analysts said its launch price just about covered the total costs.
Kong rejected suggestions that the project might significantly squeeze the company's profit margin.
Last year, the company achieved a gross profit margin of 42 per cent and a net profit margin of 30 per cent.
He said China Overseas Land secured 40 per cent of its sales target - set at HK$80 billion for this year - in the first four months of this year.
'Developers face great challenges in the second half of this year. Though we have seen some relaxation in property curbs, they were insufficient,' he said, adding some cash-strapped developers could struggle to survive.
China Overseas Land has spent 2.4 billion yuan to develop two sites with a total gross floor area of 2.13 million square metres in Ganzhou and Foshan this year. Last year, it spent a total of 24.16 billion yuan for 27 plots and added a total gross floor area of 10.56 million square metres to its land bank.
China Overseas Land shares remained unchanged at HK$16.94 yesterday.