SHKP sees tough times ahead for property developers in Hong Kong

Sun Hung Kai Properties, the city's largest developer by market value, expects competition to heat up next year, with heavy subsidies on stamp duties to cut profit margins, after it reported a 14.99 per cent increase in full-year core profit.

Driven by increased property sales and solid growth in rental income, SHKP reported underlying profit, excluding revaluation gains on investment properties, of HK$21.41 billion, lower than the HK$21.55 billion consensus estimate of 16 analysts compiled by Bloomberg.

For the year ended June, net profit dropped 16.86 per cent to HK$33.52 billion due to smaller revaluation gains on investment properties.

Turnover rose 39.61 per cent to HK$75.1 billion.

Profit generated from property increased 46.17 per cent to HK$10.51 billion, while net rental income grew 17 per cent to HK$14.27 billion.

SHKP declared a final dividend of HK$2.40 per share, the same as last year.

"Profit margins will not be as good as before," co-chairman and managing director Thomas Kwok Ping-kwong said, without further elaboration.

Profit margins for developers could be cut by 20 to 50 per cent, according to analysts, because they are offering projects at discounted prices and subsidising stamp duties to entice buyers.

SHKP shares dropped 0.17 per cent to close at HK$117.90 yesterday before the release of the earnings results.

Kwok said fierce competition to sell flats would escalate further next year and bidding for land would also heat up.

The company said it aimed to complete 30 per cent more flats in Hong Kong during this financial year, taking the total to 3.64 million sq ft.

Developers are set to sell a record HK$150 billion of new homes this year, up from a five-year low of HK$92.44 billion last year, according to data from Centaline Property Agency.

"We will actively pursue land acquisition opportunities except small sites," Kwok said, pointing out SHKP's interest in bidding for MTR Corp's Tai Wai Station residential project.

With growing uncertainties in the global economy, he said it was extremely difficult to predict the city's property market outlook. "I have to apologise … I really don't know how to assess the market now," he said.

Figures released by the Rating and Valuation Department last week showed home prices and rentals climbed to record levels in July despite the introduction of heavier taxes to curb investment demand.

Deputy managing director Victor Lui Ting said the company had increased its sales target for this financial year to HK$32 billion, up from HK$28 billion in the past year, when contracted sales totalled HK$27.7 billion.

Another deputy managing director, Mike Wong Chik-wing, said SHKP would build more small to medium-sized units in order to meet market demand.

"With the changing of the Hong Kong family size, demand for units to accommodate a family of two to three is stronger than the previous five to six people," Wong said.

Lee Wee Liat, the head of property research at BNP Paribas Securities, said SHKP's ability to put more flats on the market should support higher sales for this financial year.