THE increase in the number of defaults on pre-sale flats has driven a brokerage to warn of a sizeable impact on some developers' forthcoming results. According to a report by Worldsec International, Henderson Land Development Co's profits for the year to June 30 are expected to drop by 13 per cent, for instance, because customers have failed to abide by their purchase agreements. Worldsec believes the estimated profits for Li Ka-shing's Cheung Kong (Holdings) for the year ended December 31 will fall two per cent because of potential buyer defaults. Several other property companies in the territory could be similarly affected. The biggest defaulters are said to have been speculators who signed up for pre-sale units in new developments before the market peaked in April last year and are now having difficulty in making their payments. Having seen the prices of flats in new developments decrease by as much as 30 per cent, in some cases, over the past 10 months, and the cost of borrowing progressively go up, numerous buyers have questioned the point of finalising their transactions. Worldsec said prices at four different developments built by Henderson had fallen 33 per cent since April last year. 'We estimate that 50 per cent of units offered in 1994 at Sunshine City Phase 4, 32 per cent of units offered at Royal Court, and 21 per cent of units offered at Skyline Plaza are at risk,' according to Worldsec analyst Carlton Poon, whose report is titled, Residential Property: The Chances of Buyer Default. The brokerage said Henderson's biggest default risk came from the 421 flats it sold at its Sunshine City development project at Ma On Shan between March and May last year when pre-sale prices were spiralling. Units in the same development can now be picked up at high street estate agents on the secondary market for significantly less. Similarly, Worldsec estimates that 259 units or 40 per cent of the 648 homes offered at Cheung Kong's Kingswood Villas development in Yuen Long, in March last year, were liable for potential default. Although buyers are contractually bound to pay the full amount for pre-sale units upon completion once they have paid their deposits, Worldsec said developers such as Henderson were unlikely to enforce the contracts. 'We do not think that the big developers are likely to sue and this means that speculators are more likely to default than they might otherwise have been,' said Mr Poon in the report. 'In the past, developers have simply allowed buyers to walk away from deposits to avoid unfavourable publicity [of rich developer suing poor home buyer]. 'Even genuine buyers could default and buy in the secondary market at a lower price,' the report said. However, Shih Wing-ching, managing director of estate agency chain Centaline Agencies, thought that this was unlikely to become widespread in the case of genuine home-buyers because of the time it would take them to save up enough to put down a deposit for premises elsewhere. Consequently, analysts fear that defaults are likely to have a marked impact on profits booked by developers in 1994 and 1995, although projected earnings are likely to be enhanced in subsequent years once defaulted units are put back on the sales market.