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Asia300

Mainland players won't control Hong Kong property market: tycoon

Hang Lung chairman expects local companies to beat Chinese conglomerates

Hang Lung Properties in Hong Kong (Photo by Masayuki Kozono)

HONG KONG -- Mainland conglomerates may have grabbed news headlines with their record-breaking land bids in Hong Kong, but it is the more sophisticated local developers who will dominate the city's property market in the next five years, according to Hang Lung Properties Chairman Ronnie Chan Chi-chung.

The Hong Kong property tycoon's comments come as his mainland counterparts are facing setbacks in Beijing's clampdown on overseas deals to curb money outflows. Chan praised local developers for their rich experience and know-how in one of the world's most volatile property markets.

"The Hong Kong real estate market is very unique," Chan said, "it is not easy for outsiders to break into this market."

About two years ago, mainland conglomerates such as HNA Group and Ping An Insurance Group emerged as formidable forces in Hong Kong's land auctions, securing spaces at record-breaking prices that blocked many of the city's developers from accumulating inventories. But the trend has significantly slowed over the past few months as Beijing has stepped up efforts to rein in highly geared overseas deals, which were deemed to pose "systemic risks" to domestic lenders.

HNA Group's aggressive bids in Hong Kong lifted the land prices at Kai Tak, where the old airport was located, by 160% in just three months at the end of 2016, but now the debt-ridden group is struggling to find investors to finance the projects.

Hang Lung Properties Chairman Ronnie Chan Chi-chung announces the latest earnings on Jan. 30. (Photo courtesy of Hang Lung Properties)

Back then, Chan described the trend as "irrational," but many observers said mainland companies would dominate Hong Kong's residential property market in the next five years.

"I think they have underestimated companies like Sun Hung Kai Properties, Cheung Kong Group, Henderson Land Development, Sino Group and Kerry Properties," Chan said, referring to major developers in Hong Kong.

"These guys have been through battles and they have become very wise," he said. Chan expects local developers to have a better chance to win the land bidding in the future than their highly geared mainland counterparts.

"A year ago, a lot of [mainland companies] were buying lands in Hong Kong like there was no tomorrow," Chan said. "Where are they now?" Asked if HNA Group has requested that he invest in its Kai Tak lands, he would only answer "we are good friends."

Last year, Hang Lung's property sales revenue dropped 36% to 3.4 billion Hong Kong dollars ($434 million) from a year ago, while operating profit declined 30% to HK$2.2 billion, as fewer residential units were sold during the period, according to its financial filings.

The dwindling property sales have put a drag on the group's overall business performance, with revenue shrinking by 14% to HK$11.2 billion last year, and profit slumping 13% to HK$5.5 billion.

To further expand the group's leasing revenue, Chan said he will upgrade its mainland shopping malls to include more luxury brands that can afford higher rents.

Last week, French high-end jewelry brand Boucheron debuted in the Chinese market, placing its first store in one of Hang Lung's Shanghai shopping malls. Boucheron is part of Kering Group, which also owns Gucci.

Like mainland mall operator Dalian Wanda Group, Chan said his company is also seeking partnerships with internet companies to improve online-offline integration. But he did not disclose potential partners.

On Monday, an "all-star" team of Chinese investors led by internet conglomerate Tencent Holdings agreed to pour 34 billion yuan ($5.4 billion) into Dalian Wanda Group's flagship unit, marking the world's largest deal between online and bricks-and-mortar businesses.

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