Stepping into October, New World Development has just announced its financial results, with market attention focused on the HK$18.3 billion provision for 11 Skies at SKYCITY in Chek Lap Kok.
Additional Project Costs and Cash Flow Pressure: Including the handover of the project to the Airport Authority and related follow-up works, an additional HK$3 billion will be required, bringing the total cost to HK$21.3 billion.
Pricing Strategy Implications: Given this substantial expenditure, New World Development is likely to face stronger pressure to reduce prices on new projects in order to accelerate sales and improve cash flow.
Meanwhile, under the combined effects of central government taxation on citizens’ foreign assets and US interest rate hikes, both primary and secondary property markets have seen continuous declines over the past six months. Pr
imary market transactions have dropped from 2,594 per month to 1,420 last month, a decline of 45%, while secondary market transactions have fallen from 228 per month to 96 per month, a decline of 58%. Following this sharp drop in property market transactions, New World Development’s Royal Plaza launched with a 15% price reduction. Subsequently, Yuexiu’s The Atlas Phase 1 in Yau Tong offered a 20% discount on its selling prices compared with similar secondary market properties in the same area.
Two new residential projects have already seen price reductions. Moreover, markets are predicting Fed rate hike in the mid-month, the opening price of a new project could potentially be discounted by 25% to 30%. The Palo Springs project, which recently launched in the Northern Metropolis at HK$18,000 per square foot, will face increasingly intense competition from lower-priced urban properties.
Based on the current market situation, if new projects offer discounts of up to 30% over the next two months, owners of existing secondary properties will be forced to lower their prices, resulting in a significant reduction of more than 10% in the sales prices of secondary properties.
