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Real Estate

Top Hong Kong developers step up expansion amid property boom

Share of local developers rises as mainland buyers retreat

Hong Kong land developers are stepping up purchases again now that the pace of acquisitions by mainland competitors has slowed. (Photo by Shinya Sawai)

HONG KONG -- Top Hong Kong property developers are accelerating their pace of land-buying after a year-long slowdown, as the once-formidable mainland companies largely drop out of auctions.

The restart of land expansion came after another record-breaking year in Hong Kong's property sector. Transactions hit a fresh 20-year high and rose 14.8% to 83,815 units from a year ago, according to government data. Analysts expect home prices will increase by another 10-20% this year despite measures by the government to cool the market.

"We will be more aggressive in land auctions this year," said Raymond Kwok Ping-luen, chairman at Sun Hung Kai Properties, one of the largest developers in Hong Kong. "I hope the government will put up more lands for sale," Kwok said.

The family-controlled group, along with many local developers, significantly slowed down its pace of land acquisitions over the past 12 to 18 months, as the bold bids in land auctions of mainland conglomerates, such as HNA Group and Ping An Insurance Group, caused prices to skyrocket. For example, land prices at Kai Tak, where the city's old airport was located, rose by 160% over just three months at the end of 2016 because of HNA Group's aggressive bidding.

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. Now, debt-ridden HNA Group is struggling to find investors to finance its projects.

Sun Hung Kai Properties Chairman Raymond Kwok Ping-luen, center (photo provided by the company).

Kwok refused to comment on whether it is involved in the financing of HNA's land or whether it will seek to acquire the troubled group's remaining two pieces of land at Kai Tai. However, he said SHKP would "actively explore every possible approach" to increase its land reserve sin Hong Kong.

Besides pursuing government land tenders, he said the company would also expand its land reserves through the redevelopment of old buildings and land use conversion. Through three recent projects, it was sitting on a land bank of 21.4 million square feet at the end of December, its highest level in a decade. This is sufficient to meet development needs over the next five to six years, Kwok said.

SHKP reported robust results during the six months ended in December, with underlying profits rising 36.7% to 20 billion Hong Kong dollars ($3.1 billion). Property sales in Hong Kong almost doubled to HK$12.7 billion during the period.

While the retreat of mainland players may have eased competition for government land sales, real estate conglomerate New World Development is looking to boost its land bank by converting farmland for commercial and residential use.

Group Vice-Executive Chairman Adrian Cheng Chi-kong said the company had been "very rational", and would not "follow the crowd" to bid for certain lands. "We will buy when we feel the price is right," said the heir of the prominent Cheng family.

Instead, the group is in the process of converting farmland of 3 million square feet in the New Territories, he said. The completion of the conversion will significantly boost its Hong Kong land bank, which stood at about 10.66 million square feet at the end of December.

However, Cheng said it would take at least six years to convert a piece of farmland due to the lengthy procedures required by the government.

"I hope the government could speed up the process," he said.

During the six months ended in December, the company's profits more than doubled to HK$11.27 billion from a year earlier due to a significant change in the fair value of investment properties, the company said in an exchange filing. The fair value of its investment properties was HK$7.17 billion in the reported period as compared to HK$346 million a year ago, it said.

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