High building costs to limit price falls

Rising construction costs will act as a brake on falling property prices, limiting any declines to about 10 per cent, says New World Development chairman Henry Cheng Kar-shun.

"The fall in prices will be limited because construction costs have continued to increase. About 60 per cent of the development cost of a residential project is construction cost. We can only cut our profit margin or the land price drops [to lower the investment cost]," Cheng said yesterday, as the developer reported a 26.1 per cent jump in underlying profit for the year to June.

He said any falls in land price would be greater than those for property prices, adding that property prices might even go up because of a tighter supply of new housing.

Cheng believes the government should maintain its cooling policies for the property market, but with some "fine-tuning", such as exemptions from extra stamp duties for those buying properties through companies.

The latest round of cooling measures released on February 22 - which included the extra stamp duties - has led to a sharp decrease in property sales. New World's contracted sales in Hong Kong dropped more than 5 per cent to HK$8.7 billion during the past fiscal year, well short of its HK$11.04 billion target.

Joint general manager Adrian Cheng Chi-kong said the sales targets for this year were HK$10 billion for Hong Kong and HK$17 billion for the mainland.

"We have generated HK$4.2 billion from contracted sales since July, which is about 40 per cent of our sales target," he said, adding that the revenue came from the sale of 900 flats.