Country Garden rolls out first batch of Hong Kong flats, pricing some units at below cost

Country Garden Holdings, China’s largest developer by sales, is bracing for a potential loss on its majority-owned residential project in Ma On Shan, as an initial batch of flats are being released at a starting price below development cost, according to analysts.

The developer said on Friday the first batch of 110 flats at the 547-unit Altissimo would be offered at a starting price of HK$13,887 (US$1,773) per square foot, after factoring in a discount of up to 14 per cent.

In September last year Country Garden paid Wang On Properties HK$2.44 billion, or HK$10,500 per sq ft, for a 60 per cent stake in the 387,500 sq ft residential lot.

Taking into account construction costs of roughly HK$4,000 per sq ft and interest expenses, surveyors said the overall investment cost would range between HK$15,000 to HK$16,000 per sq ft.

Country Garden said on Saturday it expects the overall investment return on the project will not deviate significantly from its target.

“The Hong Kong property market remains healthy and demand for housing is strong,” the company said in a written statement.

However, one analysts said mainland developers are more vulnerable than local ones if prices continue to correct because of their high land acquisition costs.

“Some mainland developers that bought land at ultra-high prices in the past two years may face a potential loss, or just break even when they release the properties now,” said Joseph Tsang, executive director at JLL.

Mainland developers in Hong Kong at risk of losses after paying high prices for land

Tsang predicted home prices would fall 15 per cent by the end of 2019, although a deeper 25 per cent correction is possible in a worst-case scenario as the knock-on effects from the US-China trade war reverberates through the stock market and the economy.

In a sign that the property market continues to cool, several new project launches failed to sell the first-day batch of flats.

“The tepid response will make it hard for developers to raise prices in subsequent releases,” said Tsang.

Last week, homebuyers snapped up 48 per cent of the 152 small units available at Reach Summit, a joint project by Henderson Land Development and New World Development, reflecting a disappointing result in a market where until recently it was common to see new batches of flats snapped up on the first day.

With the poor sales result, developers have reined in spending when acquiring land.

A residential plot in Kai Tak, the site of the city’s former airport, was sold to mainland developer Goldin Financial Holdings on Wednesday for HK$8.9 billion, or HK$15,497 per sq ft. The result was about 13 per cent below the record HK$17,776 per sq ft set by another site at government auction in the area in May.

Sigh of relief as second plot on Hong Kong’s Kai Tak runway fetches more than first

Thomas Lam, executive director at Knight Frank said mainland developers have adopted the practice of offering initial flats for release at an attractive price to garner market attention.

He believes the Altissimo in Ma On Shan could eventually make a profit if it managed to achieve an average selling price above HK$16,000 per sq ft.

“It is common for the developer to release the first batch at a low price to attract buyer attention, particularly as sentiment continues to sour,” said Lam.

The average discounted selling price of the 110 Altissimo units was HK$16,497 per sq ft. Units ranging from 312 sq ft to 879 sq ft were being offered at HK$13,880 per sq ft to HK$20,140 per sq ft, or HK$4.98 million to HK$16.66 ­million.

Flats on the first floor were being offered at less than HK$15,000 per sq ft. For instance, a 876 sq ft flat on the first floor cost HK$13,887 per sq ft or HK$12.16 million after discount.

Roy Chau, sales and marketing director at Country Garden Properties (Hong Kong) said the launch price was about 10 per cent lower than other new project launches in the same area.

“This price should receive support from the market,” he said.

However, Country Garden’s joint venture partner, Wang On, has already made a profit, having bought the site for HK$2.7 billion, or HK$6,967 per sq ft from another property development group in June 2017. Three months later, Wang On pocketed HK$800 million by selling a 60 per cent stake to Country Garden. The price of land had jumped 90 per cent to HK$10,500 per sq ft since China City Construction and Chun Wo originally won the site at government tender in 2014.