* Sun Hung Kai reports 14 pct drop in full-year underlying
* Tightening measures force developers to cut sales targets
* Govt says no plans to ease tightening given bubble risk
(Adds Sun Hung Kai earnings, comments)
By Yimou Lee
HONG KONG, Sept 12 Hong Kong's powerful property
developers are locked in a price war as measures to cool one of
the world's most expensive real estate markets force them to
impose steep discounts to hit sales targets, with many turning
to mainland China to fill the gap.
Developers such as Cheung Kong (Holdings) Ltd,
controlled by Asia's richest man Li Ka-shing, are even throwing
in free car park spaces - which can be worth $100,000 or more in
densely populated Hong Kong - to lure buyers at a time when
quarterly transactions are at their lowest level since 1996.
Real estate agents have also taken to the streets to urge
the government to relax cooling measures that they say could
cost them their jobs, although market watchers say the
government is unlikely to budge any time soon.
"The Hong Kong government has made it clear that it can't
afford the risks of removing the measures," said Thomas Lam,
head of research for greater China at real estate firm Knight
Frank. He added the government was not expected to revoke the
measures, which include higher stamp duties for buyers and home
loan curbs, in the next 12 to 24 months.
Combined contracted property sales of Hong Kong's four major
developers - Sun Hung Kai Properties, Cheung Kong,
Henderson Land Development and New World Development
- dropped 39 percent year-on-year in the first half of
2013, according to Phillips Securities.
The latest earnings reports from Hong Kong developers show
tightening steps are indeed taking a toll.
Sun Hung Kai Properties, which has a market value
of $35.5 billion, joined that list on Thursday, when it reported
its first decline in annual underlying profit since it started
reporting underlying profit in 2005.
It posted a deeper-than-expected 14 percent drop in
underlying profit to HK$18.6 billion ($2.40 billion) for the
2013 fiscal year and said it had recorded satisfactory
contracted sales of HK$32.9 billion for the
Sun Hung Kai earlier this year lowered its sales target for
the 2013 financial year by 9 percent to HK$32 billion due to the
impact of tightening measures.
"The government's stringent measures, particularly various
types of stamp duty, will continue to restrain various kinds of
demand, though first-time buyers who usually purchase small- to
medium-sized units will be less affected," Sun Hung Kai said in
its earnings statement.
LEADER STANDS FIRM
The battle to rein in property prices has pitted Hong Kong
Chief Executive Leung Chun-ying against tycoons such as Cheung
Kong's Li, who publicly opposed Leung in last year's leadership
Leung reiterated on Wednesday that the city had no plans to
relax recent property cooling measures, given the continuing
risk of a real estate market bubble.
"After careful consideration, the government considers that
any exemptions or tax rebates would weaken any relevant property
cooling policies aimed at lowering the risk of a property market
bubble," Leung said at a business lunch.
"The property market's bubble risk is still something we
can't ignore," he added, noting home prices continued to rise an
average of 0.4 percent between March and July.
Hong Kong began taking steps to cool property prices in
October 2009, although no real impact had been seen until the
most recent moves in February.
"There are no speculators in the market now due to the
tightening measures, so developers are forced to sell properties
close to the market price," said research associate director
Wong Leung Sing at Centaline Property Agency.
Developers are selling new homes at about a 20 percent
premium over prices in the second-hand home market, a sharp fall
from price premiums of between 50 percent and 80 percent before
the latest round of property curbs started last October, said
Knight Franks' Lam.
Cheung Kong offered a 10 percent discount and paid an extra
3.75 percent stamp duty on sales of its newly launched project
"The Rise" in the New Territories district of Hong Kong.
Smaller rival New World Development offered a 10 percent price
cut to buyers who provided instant payment.
Centaline Property, one of the city's leading real estate
agents, said in July the inventory levels of residential
properties was at its highest level in nine years. It predicted
that there would be about 15,000 new units on sale in the second
half of this year, down from nearly 45,000 in the second quarter
MOVING TO CHINA
With no sign of a near-term let-up in Hong Kong's property
policy, developers are now increasing investments in mainland
China to cushion the blow at home.
"Most developers in Hong Kong are increasing their
portfolios in China," said Charles Chan, managing director of
valuation and professional services at real estate services
"The policy risk is comparably lower (in China) than in Hong
Kong," Chan said, adding that developers also found China's
lower land prices and construction costs attractive.
Sun Hung Kai last week outbid Hong Kong developer The Wharf
Holdings for a commercial site in Shanghai that set a
record at 21.77 billion yuan ($3.6 billion), a move analysts
said would help it to be a prime landlord in China's financial
It said at an earnings briefing on Thursday it aimed to
invest HK$40 billion in the Shanghai site.
Cheung Kong, which sold less than a 10th of its full-year
sales target in the first half, recorded a 29 percent
year-on-year jump in its first-half turnover in mainland China,
while its overall turnover dropped 17 percent compared with last
The Wharf Holdings, which replicated its flagship Hong Kong
shopping mall Times Square in four Chinese cities, recorded a 39
percent rise in core profit for development properties in China
during the first-half, while the same contribution at home
plunged 93.7 percent during the period.
The company is now planning to build five shopping mall and
office complexes in cities across China by 2016.
($1 = 7.7547 Hong Kong dollars)
(Additional reporting by Twinnie Siu and James Pomfret; Editing
by Anne Marie Roantree and Alex Richardson)