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Business

Henderson leads Hong Kong's real estate heavyweights

HONG KONG Asked about the outlook for the Hong Kong stock market, Lee Shau Kee did not hesitate to give his prediction.

"The Hong Kong Hang Seng Index will stabilize at around 21,000, up or down 10% from the current level," the chairman of Hong Kong real estate developer Henderson Land Development told reporters after a shareholders meeting on June 2. "If we have the chance, we would like to buy more of our company's shares."

Nicknamed "the Warren Buffet of Hong Kong," the 88-year-old Lee bought into several Chinese state-run companies listed in Hong Kong, including China Life Insurance and PetroChina, through an investment company he set up with family members in 2004. U.S. magazine Forbes, in its 2016 World's Billionaires list, put Lee's personal assets at $21.5 billion, second only to Li Ka-shing, chairman of CK Hutchison Holdings, among Hong Kongers.

Henderson handles the development and sale of office buildings and commercial complexes, as well as housing, such as high-end condominiums. The company's underlying profit, which excludes property valuation gains, rose 12% on the year to 11 billion Hong Kong dollars ($1.41 billion) in 2015.

Housing prices in Hong Kong have more than doubled since 2009 on an influx of investment money from mainland China. The prices are down more than 10% from the latest peak in last autumn amid the slowdown in the Chinese economy, but the supply-demand balance remains tight, with many condos selling out immediately after going on sale. Henderson has a clear lead over other Hong Kong realtors like Sun Hung Kai Properties, New World Development, Cheung Kong Property Holdings and Hang Lung Properties.

Henderson's lead is shored up by the ample stock of land it has built up in the New Territories district in a Hong Kong suburb. The company owns a total of 4.2 million sq. meters of land in the district, the largest among local real estate developers. This allows Henderson to enjoy higher profit margin than its rivals, which largely purchase sites in competitive auctions for government-owned land.

Chairman Lee was one of the three founders of another realtor, Sun Hung Kai Properties. In 1976, he set up Henderson, which has grown rapidly by acquiring dilapidated buildings and farmland, redeveloping them and then selling the facilities. Henderson has also been involved in development projects on the mainland, including the Beijing World Financial Center. The company earns about 70% of its revenue from property sales and just above 20% from renting out shopping malls and other properties.

Henderson is keen to diversify. Hong Kong and China Gas, which the company acquired in the 1980s, has a monopoly on the supply of municipal gas in Hong Kong. The subsidiary has handled more than 200 gas-related projects in the mainland. Wai Yee Wong, chief operating officer of the gas company, said, "While crude oil prices have bottomed out, the price of liquefied natural gas is stable, which is prompting consumers to choose gas."

One headache for Henderson has been recent campaigns protesting the development of farmland in some areas. "There is no justifiable reason for the movement since people have no place to live unless satellite cities are developed," Lee has argued.

Given the growing resentment over Hong Kong's widening wealth gap, large real estate developers like Henderson regularly face criticism that they are taking advantage of their ties with the government to prosper unfairly. The company, which is extremely active on the mainland, is also apt to face a backlash as ill-feeling toward Beijing grows among Hong Kongers.

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