Property developers may see their project margins deteriorate this year to a level where they just cover costs, the result of rising competition for buyers and ongoing drops in home prices, experts said. It will be the first time that has happened since 2003, the year that the severe acute respiratory syndrome (SARS) outbreak hit Hong Kong. Home prices have dropped 13 per cent from a peak in September. They are widely expected to fall 10 per cent to 15 per cent this year and developers’ pricing power may be weakened by soaring supply. Alfred Lau, a property analyst at Bocom International , estimated earnings before interest and tax margins could fall below 10 per cent from the previous 20 per cent to 25 per cent. That’s based on a forecast for a 30 per cent correction in prices by the end of this year. Developers have been forced to offer projects at a 5 to 10 per cent discount to the secondhand market price to accelerate sales. That’s compared with their selling them for as high as a 30 per cent premium three or four years ago. “This makes property development only break even financially, net of taxes,” Lau said. Eva Lee, head of Hong Kong and China real estate research at UBS, said some individual projects may see margins drop to single-digits. Margins could be even worse next year and in 2018, she said. She expects overall development net margins to decline to 18 per cent over the next three years, from 25 per cent to 30 per cent previously. UBS forecasted a further 10 per cent to 15 per cent fall in home prices this year and a 5 per cent to 10 per cent drop next year. Lee said developers who had bought sites at high prices over the past two years and were due to release projects on the market from this year would be hardest hit. Developers were on Friday locked in fierce competition for buyers after Wheelock Properties suddenly raised the discount at its luxury project One Homantin in Ho Man Tin by 8 percentage points to up to 26.5 per cent, from 18.5 per cent when it was launched on March 27. The move suggested the developer has decided to sacrifice profit margin in a bid to undercut two rival projects, Kerry Properties’ Mantin Heights and Sun Hung Kai Properties’ Ultima phase two. Both are in the same area. Thomas Lam, head of valuation and consultancy at Knight Frank, said he would not be surprised to see stresses at some mainland developers who paid excessively high prices for land several years ago. “In this case, profit margins could largely evaporate due to the high land cost,” he said. In December 2014, a joint venture led by state-owned China City Construction paid HK$2.14 billion — HK$5,517 per square foot — for a residential site in Ma On Shan, a record for the area before another mainland company, Citic Group, bought a nearby site for HK$1.469 billion — HK$6,500 per square foot. In the case of Citic Group, its estimated break-even cost was HK$12,000 per square foot, while units at a new project nearby, Double Cove, were selling for just HK$12,000 to HK$14,000 per square foot.