Companies large and small are pushing to offer more value for money in a tight-margin environment Hong Kong's sophisticated property management industry will continue to be characterised by fierce competition, pushing large and small players to offer more value-added services. The weakened property market and the subsequent slowdown in new developments in recent years have intensified competition in the industry and squeezed profit margins. Legislative changes that give greater flexibility for residential owners to terminate the employment of property management companies also have exerted pressure on the income of managers. Eric Lee, regional director for Asia with Jones Lang LaSalle, said the number of new projects available had fallen drastically in recent years and price-conscious property owners had moved quickly to control costs. In addition, many big developers had their own property management subsidiaries to take care of their projects, which further reduced new management business on the market, he said. Most property managers could only compete for business in the existing pie, so they had to offer attractive terms such as cutting fees and adding services, Mr Lee said. According to industry estimates, more than 70 property management companies operate in Hong Kong, with more than 300,000 people working in the sector. The nine largest operators each employ more than 2,000 staff. Mr Lee said management contract values and profit margins would continue to fall if operators provided basic services only. 'They must upgrade their capability and diversify their operations, for example, to other real estate services,' he said. 'In the past, operators were earning basic management fees. They are now exploring more opportunities to increase revenues such as providing valuation, agency and consultancy services.' Mr Lee said that this kind of asset management would look at ways to maximise the returns from the property. 'Operators will give advice on the benefit from a change of land use and how to retain tenants or explore additional income streams. They are pro-actively bringing expertise into management.' The launch of real estate investment trusts later this year or early next year is expected to create new business opportunities and boost the growth of asset management services. Mr Lee said that with the property market recovery under way, more property investors (including overseas investment funds) would come to Hong Kong to look for opportunities. This would increase the demand for comprehensive property management services. As a whole, mass residential projects would remain the focus of growth for property management business because of the size of development, he said. New commercial developments would decrease in the next few years. The Housing Authority's continuous plan to contract out the management work of its public housing estates to private sector companies would be a major source of business, although the outsourcing process was slowing down, he said. 'The prospect also depends on government policies and the economy. For instance, a policy change to allow a change of land use for industrial building could speed up redevelopment and generate new management business in future,' Mr Lee said. As the property market recovered, the pressure on cutting fees could ease as customers would not mind spending more for value-added management services, he said. Stephen Mooney, executive director of asset and facilities services for Asia-Pacific at CB Richard Ellis, expected to see continuous growth in the property management industry. The increased sophistication in service level requirements from occupants and owners, together with enhanced statutory requirements in operational, financial and administrative areas would form a good base for ongoing growth, he said. 'Property management is also expanding into the asset or investment management area, thus expanding from the pure operational areas,' he said. 'The investment performance of property is and will become a more important aspect of management responsibility.' Against the keen market competition, smaller property management operators are finding it tough to survive. Mr Mooney said a smaller player probably needed to focus on a niche area in a mature property management market. 'I believe there is always room for a new or small player within the property management industry. They may have a certain expertise in, say, the retail sector or a low-cost service delivery platform for a particular service, which may complement a larger owner or property manager,' he said. Mr Mooney said the transition forward from a smaller boutique manager was difficult but always achievable through organic growth, acquisition or mergers. 'Trends and developments in property management seem endless and ongoing. I would suggest, rather than being new initiatives, most are a sophisticated re-badging, refocus or enhancement.' He said risk management, procurement, quality assurance, training and development continued to be in focus. Technology and Web-based information technology products providing real-time access to information in financial, administrative and operational areas required ongoing development. The green movement focusing on environmental issues such as quality, recycling and energy management would continue to advance, Mr Mooney said. Mr Lee also said technology was the way forward as it helped save costs, carry out analysis, provide better services delivery and upgraded service quality, such as through the use of personal digital assistants, e-tendering and setting up IT platforms for property management. Environmentally friendly services would continue to develop but were not critical elements. 'To customers, this is something nice to have, but not top on their list,' Mr Lee said.