Cheung Kong Property Holdings (CKP) is a Hong Kong-based property developer renamed after corporate restructuring as CK Asset Holdings Limited (CKAH). CKP was founded in 1950 and until its restructuring in 2015. The company has a long presence in Honk Kong and has contributed to its most notable landmarks. The group also has investments in property real estate investment trust in the city-state. In addition to the property business, the company has a diversified investment portfolio through aircraft leasing, pub operation, as well as infrastructure and utility assets, with investments and operations now spanning continental Europe, Australia, Canada, the United Kingdom and the Republic of Ireland (CKAH, 2021). CK Asset holdings also operate in overseas destinations, including mainland China, Singapore and the United Kingdom. Porter’s five forces model is an appropriate analytical tool to evaluate the threats CK Asset Holdings Limited faces and the opportunities it can potentially explore.
Competitive Rivalry in The Market
Hong Kong’s property sector is the most valuable investment in the region. CK Asset Holdings is one of the leading property developers of the state. Its main competitors are Sun Hung Kai Properties (SHKP), Hang Lung Properties Ltd (HLPL) and Swire Properties Limited (SPL). In 2020, CKAH reported revenue of $8.3 billion and a net income of $2.1 billion (Nikkei Asia, 2021). SHKP recorded revenue of $10,711 million and net income of $3,017.58 million until June 2020 (Nikkei Asian Review, 2021). On the other hand, till December 2020, SPL posted $1721.89 million with a net income of $528.10 million (Nikkei Asian Review, 2021). HLPL posted a revenue of $1160.26 million (Nikkei Asian Review, 2021). However, SPL has a better profit margin ratio than SHKP, and its profit margin was 30.67% compared to SPL’s 28.17%, and in the same period, CKAH’s profit margin was 25.19%. The competition in the real estate development sector remains high.
Threat of Substitutes
The threat of substitution is low in real estate development. However, the industry has outdated practices from a construction point of view, which can improve with the help of improved tools and techniques. The industry has other chronic issues those such as project overruns and better budgeting. There is no natural alternative for the property, and therefore, most consumers prefer leasing the property. The industry has real growth potential expected to be worth $ 2.7 trillion by 2021 (PR Newsire, 2021). The closest alternative is virtual housing companies such as Air BNB, but they are more in competition with motels and short-term holiday homes. Therefore, there is no natural substitute for long term property holding and the threat is considered minimal.
The Threat of New Entrants
The threat of new entrants in the industry is low due to associated industry-specific limitations. The significant barriers to entry are a high capital requirement, established competitors and a regulatory environment. The industry is highly capital intensive and requires large capital to initiate business, and substantial cash inflows are required in working capital. The higher expected capital benefits the incumbents and discourages the newcomers (Embugus, 2020). Additionally, mega-corporations are operating in the sphere with vast resources and market share, making it difficult to break into the market. Regulations regarding property development vary from region to region; however, the sector is moderately regulated. Therefore, the threat of new entrant in the large-scale real estate development sector remains low.
Bargaining Power of Buyers
Buyers usually have higher bargaining power in the industry. Their ability directly depends upon the concentration, price sensitivity and access to information. Usually, buyers are not concentrated, and people buy homes as they deem fit. However, they are susceptible to price changes, and insignificant unfavorable movement would affect buyers’ decision. When buyers’ sensitivity is correlated with many available options, it gives them higher bargaining power. Buyer’s experience and access to information also affect their bargaining power. Consumers can influence price based on their experience, availability of the information and ability to use data to negotiate a better price (Wilhelmsson, 2008). Therefore, Buyers can exercise moderately to high bargaining power.
Bargaining Power of Suppliers
In the real estate industry, suppliers’ can exercise moderate bargaining power. Their power depends on suppliers’ importance for the business, suppliers’ concentration and nature of supplies. The vital sources of supply are the skilled workforce and the raw material providers. Skilled workers have higher bargaining power as they are aware of their importance for the business, and they are in scarcity. The massive development companies have vertically integrated supply chains as a hedge against suppliers’ risk. However, they get bulk discounts and source material from multiple vendors if they have to acquire outside their supply chain. Thus, supply chain risk is avoided; overreliance on the suppliers can be reduced by dual sourcing (Pochard, 2003). Overall, suppliers have strongly moderate bargaining power.
References
CKAH. (2021). About Us. Available at: https://www.ckah.com/eng/about_ckah.html
Embugus, s. A. S. B. B., & aliyu, u. S. (2020).entry barriers and capital structure of listed firms in Nigeria. Journal of accounting and management. Issn 1119-2454 volume 3, number 1.
Nikkei Asian Review. (2021). CK Asset Holdings Ltd. Available at: https://asia.nikkei.com/Companies/CK-Asset-Holdings-Ltd2
Nikkei Asian Review. (2021). Hang Lung Properties Ltd. Available at: https://asia.nikkei.com/Companies/Hang-Lung-Properties-Ltd
Nikkei Asian Review. (2021). Sun Hung Kai Properties Ltd. Available at: https://asia.nikkei.com/Companies/Sun-Hung-Kai-Properties-Ltd
Nikkei Asian Review. (2021). Swire Properties Ltd. Available at: https://asia.nikkei.com/Companies/Swire-Properties-Ltd
Pochard, S. (2003). Managing risks of supply-chain disruptions: dual sourcing as a real option (Doctoral dissertation, Massachusetts Institute of Technology).
PR Newsire. (2021). Global Real Estate Market Report 2021: Market is Expected to Grow from $2687.35 Billion in 2020 to $3717.03 Billion in 2025 – Forecast to 2030. Available at: https://www.prnewswire.com/news-releases/global-real-estate-market-report-2021-market-is-expected-to-grow-from-2687-35-billion-in-2020-to-3717-03-billion-in-2025—forecast-to-2030–301250151.html#:~:text=The%20global%20real%20estate%20market,2%25.
Wilhelmsson, Mats. (2008). The Evidence of Buyer Bargaining Power in The Stockholm Residential Real Estate Market. Journal of Real Estate Research. 30. 475-500.