September 15, 2017 2:52 am JST

Top Hong Kong developer's property sales slip amid market boom

Sun Hung Kai's full-year underlying profit rises 7% while total revenue dips 14%

JOYCE HO, Nikkei staff writer

Sun Hung Kai Properties senior managers discuss the company's full-year results in Hong Kong on Sept. 14. (Photo by Joyce Ho)

HONG KONG -- Hong Kong's largest developer by market capitalization, Sun Hung Kai Properties, booked 17% less in property sales at home for the year ended in June, despite a red-hot housing market where prices show no signs of abating.

Property sales in the Chinese territory last year totaled 30.22 billion Hong Kong dollars ($3.87 billion), the family-run company said Thursday after the market closed. Sun Hung Kai did not explain the decline, which lowered total revenue by 14% to HK$78.21 billion, but maintained that its performance was "exceptional."

"Our property sales last fiscal year were very desirable, if not outstanding," Victor Lui Ting, deputy managing director, told reporters Thursday, attributing that to "the launching of various large-scale projects." Lui was referring to contracted sales, which are essentially a presale or revenue earned after delivering the project, totaling HK$44.7 billion last year.

"A lot more" new projects will be ready for sale in the next nine months, he said, citing around five in the latter half of 2017 and four slated for January-June 2018.

"Our sales this year might not be as great as last year, but we are very confident that we can hit the target [for contracted sales] of HK$36 billion," Lui said, noting that last year's target stood at HK$33 billion.

Banking on continued growth

Hong Kong, noted as the world's most unaffordable housing market, saw home prices climb even faster in the second quarter, with the annual growth rate rising from 14.4% to 21.1%, whereas the global average growth dropped from 6.5% to 5.6% in the period, London-based property consultancy Knight Frank says.

The city ranked second among 55 mainstream residential markets in terms of housing-price growth in the period, trailing only Iceland, where growth accelerated from 17.8% to 23.2% during the second quarter.

Though many see Hong Kong housing prices as reaching a dangerously high level, Sun Hung Kai Chairman Raymond Kwok Ping-luen remained positive on the market and indicated his eagerness for parcel acquisition.

"Homebuyers' confidence remained solid, buoyed by record land prices, low mortgage rates, healthy economic conditions and relatively positive demographics," Kwok said.

The company looks to build over 290,000 sq. meters of housing space annually in the next three years, he said. One way to acquire more land for this purpose is through farmland conversion. The company recently added two sites with a gross floor area of 256,598 sq. meters, of which 84% came from a parcel originally meant for agricultural use in the New Territories.

Mike Wong Chik-wing, another deputy managing director, said the company is negotiating with the government to repurpose a few other farm plots for residential use. The move was widely understood to dovetail with the plan of Chief Executive Carrie Lam Cheng Yuet-ngor, in office since July 1, to push through the "Starter Homes" scheme to help first-time homebuyers get on the property ladder.

Mainland developers move in

The initiative came amid a huge influx of mainland developers making aggressive bids for land in Hong Kong, including acquisitive outbound investor HNA Group. The privately-owned Hainan-based company snapped up four parcels in the city's former Kai Tak airport site between December and March for a sum of HK$27.2 billion. The premium it paid for each item was at least 50%.

But HNA's murky shareholding structure and leverage-fueled shopping spree attracted greater scrutiny by the Chinese government. That has reportedly led the company to financing troubles lately. At least four banks known to have provided short-term financing to HNA for the land purchases reportedly decided not to renew that credit, nor to extend fresh loans to fund construction in the renewed urban sites, according to media reports.

Such difficulties prompted speculation that HNA might have to sell its Kai Tak assets. But Kwok said those parcels were bought at rates that could be "pretty hard to yield profits," adding that HNA was a "special case" in being shunned by lenders.

Despite Sun Hung Kai's declines in housing sales and telecommunications income, the company's full-year underlying profit attributable to shareholders rose 7.43% to HK$25.96 billion. The gain resulted largely from a 4% increase in rental income to HK$17.97 billion, as well as a substantially higher operating margin for the Hong Kong property segment, which widened to 33% from 27% a year ago.

Reported profits, which factored in a 90% increase in fair value of investment properties, rose 27.9% year-on-year to HK$41.78 billion.

The company's Hong Kong-listed shares ended Thursday at HK$135.30, capping a year-to-date return of 38.06%. The benchmark Hang Seng Index has returned 26.26% so far this year.

Asia300

Sun Hung Kai Properties Ltd.

Hong Kong

Market(Ticker): HKG(16)
Sector:
Industry:
Finance
Real Estate Development
Market cap(USD): 49,727.28M
Shares: 2,896.39M

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