Sun Hung Kai to Sell Fewer, Smaller Homes as Curbs Added

Sun Hung Kai Properties Ltd., the world’s second-biggest developer by market value, set a lower sales target for this year and said it will build more small apartments as Hong Kong stepped up measures to curb prices.

The builder plans to sell HK$28 billion ($3.6 billion) of homes in Hong Kong and mainland China in the year through June 2014, Deputy Managing Director Victor Lui said at a briefing in the city yesterday. That compares with home sales of HK$32.9 billion a year earlier, the company said.

Hong Kong builders are selling the fewest homes in more than four years after the government in February imposed its toughest measures yet to rein in prices that Savills Plc says are now the world’s highest. Sun Hung Kai is considering selling more offices, small shopping malls and carpark spaces over the coming year to make up for slowing home sales, Lui said at the briefing after the company announced full-year earnings.

“I’m a bit disappointed,” said Alfred Lau, a Hong Kong-based analyst at Bocom International Holdings Co. “It seems like the sales pace will slow quite substantially and the company is still trying to figure out what to do under all these uncertainties.”

The Hong Kong-based company said underlying profit, or net income excluding property revaluations, declined to HK$18.6 billion for the 12 months ended June 30 from HK$21.7 billion a year earlier. That compares with the HK$19.6 billion mean estimate of 20 analysts surveyed by Bloomberg News.

Sun Hung Kai’s shares fell 1.3 percent to HK$101.80 as of 9:56 a.m. local time, extending their decline this year to 12 percent. That compares with a 5 percent drop this year in the Hang Seng Property Index, which tracks nine of the city’s biggest developers including the company.

Biggest Investment

Of the HK$28 billion sales target for the year, HK$19 billion will be in Hong Kong and HK$9 billion in mainland China, where the company had land reserves of more than 81.1 million square feet at the end of June.

Lui said the developer will “slow down” property sales, without specifying the number of units it plans to sell during the year at the briefing.

Sun Hung Kai this month paid a record 21.8 billion yuan ($3.6 billion) for a commercial site in Shanghai. The acquisition is the biggest ever investment by the company, which expects to generate HK$20 billion from selling 40 percent of the project, Co-chairman Thomas Kwok said at the briefing.

Sun Hung Kai will sell more medium- and small-sized apartments as demand from end-users outstrips that from investors seeking luxury units, Kwok said.

“We have to follow the shifting demand in the market,” said Kwok. “The demand for luxury homes moves in cycles and we always need to look at where we are.”

Home Prices

The company, which focuses on luxury homes, has benefited from an influx of wealthy mainland Chinese buyers over the past decade, which helped Hong Kong home prices to more than double since early 2009.

Hong Kong’s government defines a luxury residential unit as one with an area of at least 100 square meters (1,076 square feet). Those units account for about 7.7 percent of the city’s 1.1 million privately built homes at the end of 2012, according to government statistics.

Home prices have fallen about 2 percent since peaking in March. Leung Chun-ying, who took over as the city’s leader in July 2012, in February doubled stamp-duty taxes on all real estate transactions, after having imposed extra taxes on non-resident buyers earlier.

Property Sales

The developer, controlled by the family of co-chairmen Thomas and Raymond Kwok, sold more than 1,100 apartments in the city for about HK$12.2 billion in the first half of the 2013 calendar year, according to figures compiled by realtor Centaline Property Agency Ltd.

Developers sold about 4,300 units in the first half, the fewest since the second half of 2008, when homebuyers were deterred by the global credit crisis.

For the fiscal year ended June 30, profit from property sales fell to HK$7.2 billion from HK$13.1 billion a year earlier, the company said. Hong Kong builders begin selling apartments while they’re still in construction and book profit upon completion.

Rental Income

Net rental income at the developer, which owns the International Finance Centre office and mall complex, and the International Commerce Centre, Hong Kong’s tallest building, rose 11 percent to HK$12.2 billion, Sun Hung Kai said.

Thomas and Raymond Kwok each have a net worth of $8.6 billion, according to the Bloomberg Billionaires Index.

The brothers and two other men are charged with conspiring to provide payments, loans and free use of apartments totaling more than HK$35 million to the city’s former No. 2 official Rafael Hui, according to court documents. They were first arrested in March last year and will next appear in court in May 2014. The brothers have denied any wrongdoing.

The developer has been run by Thomas and Raymond since the ouster as chairman in 2008 of their elder brother Walter.

Related News and Information:

Before it's here, it's on the Bloomberg Terminal.