20 February 2019
Property sector has had a good ride in recent years, but utilities may be a better option for investors now. Photos: HKEJ
Property sector has had a good ride in recent years, but utilities may be a better option for investors now. Photos: HKEJ

Why investors should shift to utilities from property sector

The residential project in Tung Chung developed by Sun Hung Kai Properties (00016.HK) is selling out quickly.

SHKP rolled out 300 units in the first batch, with an entry price of HK$4 million. The firm received 14,000 applications.

The developer has launched more flats in different tranches.

The fourth batch, launched over the weekend, drew 8,500 applications.

Each of the four tranches sold out within a day.

More than 1,000 flats, over 80 percent of the project, have been sold, and SKHP has received over HK$6 billion.

Now, it’s quite interesting that the developer has kept launching flats to the market instead of hoarding them given such strong demand.

More importantly, SHKP raised the price by only 2 percent between tranches, which shows considerable restraint.

Do property developers foresee some uncertainties in the market that may have been missed by ordinary people?

That could be why they are accelerating the offloading of their flats.

It may be normal for SHKP to do so, as it usually has a quick turnaround cycle.

However, Hang Lung Properties (00101.HK) also said it would sell the remaining flats at its Harbourside project.

Hang Lung usually has a very sharp market sense.

It’s one of the few developers that sold its properties and then stayed on the sidelines during 1995 and 1996, while most people were very optimistic about the property market before the handover of Hong Kong to China in 1997.

During the market downturn from 1998 to 2003, Hang Lung entered the market and snapped up land plots for the Harbourside and Long Beach projects. That was when most people were bearish about property.

Hang Lung said its profit margin hit 75 percent last year, a result of the firm buying the land for its projects at the bottom.

In the third quarter of last year, the company decided to sell about 200 units of the Harbourside project, which it has held on to for more than 10 years.

Over the past year, most property developers launched new flats priced either very close to second-hand prices in the area or at a discount.

The property market in Hong Kong has rallied for 12 years in a row since bottoming out after the outbreak of severe acute respiratory syndrome in 2003.

While smart investors like developers step up the selling of flats, average people who have been hesitating to buy a home during the past few years have decided to jump on the property bandwagon.

Investors who place their bets on property stocks should choose those with attractive valuations.

The cost of building new housing in the New Territories has exceeded the land cost. So it’s quite sensible that developers are reluctant to bid for land for fear of a reversal in home prices.

Meanwhile, utilities shares may be more interesting for ordinary investors, as they can offer stable growth and transparency.

The continuous flow of capital into the utilities sector will help boost valuations and investment returns.

This article appeared in the Hong Kong Economic Journal on Jan. 28.

Translation by Julie Zhu

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Columnist at the Hong Kong Economic Journal

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