Sun Hung Kai, MTR defer sale of 1,172-flat Cullinan West III project as Hong Kong’s protest rallies take their toll on market mood

Sandy Li

Hong Kong’s biggest residential property developer is postponing the sale of its next mega project, in the latest sign that nine weeks of public unrest and almost daily clashes between police with protesters are taking an ever-bigger toll on consumer sentiment.

Sun Hung Kai Properties (SHKP) and MTR Corporation would offer the 1,172 flats at the Cullinan West III project atop the Nam Cheong subway station upon their completion, said David Tang, the property director of the project’s joint developer MTR. The project, which is expected to complete construction at the end of 2019, was initially scheduled for a launch in August.

“We intend to sell the units when it is due for completion,” Tang said after during a Friday press briefing after MTR posted a 468 per cent jump in interim profit from property sales. “Buying a property may not be the [first] consideration on most people’s minds at a time when the city is facing such challenges.”

Hong Kong’s economic growth, which shrank in the second quarter from the first, had been in a downbeat mood this year, squeezed as it has been by the year-long trade war between the United States and China. Sentiments took a turn for the worse after an estimated 1 million people marched on the streets on June 9 to protest against a controversial extradition bill.

Even though the unpopular legislation was declared “dead” by the government, it continued to draw protest rallies, which have deteriorated into violent clashes everyday, forcing the police to resort to tear gas and rubber bullets to repel protesters who laid siege to police stations, public space and shopping centres.

Public unrest had spilled over to property sales, as new launches in recent weekends had flopped, while transactions of lived-in homes slowed. To move unsold property off their books, developers such as Billion Development had to offer 10-per cent discounts on their projects, compared with prevailing market prices in surrounding neighbourhoods.

Sales of new flats dropped 65 per cent in June to 1,111 transactions, the lowest since January, according to Midland Realty. Although sales picked up to 1,806 deals in July, it was still 44 per cent below 3,240 deals in May before daily protests became the new norm in the city.

Sun Hung Kai and MTR did not say when they would release their project for sale, with Tang merely saying that the developers “will release the project at reasonable prices when there is a market demand.”

In the first half, developers sped up the marketing of their new projects, with a potential 30,000 new flats available for presale this year. Delays put the squeeze on all but the biggest developers, as they usually want to begin selling as soon as they can to generate cash flow, said Vincent Cheung, managing director of Vincom Consulting and Appraisal.

Drone aerial shot of the Sun Hung Kai Properties' Cullinan West II (left) over the Nam Cheong Station on 23 August 2018. Photo: SCMP / Roy Issa

Still, Cullinan West III is not the sole project to have pushed back sales plans. The stock of completed, but unsold, homes rose to a decade high of 10,000 units this year. More than 4,000 flats in 11 uncompleted projects had been approved for presale publicity, but have yet to be put on the market, according to the Lands Department’s data. One of them is the 1,982-apartment project by China Evergrande in Tuen Mun, which obtained its sales permit in March.

“There’s no news on when it will be released for sale,” said Midland Realty’s residential market chief executive Sammy Po.

MTR, in which Hong Kong’s government is a 75-per cent shareholder, is also one of Hong Kong’s largest land owners and property developers. Asked whether any postponement in sales launch would contradict the government’s push to increase supply to ease prices, Tang said MTR had to be “cautious” with its management and “release projects at the optimal market condition.”

Up to 5,000 of the 21,000 units in 15 projects under construction, in which MTR had a stake, had been pre-sold, Tang said. The subway operator will take into account the current market condition when it calls for tender on two property projects over the next six months.

“We have been offering tenders on market-friendly terms,” he said without further elaboration.

Interim profit from MTR’s property development soared to HK$898 million, from HK$158 million in the first half of last year, helped by Hong Kong’s property bull run. Still, the surge in real estate earnings could not offset the 26 per cent drop in MTR’s underlying profit, as the subway operator had to set aside HK$2 billion to replacement works and related expenses in its Sha Tin-Central link, which had been hit by a spate of construction delays and problems.

The land for the fourth phase of its residential development at Wong Chuk Hang station will be offered next month, while the timetable for the 12th phase of Lohas Park station in Tseung Kwan O has not been finalised. The two projects will add an estimated 2,650 apartments to the city’s housing supply.

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