Hong Kong landowner Wharf sees core profit plunge by two thirds amid falling home sales in mainland China
Wharf Holdings, one of Hong Kong’s biggest landowners, reported a 66 per cent drop in core profit, amid a slowdown in property sales that looks set to continue as Hong Kong and mainland China push ahead with market cooling measures.
Wharf’s chairman and managing director Ng Tin Hoi told a post-earnings press conference that the company had struggled to meet its mainland sales targets and that the market outlook for the second half remained challenging.
“I do not know whether we will get there, but we will try our best,” said Ng. “The sales performance [in the mainland] was impacted by administrative measures, which translated into pre-sale consents only being available at prices which are unreasonably below market.”
The conglomerate’s core profit came in at HK$2.53 billion (US$322.31 million) for the six months ended June 30, according to a filing to the Hong Kong stock exchange.
Even adjusting for the spin-off of Wharf Real Estate Investment Company (Wharf REIC) last November, the company’s core profit for the first half was down by 9 per cent compared to the same period in 2017.
Wharf reported HK$1.57 billion of core profit contributed by sales of properties at its development projects, down 32 per cent year on year, mainly due to falling home sales in mainland China.
Total contracted sales were down 33 per cent to HK$10.25 billion while those on the mainland fell by 39 per cent to 7.24 billion yuan, which is just a third of its annual sales target of 22 billion yuan.
Ng said that if the company did not meet the annual sales target, the impact would be felt mainly on Wharf’s financial result in the coming year.
A tough environment for property developers is expected to remain the case as China’s top political body has made it clear that stabilising home prices remains a key policy objective.
In a statement after the meeting of the Communist Party’s Politburo – made up of 25 of China’s most senior leaders – on July 31, officials said that they remained firm on “containing home price gains”, although they removed the word “excessive” from the phrase used in the previous policy stance.
Meanwhile, Wharf’s property developments in Hong Kong are under pressure because of a government proposal to tax vacant flats.
Residential projects deemed to be complete within a year of obtaining their occupation permits will be subject to the vacancy tax if they remain unsold. The levy, equivalent to two years of rental income based on market rates, is expected to be 2.5 per cent to 5 per cent of the value of the property depending on the rental yield.
Wharf’s ultra luxury Mount Nicholson on The Peak, which was launched in 2016, still has yet to find buyers for six houses and 16 flats.
“We’ll see how to cope with it when more details are announced,” said Ng.
Wharf sold two houses and two apartments at Mount Nicholson in the first six months of 2018, for HK$3.3 billion.
In March, a house at the ultra-exclusive project sold for HK$1.4 billion, or HK$151,800 per square foot, a price that makes it the second most expensive in Asia on a square foot basis.
Wharf generated revenue of HK$7.82 billion from January to June, down 54 per cent from HK$17.06 billion a year earlier. Excluding the Wharf REIC spin-off from the 2017 results, revenue inched up 4 per cent year on year.
Wharf announced an interim dividend of 25 HK cents per share.
Wharf hived off six investment properties in Hong Kong with a market value of over HK$230 billion into the Wharf REIC in November, including prime assets such as Harbour City and Times Square – the city’s two biggest malls – and Plaza Hollywood, Crawford House, Wheelock House and The Murray.
Shares of Wharf tumbled 4.25 per cent to close at HK$24.80 on Thursday.