Mainland developers face hard choices as the fizz goes out of the Hong Kong property boom
- Mainland developers need to downwardly adjust their prices and profit expectations, according to analysts
- Margins look challenged at projects where land was acquired two years ago
Mainland Chinese developers who arrived late to the Hong Kong real estate party are among the first to suffer the hangover.
Property analysts are pointing at developers who bid lavishly two years ago and who now appear to have the least flexibility to lower prices as the property market softens.
Esther Liu, director of corporate ratings at rating agency S&P Global said mainland developers who bought land as recently as 15 months ago could face negative surprises on their profit margins if property prices continue to deflate.
“Chinese developers could find it hard to match their original return expectations and achieve lower profitability than those by local Hong Kong peers,” Liu said.
China Evergrande, the third largest mainland developers by sales, is likely to see their margins squeezed when it launches its upcoming Hong Kong residential project, the first by the developer in the city.
In January 2018 the Guangzhou-headquartered developer paid HK$6.5 billion (US$828.17 million), or HK$8,300 per square foot for a residential site at 8 Kwun Chui Road, Tuen Mun, about a 20 minute walk from the Hong Kong Gold Coast Hotel.
