Opposing Views on the Sale of Luxury Properties – Alassio vs. Eden Gate

Interestingly, there are two distinctive beliefs held by property developers in a single real estate market. On the one hand, some worry intense market competition may hurt sales and thereby be willing to slash the price to stimulate demand. On the other hand, some rule out the influence of market forces on luxury homes and remain adamant that no price cut is needed to cater to the changing market tastes. Given the incompatibility of the two beliefs, the success of either one would most likely prove the other wrong. The question is: Which is right? Only time and sales might tell.

Alassio – Price Slash

Swire Properties (“Swire”) clearly aims to make a quick harvest by its discount strategy. In mid-April this year, Swire amusingly broke a time record selling the first batch of 40 units of its luxury residential project – Alassio – in just two hours.

Although it may have to do with the involvement of long-term investors and the West Mid-Levels being a traditional luxury residential area, it is mainly attributable to Swire’s discount strategy. In practice, the Developer offered a 4.25% discount to buyers who purchase one unit and 5 percent for two. It also provided up to 7.5% cash rebate to offset the stamp duty. In effect, the average price of the flats ranging in size from 581 to 922 square feet would come to HK$ 25,816 per square foot. To give a clearer picture, such an average price is almost one-fifth lower than that of The Morgan at 31 Conduit Road and even a quarter less than Arezzo at 33 Seymour Road.

Despite the low price, price slash may be effective judging from the sales volume.

Eden Gate – Stiff Price

Around the same time but a different place, Chinachem Group (“Chinachem”) offered three houses and four duplexes at Kowloon Tong – Eden Gate – for tender, expecting contrastingly prohibitive prices. According to Alfred Lau (a property analyst at Bocom International), the rationale behind the rationale is that the appetite for luxury homes is very specific and independent of market conditions. They are more likely to be tied to investor sentiment and stock market performance.

With this belief in mind, Chinachem values Eden Gate as high-quality units and does not want to sell them for less than what they are worth. Therefore, they refuse to lower prices amid price drops. The Developer said it would be asking for at least HK$ 60,000 per square foot for the houses and HK$ 50,000 per square foot for the duplexes, doubling Alessio's.

Will Eden Gate be able to fetch a dear price as Chinachem anticipates? A price cut or maintaining the status quo? These questions will all be resolved when the tender finishes by the end of May this year.

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