Hong Kong developer warns of brewing price war in mainland China market as coronavirus hurts home sales, chokes cash flow

By Pearl Liu pearl.liu@scmp.com / https://www.scmp.com/business/companies/article/3074479/hong-kong-developer-warns-brewing-price-war-mainland-china?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | March 18, 2020 4:20 PM SGT
Wharf (Holdings) said a price war in the mainland China market is brewing because builders are desperate to improve cash flow after the coronavirus outbreak choked home sales this year.
The property and logistics group, controlled by Hong Kong billionaire Peter Woo Kwong-ching, is cautious about adding to its 3.6 million sq m of land bank in the world's second largest economy, after calling its business this year a "washout," with sales having crashed by more than 50 per cent since the start of the year.
"More than half of our sales in China have been wiped out in the first two months as compared to that in last year," chairman and managing director Stephen Ng Tin-hoi said. "We may see mainland developers keen to slash prices and rush to sell as some of developers' liquidity rely largely on home sales."
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Stephen Ng Tin-hoi, chairman and managing director of Wharf (Holdings). Photo: Jonathan Wong alt=Stephen Ng Tin-hoi, chairman and managing director of Wharf (Holdings). Photo: Jonathan Wong
The coronavirus outbreak has pushed the nation's property market to near a standstill after authorities imposed drastic economic and social curbs to contain the biggest public health crisis in decades. China locked down many cities in central Hubei province, the epicentre of the epidemic, before it became widespread globally.
The warning follows a move by China Evergrande last month to discount its flat prices by 25 per cent across the board, in what China's third-largest builder said as the biggest-ever nationwide price cut.
"Even after the virus got controlled, it would still take some time to recover," Ng said. Damage caused by the epidemic in China cannot be undone, and as such the mainland market is no longer attractive to bet on current sentiment and existing price-control measures.
"It is not a good time to get into the market and we will keep cautious in terms of buying land this year," Ng added.
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Wharf is 70.7 per cent-owned by Wheelock & Co, Woo's flagship company. The billionaire last month unveiled a proposal to take his business empire private in a deal that handed HK$16.5 billion of value windfall to shareholders.
Wharf reported a 58 per cent drop in core profit to HK$2.7 billion in 2019 from a year earlier, according to a filing to the Hong Kong stock exchange on Tuesday. Profit from development projects tumbled 85 per cent last year as contracted home sales in China slid by 13 per cent.
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The group, which operates the Modern Terminals and Hong Kong Air Cargo Terminals, also saw its logistics operations slowing down last year, with profit slipping by 17 per cent amid US-China trade war tension. Its investment properties in mainland China performed well, generation a 44 per cent increase in profit last year.
It has, however, got worse this year for Wharf and its peers.
Hotel occupancy rate has dropped to a low single digit with 98 per cent of last year's revenue lost, Wharf said in its exchange filing. "Business for the first quarter of 2020 is already consigned to a washout and the second quarter may not fare much better even if markets return to normal quickly."
A second interim dividend of HK$0.075 per share was declared, bringing annual payout to HK$0.325 per share or half the amount in 2018. Wharf's shares fell 3 per cent to HK$15.40 on Tuesday.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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