Profit margins for Hong Kong developers shrinking

Developers of recently launched high-end flats have achieved brisk sales by using innovative pricing strategies such as stamp duty rebates as well as more traditional discounts.

Analysts are split on whether these policies presage a dramatic fall in prices, but they agree on one thing: developers' profit margins are being squeezed.

Evidence of the shrinking margins can be seen in the narrowing gap between the prices of new homes and those in the secondary market, Barclays said.

The premium of primary or new home prices to secondary prices fell to just 4 per cent in the third quarter from 17 per cent last year, according to Barclays.

"We found that the key ingredient driving volume was that the primary average selling prices matched or were slightly less than secondary prices," said Barclays analyst Paul Louie.

The firm expects a drop in prices of at least 30 per cent by the end of 2015.

Louie pointed to Sun Hung Kai Properties undercutting secondary prices early last month when it released 181 flats at The Cullinan at an average price of HK$29,097 per square foot of saleable area. Once rebates and discounts were factored in, the net effective price was HK$25,024 per sq ft, 21 per cent below transaction prices in the secondary market.