• Mon
  • Jul 14, 2014
  • Updated: 8:30am
PropertyHong Kong & China
PROPERTY

Profit margins for Hong Kong developers shrinking

PUBLISHED : Monday, 04 November, 2013, 5:53am
UPDATED : Monday, 04 November, 2013, 7:07am

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.

The Cullinan attracted strong demand for those flats and subsequent batches of units despite later price rises. Barclays said overall pricing for The Cullinan appeared to be 9 per cent below the secondary market level.

At The Austin, Wheelock and New World Development also undercut secondary market prices to launch the first batch of flats on October 26. The headline price was HK$22,875 per sq ft, but analysts said effective prices averaged below HK$19,000 per sq ft after discounts and rebates.

The developers had sold 372 flats at The Austin by yesterday, when the headline price for the latest batch of 107 was raised to an average HK$25,369 per sq ft.

Some analysts, such as Alfred Lau of Bocom International, take a glass half-full approach, saying the good response indicates prices will not fall sharply.

"Sales have improved even as developers gradually increased prices. Why do developers need to slash prices further?"

Lau said developers' profit margins had fallen to about 30 per cent from 35 per cent at the start of the year, before cooling measures in February.

Barclays said some major developers' profit margin for their Hong Kong projects was below 20 per cent based on current prices.

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This article is now closed to comments

caractacus
The poor property developers, my heart bleeds for them because they are only making 300% profit on their investments instead of 500%.
HK-Explorer
There are tens of thousands of people sitting on their downpayment just waiting to buy a first apartment. How much prices fall all depends on how long they can stay living with mom and dad and those who are married how long they can stay being renters?
It all comes down to how desperate people are to buy in relation to new houses come on the market.
I think there will be a short period of a dip, maybe 10-20% (depending on the area in HK). It won't go any lower because construction costs are increasing substantially recently.
Once general house prices have dropped and interest rates have gone up 2-3% the government will slowly remove last years measures. Once this occurs foreigners and people already owning one house will jump back into the market (they are sitting on ever growing stock pile of $$$).
Thus 2016 house prices will be the same as now or higher.
 
 
 
 
 

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