Annual Report 2016
203
Risk Factors
A. Risks Relating to Property Development, Sales, Investments and Hotel
Operations
(continued)
6.
Hong Kong’s property market is also affected by the policies of the Hong Kong government. For instance, the
government introduced the special stamp duty (SSD) applicable to the purchase of residential flats in 2010 to cool the
property market for a period of 24 months. Subsequently, the rate of the SSD was raised while the period was
extended to 36 months with the introduction of buyers’ stamp duty (BSD), which became applicable to non-residential
flats in 2013. On the other hand, the Hong Kong Monetary Authority required banks to lower their property mortgage
proportion. The Hong Kong government also withdrew the Capital Investment Entrant Scheme in 2013. The above
examples show that the Hong Kong government will be able to exert greater influence on the property market through
legislation or administrative measures.
There can be no assurance that the Hong Kong government will or will not implement further cooling measures or
extend the scope, application and rate level of the existing measures. These and any further measures may adversely
impact the Hong Kong property market which may in turn adversely impact the Group’s business, financial condition,
results of operations and prospects.
7.
For some of the Group’s property development, where agricultural land parcels are converted into residential or
commercial uses, approvals from various government authorities would be required. The lengthy and complicated
approval procedures imply that government policies and efficiency of approval directly affects the addition to land
reserve. The Group cannot guarantee that such land use conversion will be approved, or that the Group can precisely
grasp the land use and timeframe of such conversion.
8.
A portion of the Group’s revenue is derived from its hotel operations. Since hotel guests are short-term occupants of
hotel rooms, they are generally not committed to contracts of medium-term or long-term rental payment.
Consequently, a hotel’s occupancy rate and room rate are subject to a high degree of fluctuations due to factors
including seasonality, social stability, politics, natural hazards, disease and economic condition as well as the nature
of hotel business. In addition, a significant portion of the Group’s revenue from hotel operations is attributable to
catering services, including banqueting services. Typically, demand for banqueting services increases on holidays,
festivals and the propitious dates on the Chinese lunar calendar. Although corresponding measures have been taken
to cope with the seasonal fluctuations of the hotel business, such measures may be ineffective. Therefore, any
comparison of our results of operations between various interims in a financial year may not be meaningful and shall
not be relied upon as an indicator for the Group’s performance.
9.
A significant amount of fixed costs are involved in operating investment properties and hotels of the Group, including
maintenance costs as well as employees and staff salaries and expenses. These fixed costs may constrain the
Group’s ability to respond to adverse market conditions by minimising costs. Where property leasing or the hotel
industry experience downturns, such costs may adversely affect the profitability of the Group, and may fuel the
decline in occupancy rate, rental rate or room rate. If the maintenance costs significantly increase, there may be
material adverse effect on the Group’s businesses, financial condition, results of operations and growth prospects.
10. The rapid economic growth and infrastructure development in Hong Kong and the PRC in recent years have uplifted
the costs of construction materials and wages of workers. In addition, in view of the improvement of general living
standards in Hong Kong and the PRC and recent policies of the government of the PRC (the “PRC Government”) to
increase the wages of workers from rural areas, the Group expects that labour costs will continue to increase in the
foreseeable future. Other than the higher labour costs, the rising labour demand and in turn more intensified
competition for construction workers in regions where the Group operates, such as the growing shortage of
construction workers and service in Hong Kong, has made it increasingly difficult for the Group to hire sufficient well-
skilled labour for its property development projects and investment properties, hindering its property development
business. In addition, labour shortage in neighboring regions such as Macau has intensified competition for labour in
the region, which may adversely impact on the Group’s business. Increasing cost of construction materials and labor
are expected to raise contractors’ fee quotes in our new property development projects. In addition, the Group
usually commences pre-sales of properties prior to their completion. In the event that the construction materials and
labour costs surge subsequent to the pre-sales, such increases in costs may not be passed on to buyers of the
properties. Escalating labour shortage and/or significant increase in costs of labour or construction materials without
corresponding reduction of other costs to offset such increases or pass on such increases to the buyers or tenants of
our properties may adversely and materially affect the Group’s businesses, financial condition, results of operations
and growth prospects.
