• Fri
  • Dec 19, 2014
  • Updated: 12:00am
PropertyHong Kong & China

Property developer expects no price drop

PUBLISHED : Saturday, 17 August, 2013, 12:00am
UPDATED : Saturday, 17 August, 2013, 4:01am

Wheelock Properties, the biggest landlord in Tseung Kwan O, said there is little room for housing prices to drop because of high construction costs.

"Construction is now more expensive than land. This is unprecedented," said vice-chairman Stewart Leung Chi-kin.

He said construction costs, both in terms of human resources and materials, had increased 50 per cent in the past few years.

In July, Wheelock bought a seaside plot in Tseung Kwan O for HK$3.67 billion, or HK$4,288 per square feet, 6 to 13 per cent lower than the prices at which seaside lots were sold last year. It planned to invest HK$8 million in a residential project on the site that would include high-rise apartment buildings and sea-view detached houses.

Leung said the area was well equipped and densely populated, and had great potential to become the next central business district after Central and Admiralty. But he added that the government needed to find a way out for the environmental problems caused by the landfill site in southeast Tseung Kwan O.

The company has bought four plots in the satellite town totalling 2.34 million sqft for HK$9.9 billion since last year. The first project is expected to be launched next year, with prices of more than HK$10,000 per square foot.

Although Leung sounded confident, sales of first-hand residential properties have been hit by the new ordinance in April aimed at shielding buyers from dishonest practices.

Research by Centaline Property Agency in July said the inventory level of residential properties, or the ratio of unsold units, stood at 14.6 per cent - the highest in nine years.

To clear its 15 remaining units, Hongkong Land offered a 5 per cent discount for the Serenade project in Tai Hang last month. From Tuesday, Kerry Properties will sell the last 35 flats at its Lions Rise project in Wong Tai Sin at discounts of up to 9 per cent.


For unlimited access to:

SCMP.com SCMP Tablet Edition SCMP Mobile Edition 10-year news archive



This article is now closed to comments

This is hilarious. Mr Leung doesn't seem to understand one of the most elementary principles of economics: price is a function of supply and demand. Not price is a function of price.

Does he really not phantom that his input costs (labour, materials) might go down when the demand for them wanes? Or that their high prices might just lead to more supply (I know a lot of real estate agents might become construction workers, and particularly cement has a lot of excess capacity on the horizon), also leading to lower costs?

Then even if all those other things do stay equal, Wheelock had a 2012 revenue of 33.1bn HKD, with a net ('core') profit (even after taking some write-down charges) of HKD 7.3bn. That is a comfortable net profit margin of 22%. Most property developers are indeed in this ballpark (15~25% profit margins). Hardly sounds like an industry that is standing with its back against the wall and selling at near-cost price, with no room for cost savings, or margin compression.

Seldom does one see a supposedly well-informed senior manager make such wrong-headed statements. If I had shares in Wheelock or its subsidiaries, I would sell them right away, citing concerns about 'the quality of management.'
The funniest and most alarming thing about his statement is that it perhaps shows the general mentality of big businesses (developers in particular) in HK. It suggests they think they have a God given right to making huge profits every year without fail. Has it ever occurred to these tycoons that even if construction costs are skyrocketing, that they may have to sell at a loss (or at least make less profit) when there is insufficient demand. It seems not though, because he clearly reckons developers can just maintain prices or even raise them further. But of course I don't blame him for thinking this way having been given such a smooth ride by our government for so long.
He is probably telling the truth (whether you like it or not). Most construction workers are in their 40s / 50s. There is a growing shortage. On top of this there is a massive MTR expansion, New road building in New Territories and the Zhuhai / Macau bridge. +the government is pushing a big housing build surge. Further there is the Kai Tak & cultural center build.
There is more building going on than ever before. This means both labor and materials are both in high demand and costs are increasing.
I don't think many young people want to be construction workers anymore. especially working outside in the elements thus wages will rise further either to attract new ones or to grab from the dwindling resources available.
Stewart Leung knows the market is deflating, hence the pressure to tell all it isn't falling. Simple disinterested interest. IMF warned last year Hong Kong property market will deflate or fall. We all know it will crash or deflate eventually. So relax sit back and enjoy the show ... BTW, by the time, government removes all double stamp duty measure, US will be on the verge of increasing interest rates. Hot money leaves HK, and wa la ... cheap funding gone ... and Wellcome will start selling lots of charcoal for 2012 yr end 2013 home buyers for use at home to escape from negative equity. Don't say the government did nothing to forewarn you now ...
I heard This argument many time. Then HK developers need to look at their problems if construction costs are so high, doesn't make sense. Hk paid is not high at all in the general public. Either he is lying or there is a major ineffiency in the system. hK construction cost can't be so high. Constructions coast include material, labour, design and architect and legal, there must be some inefficiency there.


SCMP.com Account