HK developers turning blue as property market enters ‘ice age’

HK developers turning blue as property market enters ‘ice age’

HONG KONG – Government cooling measures to rein in Hong Kong’s property market are finally taking a toll on the city’s powerful developers and industry watchers forecast prices could drop by up to 15 per cent in the second half of this year.

42 MIN 11 SEC AGO

HONG KONG – Government cooling measures to rein in Hong Kong’s property market are finally taking a toll on the city’s powerful developers and industry watchers forecast prices could drop by up to 15 per cent in the second half of this year. Weak property sales at conglomerate Cheung Kong (Holdings), controlled by Asia’s richest man, Mr Li Ka-shing, confirmed that a series of tightening steps are weighing on companies’ bottom lines and taking the heat out of one of the world’s most expensive real estate markets. “It’s like an ice age now from an agent’s perspective,” said Mr Patrick Chau, director of residential investment at property consultant Savills. “The sales volume has dropped substantially since the implementation of a series of tightening policies.”New home transactions dropped 22 per cent in the first half of this year from a year earlier and were down 40 per cent when compared with the second half of 2012, according to Centaline Property Agency, one of the city’s leading agents.

For the second quarter, overall home transactions dropped to 11,443, the lowest quarterly sales since 1996, according to real estate services company Colliers International.

Industry analysts now expect residential prices to drop between 5 and 15 per cent by the end of this year.

Cheung Kong, the city’s second-largest developer, reported on Thursday a 13 per cent year-on-year decline in first-half profit to HK$13.4 billion (S$2.2 billion) due to weaker property sales in Hong Kong.

Property sales accounted for 37 per cent of its total first-half turnover, down from 57.3 per cent a year earlier. The company blamed new government regulations and measures for sluggish residential property transactions.

Cheung Kong sold 267 units in Hong Kong in the first half for HK$2.8 billion, less than a tenth of its full-year sales target, according to BNP Paribas property analyst Wee Liat Lee.

The company’s sluggish figures came just a day after Hang Lung Properties posted a 23 per cent drop in first-half profit after it sold “substantially fewer residential units”.

“If you ask me to describe the market with one word, I will use ‘winter’,” Hang Lung Properties chairman Ronnie Chan said at its earnings briefing on Wednesday. “It feels like winter when selling properties in Hong Kong.”

In February, the government imposed higher stamp duties and home loan curbs on property transactions, coming nearly four months after it introduced a 15 per cent tax on overseas buyers that many analysts said was aimed at mainland Chinese.

New rules that came into effect in April on sales practices, including new guidelines on marketing strategies, have also led some developers to delay the launch of new projects.

Credit Suisse said in a recent report that no property projects had been completed in Hong Kong during the first half, although some analysts said it was too early to say if this signalled the start of a long-term downturn.

Overall residential property prices have jumped 120 per cent since 2008 on ultra-low interest rates, tight supply and abundant liquidity. They have slipped about 3 per cent from record highs in early March.

Analysts said developers would have to cut prices further to attract local buyers as mainland Chinese investors, who at one point accounted for more than 40 per cent of sales, had fled overseas for better options.

“They are going to reduce the price (of new projects). They have to face the reality,” said Ricky Poon, executive director of residential sales at Colliers International.

Mr Poon expects the city’s developers, including Cheung Kong and Hong Kong’s largest developer, Sun Hung Kai Properties, will cut the premium – the difference between new launches and second-hand homes – of new projects by 10 to 20 per cent in the second half to attract local buyers. REUTERS

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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