Hong Kong’s property market has yet to stabilize and could fall by 5-10% in the second half of the year, according to leading developer Wheelock.
“Given the global uncertainties arising from Brexit and volatility in the currency market and oil prices, a 5-10% fluctuation in [home] prices in Hong Kong is not something abnormal,” said Chairman and Managing Director Douglas Woo Chun-kuen in an earnings briefing on Monday.
In his late thirties, Woo, an architecture graduate from Princeton University, has become a third-generation owner to take the helm of the Hong Kong-listed property conglomerate after a stint at UBS. He assumed the chairmanship from his father Peter Woo Kwong-ching in 2014.
Woo’s cautious outlook came after his group reported a 29% plunge in net profit to 5.66 billion Hong Kong dollars ($730 million) in the six months ended June. Underlying profit, excluding the impact of property revaluation, fell 19% to HK$5.13 billion on the year, despite a surge in property sales amid a housing downturn in previous months.
Contracted sales reached HK$11.8 billion as of mid-August this year, primarily driven by the sale of three residential projects and the en-bloc sale of OneHabourGate East office tower and shops for HK$4.5 billion. The four projects already accounted for nearly 91% of its full-year sales target last year but the group would not say if it had plans to raise its target.
Wheelock attributed the weaker bottom line to the high base of last year’s earnings, which was boosted by a significant contribution from the sale of One HarbourGate West office tower and shops to the overseas unit of China Life Insurance for HK$5.9 billion.
The developer’s earnings are affected by the performance of Wharf Holdings, which accounts for a fifth of its core profits. Wharf, a landlord 60%-owned by Wheelock, saw a 7% increase in rental income from its malls despite a retail slump in Hong Kong, caused primarily by a dwindling number of wealthy mainland Chinese tourists to the territory.
Analysts at Macquarie Securities maintain an “outperform” rating for Wheelock, citing its healthy residential and office sales. Thanks to strong demand and low average vacancy for Grade A-offices in Hong Kong’s central business districts, “we think this is a solid support for Wheelock’s sales due to keen expansion interest from mainland [Chinese] financial institutions,” according to a Macquarie note.
Asked about competition from mainland Chinese developers on land acquisitions, Woo said Wheelock would “do its own math” and be “selective” in making acquisitions particularly in commercial land sites launched by the government.
The developer has a land bank of 8.3 million sq ft and of that, 95% is in urban areas. This is however dwarfed by its rivals’ — Sun Hung Kai Properties has 50.8 million sq ft and Henderson Land Development has 24.4 million sq ft.
Wheelock’s stock closed 0.35% higher at HK$43.3, before its earnings were announced. Its shares have advanced 32.62% since the start of this year, against the Hang Seng Index’s 4.65% gain. It declared a first interim dividend of HK$0.45, up 6% from a year earlier.