Wednesday 21 March 2018

Hong Kong developer sees 57pc profit rise as sales soar

The Hong Kong skyline
The Hong Kong skyline

Bloomberg News

Sun Hung Kai Properties Ltd, Hong Kong's largest developer by market value, said half-year underlying earnings rose 57pc, as sales benefited from a surging home market.

Profit excluding property revaluations climbed to HK$14.6bn (€1.78bn) in the six months ended December 31 last, compared with HK$9.3bn (€1.13bn) a year earlier, the firm said in a statement to the Hong Kong stock exchange last Tuesday.

Sun Hung Kai's earnings were buoyed by resurgent demand in Hong Kong's housing market, where existing home prices this month reached an all-time high and builders bid up prices for land plots, including a record purchase last week. Sun Hung Kai was one of the most aggressive of local major developers in wooing new buyers during a brief correction last year, offering discounts and mortgages valued at more than a home's value.

The developer's shares have risen 16pc this year, compared with a 15pct gain in the Hang Seng Property Index.

"Hong Kong's primary residential market has become active again since the beginning of 2017, with new launches well received by end users," Sun Hung Kai said in the statement accompanying its earnings. "This is in contrast to a quiet market in the last two months of 2016 with low transaction volumes as a result of new stamp duty measures and interest rate hikes."

Looking forward, despite "more stringent" home-buying restrictions and an expected increase in mortgage rates, the firm anticipates that buyers' demand will be resilient, according to its statement.

Profit generated from property sales surged to HK$8.3bn (€1.01bn) in the first half, more than tripling from a year earlier, Sun Hung Kai said. Revenue at the developer increased to HK$46.3bn (€5.6bn) from HK$34.9bn (€4.2bn) a year ago, according to the statement.

Sun Hung Kai has the strongest residential project pipeline this year among Hong Kong developers, Deutsche Bank AG analysts Jason Ching and Iris Poon wrote in a February 20 report. It has 4,282 residential units available for sale, followed by rival Henderson Land Development Co., which has 3,550 units, the report says. Sun Hung Kai expects to complete more than 3m sq ft of residential projects for sale annually in the next few years, sustaining a sizable residential production "in the medium- to long-term," it said in the statement.

While the Hong Kong government has been engaged in a determined effort to tame property prices, recent sales of newly built apartments suggest its measures have had unintended consequences. Only three weeks ago, at least 800 bids for 105 new units flooded developers of a remote new housing complex, with nearly all of them selling out in a single day. Such sellout crowds are becoming the norm at new projects this year as distortions caused by government attempts to cool property prices have nearly halted the supply of older, existing homes for sale. That's driving demand for new ones offered by developers.

High stamp duties targeted at all but first-time local buyers, the centrepiece of a government push to finally cool the world's most unaffordable housing market, have prompted both would-be sellers and buyers of existing homes to hit the brakes. Instead, buyers have piled into new homes, or the primary market, where developers entice buyers with tax rebates and even loans.

The upshot: Since Chief Executive Leung Chun-ying announced the latest round of property tightening last November, prices have kept climbing and demand for new homes has kept soaring.

"With the stamp duties and mortgage curbs, nobody can get financing in the secondary market, and nobody needs to sell," said Justin Chiu, executive director at Cheung Kong Property Holdings Ltd. "That is creating demand for primary homes, and developers can adjust prices when they see that demand is as strong as it has been recently."

New home sales soared 48 percent in January over last December, compared with a 76 percent decline in the same period last year, according to data from the government and residential property agency Midland Realty.

A batch of 188 units at China Overseas Land & Investment Ltd's new complex at Hong Kong's old airport site, One Kai Tak, priced as much as 41pc higher than a first lot five months ago, sold out in one day in mid-January. Even in the lacklustre secondary market, home prices are up 1.7pc since November, according to a Centaline Property Agency price index tracking Hong Kong's residential properties. There is no index gauging new home prices.

A gauge of Hong Kong developers' stocks has risen 12.3pc this year, outpacing the 6.9pc advance of the broader Hang Seng Index.

Developers have been gradually increasing their share of Hong Kong's property sales in recent years. The proportion of total new home sales has climbed from 10pc in 2010, before the government first began demand-curbing policies in 2012, to more than 30pc last year, government statistics show.

That trend may accelerate as the latest measures add more costs for individuals to sell their properties and buy new ones, analysts say.

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