Even with­out the ben­e­fits, it’s still good there’s com­pe­ti­tion

China Daily (Hong Kong) - - HK | BUSINESS - PETER LIANG

Record prices paid by a main­land de­vel­oper for two parcels of land for res­i­den­tial devel­op­ment on the for­mer air­port site have stirred in­tense spec­u­la­tion on the fu­ture of the lo­cal prop­erty mar­ket.

One school of thought wel­comes the in­creased com­pe­ti­tion from main­land en­ter­prises, hop­ing that it will break the sup­ply stran­gle­hold of the oli­garchy con­sist­ing of no more than half a dozen ma­jor lo­cal de­vel­op­ers.

Prof­i­teer­ing by mem­bers of the oli­garchy is widely blamed for the city’s soar­ing prop­erty prices by their con­trol over sup­ply. Un­til re­cently, the big lo­cal builders had been ba­si­cally bid­ding against each other at gov­ern­ment land auc­tions. The less re­source­ful out­siders had never had a chance of win­ning. Most of them didn’t even bother to sub­mit bids. Un­der such cir­cum­stances, in­creas­ing land sup­ply doesn’ t nec­es­sar­ily lead to lower homes prices. This is be­cause de­vel­op­ers who are sit­ting on large land banks have the dis­cre­tion of pac­ing their devel­op­ments to avoid glut­ting the mar­ket with newly com­pleted homes.

In con­trast, the main­land de­vel­oper who bought the for­mer air­port res­i­den­tial sites at an ag­gre­gate price that’s nearly five times its mar­ket cap­i­tal­iza­tion doesn’t seem to have such an op­tion. The large capital outlay helps en­sure that the com­pany would be keen to com­plete build­ing apart­ments on the ac­quired sites for sale to the pub­lic at the short­est pos­si­ble time. But, some prop­erty an­a­lysts dis­agreed, say­ing it’s not al­ways pos­si­ble to as­cer­tain the in­come sources of many main­land en­ter­prises which op­er­ate in a less trans­par­ent reg­u­la­tory en­vi­ron­ment than those in Hong Kong. One thing is cer­tain though. Like ev­ery­body else, they’re here to make money.

Even if the main­land de­vel­oper is will­ing to ac­cept a nar­rower profit mar­gin than its lo­cal coun­ter­parts, it will still have to sell the apart­ments at prices high enough for it to re­coup the large in­vest­ment it had made on the land. Some an­a­lysts es­ti­mated that to gen­er­ate a “rea­son­able” profit, the com­pany will have to price its flats at an av­er­age of above HK$18,500 per square foot. In com­par­i­son, some newly com­pleted apart­ments in the vicin­ity are go­ing for about HK$13,500 per square foot.

As such, the “jaw drop­ping” prices paid by the main­land de­vel­oper for land has en­riched the pub­lic cof­fers, while homes buy­ers are not go­ing to see much, if any, benefit. But still, it’s good to see some com­pe­ti­tion in Hong Kong’s mo­nop­o­lis­tic prop­erty sec­tor.

(Some Hong Kong) de­vel­op­ers who are sit­ting on large land banks have the dis­cre­tion of pac­ing their devel­op­ments to avoid glut­ting the mar­ket with newly com­pleted homes.”

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