Mainland developers in Hong Kong at risk of losses after paying high prices for land
China Evergrande Group and Country Garden have little wiggle room to profit if higher borrowing costs dampen buying enthusiasm.
Two mainland Chinese developers face an expensive lesson for being late.
In the past year, China Evergrande Group and Country Garden paid huge prices for land for residential development in the New Territories. But their Hong Kong counterparts snapped up similar land plots for far less as little as three years ago.
Now, as Hong Kong banks begin to raise mortgage rates, potentially dampening demand and home prices, the mainland Chinese companies face the prospect of skimpy profits – or even losses – while their Hong Kong rivals can still be expected to scoop up sizeable returns on their investment.
The mainland companies also have less wiggle room to lower prices to compete if housing prices slide, as many analysts are predicting.
“Mainland developers [are] in a more vulnerable position to any price corrections in the Hong Kong residential market. Their projects in Hong Kong may struggle to break even, or potentially run into losses, if prices decline by more than 15 per cent or 20 per cent,” said Cindy Huang, an analyst at S&P Global Ratings.