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