Why are Hong Kong developers offering steep discounts and freebies?

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Hong Kong Developers Offer Discounts Amidst Property Market Cooling Measures

Hong Kong's property developers are resorting to significant price reductions and offering incentives such as free parking spaces to attract buyers. This strategy is a direct response to government cooling measures, which have led to the lowest quarterly property transactions since 1996 and are forcing developers to offer discounts to meet sales targets. New homes are now being sold at approximately a 20 per cent premium over the second-hand market, a considerable decrease from the 50 per cent to 80 per cent premiums observed before the latest property curbs were implemented in October.
Impact of Government Cooling Measures

The Hong Kong government has maintained its stance on property cooling measures, including higher stamp duties and stricter home loan regulations, to mitigate the risk of a property market bubble. Chief Executive Leung Chun-ying has reiterated that there are no plans to relax these policies in the near future, citing continued price increases and the persistent bubble risk. These measures, particularly the stamp duties, are expected to continue restraining demand across various market segments, although first-time buyers of smaller units may be less affected.
Reduced Price Premiums and Sales Performance

A notable consequence of the cooling measures is the diminished price premium developers can command for new properties compared to the second-hand market. This premium has fallen to around 20 per cent, a significant drop from earlier highs. The impact on sales is evident in the combined contracted property sales of major developers, which saw a 39 per cent year-on-year decline in the first half of the year. For instance, Sun Hung Kai Properties reported its first decline in annual underlying profit since 2005, with a 14 per cent drop in profit for the 2013 fiscal year, and had previously lowered its sales target for the year.
Developer Incentives and Sales Tactics

To counter the sales slump, developers are implementing various incentives. Cheung Kong, for example, has offered a 10 per cent discount and covered an additional 3.75 per cent in stamp duty for its new project, "The Rise." Smaller competitor New World Development has provided a 10 per cent price cut for buyers making immediate payments. These tactics are employed at a time when residential property inventory levels have reached a nine-year high, with a substantial number of new units expected to be available in the latter half of the year.
Shift Towards Mainland China Markets

In light of the ongoing policy risks in Hong Kong, many developers are increasing their investments and focus on mainland China. This strategic shift is driven by comparatively lower policy risks, along with attractive lower land prices and construction costs. Mainland China markets have shown increased turnover for some Hong Kong developers, such as Cheung Kong, which recorded a 29 per cent year-on-year jump in its first-half turnover in China while its overall turnover dropped. Similarly, The Wharf Holdings has seen a significant increase in profit from its development properties in China, contrasting with a sharp decline in its domestic contributions.

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Why are Hong Kong developers offering steep discounts and freebies?

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