Country Garden appears headed for a setback in its first Hong Kong residential project.
The firm, China’s largest property developer by revenue, is said to have cut prices for the second time, offering as much as 11 percent discount, for units at its Altissimo venture in Ma On Shan.
The price reductions apparently became necessary as the company sought to boost demand amid poor market sentiment and rate hike expectations.
According to reports, Country Garden had received no more than 300 subscriptions in six days for its first batch of 110 units that was priced at an average of HK$16,497 per square foot.
That marks a major disappointment for the developer, which ranks No. 1 in China in the sector in terms of turnover.
After a solid first-half, which saw the company book nearly 43 percent jump in contracted sales to 412.5 billion yuan — or an average of 2.28 billion yuan per day — the Shunde-based developer is facing headwinds in a key overseas market, fueling doubts about its overall growth prospects.
Country Garden acquired 60 percent of the Ma On Shan site from Wang On Properties for HK$2.44 billion in September 2017.
The company is facing a loss on the project as it is selling units at below cost. The site acquisition cost amounts to HK$10,500 per sq ft. Add to that the construction cost of about HK$4,000 per sq ft and interest expenses, the overall cost goes up to HK$16,000 per sq ft, an SCMP report noted.
But the selling price, for some initial batches of units, is said to be falling short of the break-even level, with a few going for less than HK$14,000 per sq ft.
Following two rounds of promotional offers, buyers who agree to certain conditions are getting up to 11 percent discount.
It remains to be seen if the firm will keep pushing its discounting strategy, and for how long, or if it’s just a short-term move aimed at generating buzz in the market.
While we can only wait and watch, there is, however, no doubt that Country Garden, as well as other developers, are grappling with a weakened sector sentiment.
In China, a slowing economy, currency depreciation and Sino-US trade tensions are having an impact on the property market, a development that prompted some developers to slash their prices by as much as 30 percent during the Golden Week holiday last month.
Now, things appear to be turning out somewhat bad even in Hong Kong, where the property market had defied gravity for so long and is seen ripe for a major correction.
With downdraft signals emerging in recent weeks, authorities will be keeping a close watch on the situation.
Financial Secretary Paul Chan has said the government might consider adjusting the loan-to-value ratios for mortgages if it is confirmed that the property market had entered a downward cycle.
Entities such as Country Garden would certainly welcome such moves.
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