Hong Kong’s land marketplace hasn’t been brief of record-breaking deals in a past 4 years, generally given mainland Chinese developers began holding an interest.
Top internal developers have seen their marketplace share diminution in terms of acquisitions of supervision sites as bigger and richer mainland players enhance onto their turf.
Sitting on piles of money and with low gearing, Hong Kong’s vast players have taken a opposite trail when it comes to “land banks”, or merger of greenfield sites for new developments.
“We have seen vast changes in a internal skill marketplace in a past twin years, like a assertive entrance and purchasing by mainland developers. Many little and middle distance internal developers have also come out and strong a foe in supervision land sale tenders,” pronounced Alvin Cheung Chi-wai, associate executive during Prudential Brokerage.
“Big developers have to reassess their land bank plan and make changes according to their particular vital destiny directions.”
Sun Hung Kai Properties (SHKP), a city’s largest developer by marketplace capitalisation, has a land bank of some-more than 50 million block feet and will press forward on shopping new sites in a normal demeanour by supervision tenders, according to an courtesy observer.
In a thespian change in a strategy, a city’s third largest developer, Henderson Land Development, now focuses a courtesy on appropriation little civic redevelopment sites on that to build “matchboxes”, or little flats, that continue to benefit foster among urbanites. While rivals that have set their sights on mega sites, Henderson Land’s land portfolio includes sites even smaller than a basketball court, or reduction than 1,800 block feet.
And in a plan opposite from SHKP and Henderson, Cheung Kong Property Holdings (CK Property), a city’s second largest developer, has pronounced it is deliberation non-property projects outward Hong Kong
“CK Property has voiced seductiveness in non-property or quasi-property projects. The association believes investment gain for a enlargement skill business in Hong Kong, China or Singapore are not appealing adequate during stream land prices,” Morgan Stanley equity researcher Praveen Choudhary wrote in a investigate note.
When stating CK Property’s halt formula in Aug authority Li Ka-shing indicated that a association was spreading a net globally given a hurdles it faces in identifying investments with reasonable gain in a stream cyclical theatre of a internal skill market.
CK Property’s Hong Kong residential land bank stays a smallest among a tip 3 developers by marketplace capitalisation, even when a latest supervision site merger is included.
On Sep 14 a developer won a initial supervision open proposal in 4 years, profitable HK$1.953 billion for a oppulance residential tract in Kau To Shan nearby Sha Tin, with a cost about 33 per cent aloft than a high finish of marketplace expectation.
The squeeze increased CK Property’s Hong Kong residential land bank to 7.8 million block feet, that compares to SHKP’s 50 million block feet and Henderson Land’s 24.3 million block feet.
Alfred Lau, a skill researcher during Bocom, pronounced CK Property’s fortify when it came to land banking has paid off as a association was a usually developer that saw domain enlargement in a initial half, compared to a 4 to 14 per cent domain diminution during other developers.
But Choudhary of Morgan Stanley believes SHKP’s focused ensue has resulted in poignant marketplace share in terms of land area and skill sales.
SHKP has amassed adequate land for enlargement for a subsequent 5 years during a cost most some-more reasonable than today’s prices, pronounced Choudhary. For a 2014-15 financial year, 20 per cent of sites sole by supervision proposal went to SHKP, a identical turn as a 2010-13 period, he said.
“Yet other vital Hong Kong developers [CKP, Sino Land, New World Development, Kerry Properties and Wheelock Properties] usually bought 18 per cent of sites by open proposal during 2014-15, a poignant diminution from 40 per cent from 2010-13,” he said.
Alan Jin, a skill researcher during Mizuho Securities Asia, pronounced a suit of mainland buyers securing winning land bids has risen to 41 per cent.
China Vanke, China Overseas Land and Investment and Goldin Financial done vast land acquisitions in a cost operation of between HK$1.3 billion and HK$6.3 billion, with an estimated prosaic prolongation of some-more than 3,700 units, pronounced Jin.
In contrariety to CK Property’s enterprise to enhance overseas, SHKP authority Raymond Kwok Ping-luen was quoted as saying, “Hong Kong and a mainland will still be a focus.”
Since 2014, SHKP has spent some-more than HK$15 billion to acquire land that includes twin residential sites and one tract designated for business use – both around supervision open tenders – and twin vast sites during Yuen Long Station and Lohas Park proviso 4 in Tseung Kwan O – both around a proposal offering by MTR Corp.
“Doing business in Hong Kong’s skill marketplace is not easy in a past 30 years though we still ensue with it. We acquire some-more participants [in behest for land],” pronounced Kwok. “With a stronger memorable income, we will be some-more volatile during a time of difficulties,” he pronounced after a firm’s full-year outcome proclamation on Sep 8.
Not usually is it assertive in beefing adult a land bank, SHKP also aims to grasp 3 million block feet of annual prosaic completions over a subsequent 3 years, triple a prolongation ability of 1 million sq ft in 2015. The aim is also a company’s largest given 1997 when it delivered 4 million to 5 million block feet a year.
In a genuine estate industry, developers that reason some-more land mount a aloft possibility of gaining marketplace territory from their weaker rivals.
With a outrageous sales resources, 3 out of each 10 new Hong Kong flats sole in a initial half of a year were built by SHKP. It pulled in HK$21 billion value of Hong Kong sales in a initial half of this year, according to Morgan Stanley’s estimation, accounting for 30 per cent of a sum marketplace share, a vast burst from 15 to 20 per cent a year ago.
CK Property saw a year-on-year sales thrust 77 per cent to HK$4.9 billion in a initial half. Li’s skill arm accounted for usually 7 per cent of sum Hong Kong prosaic sales in a initial half, down from about 30 per cent in a prior year. But CK Property’s assertive offered of a skill resources on a mainland enabled it to pull a full year skill sales to some-more than HK$27 billion, compensating for a disappearing sales in Hong Kong. Recently, CK also put a prize Grade A bureau building, The Center, in Central on a market with an seeking cost of HK$35 billion.
Li’s offered down of a group’s resources on a mainland has lifted concerns that if a city’s richest male is retreating from a mainland, afterwards he is also reduction confident on Hong Kong’s skill market.
Not so for Lee Shau-kee’s skill flagship Henderson Land. While Henderson bought usually one residential site in 2015 – a tract in Tuen Mun for HK$3.628 billion – it spent HK$25.5 billion in appropriation 45 civic buildings settled for redevelopment, involving aged tenements where it was means to obtain tenure trimming from 80 to 100 per cent of all a particular flats.
These sites, that will produce a total sum building area of 3.9 million block feet, are widespread around Mid-Levels, Western District, Wan Chai, Tai Hang, Tai Kok Tsui, Shek Kip Mei, Kowloon City, Hung Hom and Cheung Sha Wan, according to a halt outcome proclamation in August.
The normal land cost on a redevelopment sites works out during about HK$6,500 per block foot, and a new residential projects to be built are approaching to be prepared for sale or leasing in 2017 or beyond, pronounced a statement.
Among a 45 plots, one site in Aberdeen has an area of usually 1,740 block feet, while a largest one is a 52,000 square-foot site in Seymour Road, Mid-Levels, in that a organisation has a 65 per cent seductiveness in partnership with another unnamed investor.
Henderson Land, dubbed a “small flats king”,said it would continue to feed a land bank by appropriation aged tenement buildings for redevelopment and requesting for land-use acclimatisation for a New Territories land portfolio.
A 163-square-foot prosaic during a One Prestige in North Point, a minute prosaic on Hong Kong Island, sole on Tuesday for HK$3.75 million, or HK$23,000 per block foot. In Ho Man Tin, Henderson Land’s Seven Victory Avenue project, approaching to be finished during a finish of 2018, has flats that start during usually 161 block feet.
“This twin ensue practical to land bankinghas proven to be arguable source of land supply with a reduce merger cost, that is profitable to a group’s enlargement gain in a prolonged term,” a association pronounced in a statement.
But reduce land costs alone don’t assistance boost developers’ distinction margins.
Bocom’s Lau pronounced industry-wide ebit (earnings before seductiveness and tax) domain in a initial half of this year narrowed to 25 to 30 per cent,even when deliberation that projects built on reduce labelled land bought by developers in 2010-11 were sole during aloft prices in 2014-15.
The tumble in margins is especially due to developers carrying to offer an array of incentives such as debt subsidies and rebates on tip of steeper discounts to pierce sales, he said.
Over a past few years Hong Kong developers enjoyed distinction margins of 35 per cent to 40 per cent, Lau said. “We design serve downside in Hong Kong skill margins amid augmenting land prices,” he said.
All 6 residential plots sole around supervision open proposal given Aug were awarded to bids that were 17 to 70 per cent above a high-end of marketplace expectations.
As a entrance of some-more competitors has altered a manners of a diversion in Hong Kong’s skill market, Cheung of Prudential Brokerage saidbig developers are baking opposite styles of “bread” – or flats – in perspective of a fact that a cost of “flour” – land – stays high.
“That’s because we see a trend of building little flats is building quick as they can grasp aloft offered prices per block feet to recompense for descending margins,” pronounced Cheung.