Big Four vary mainland strategies

Big Four vary mainland strategies

Raymond Wang

Friday, March 30, 2007

Key developers in Hong Kong are adopting different strategies to replenish their land banks in China, in particular main and second-tier cities where they have a strong presence.
New World China Land (0917), one of the earliest entrants to the mainland real estate market, intends to focus on developing its existing cheaper land bank in the next couple of years.

But the mainland property arm of New World Development (0017) has no plans to accelerate the pace of new and large-scale land acquisitions as its existing land reserve of 15 million square meters is sufficient for development until 2014, according to NWD senior manager of corporate affairs Aldous Chiu.

Henderson Land Development (0012), controlled by Lee Shau-kee, however, aims to more than double its land bank to more than 14 million sq m this year.

NWD's Chiu said capital spending of affiliate New World China Land for fiscal 2008 would be mainly construction expenditure .

Between 2 billion yuan (HK$2.02 billion) and 3 billion yuan, or 2,000 yuan to 3,000 yuan per sq m, will be spent on property developments for the financial year ending June 30, 2008.

In fiscal 2006, the company acquired several new projects in mid-western China, saying the decision was based on its positive view of the property market in that region, shrugging off concerns over central government measures to cool the sector.

Lower land costs in these secondary cities will translate into better margins, it added. It will speed up the pace of developing these projects.

New World China Land also expects fiscal 2008 to be another bumper year amid more property completions and healthy margins after more than doubling its net profit to HK$406.4 million for the six months to December.

The company said its projects slated for completion in fiscal 2008 will jump by half in terms of gross floor area.

Developers can only book income from property sales after projects are completed.

Project completions in fiscal 2008 will increase to as much as 1.2 million sq m from more than 800,000 sq m in the current year ending June 30, 2007, Chiu said.

New projects with a total gross floor area of 187,200 sq m were completed in the first six months to December 2006, with a further 630,000 sq m scheduled for completion in the second half ending June 2007.

Its margins recently rose to about 33 percent from about 21 percent in fiscal 2005.

Henderson Land, meanwhile, has redefined its strategy in the mainland, saying that apart from developing prime sites in Beijing, Shanghai and Guangzhou, it also focused on second-tier cities with good growth potential.

The company plans to splash out 7.5 billion yuan to replenish its mainland land bank this year with a potential total buildable floor area of 7.7 million sq m.

The developer said the group is in the final stages of acquiring several sites, for which agreements have been reached.

With formalities for these land purchases likely to be completed before the end of June, the group's mainland land bank will more than double to over 14 million sq m of gross floor area from the present 6.8 million sq m.

Henderson did not identify the location of its latest land acquisitions.

It has also joined forces with Singapore-based Temasek Holdings to acquire a riverside residential site in Xian, Shaanxi province, for 1.72 billion yuan.

Recently, Henderson also won a plot in Suzhou, Jiangsu province, with a bid of 865 million yuan.

Cheung Kong (Holdings) (0001) and Sun Hung Kai Properties (0016), Hong Kong's largest developers by sales and market capitalization, also want to buy more land in the mainland.

Cheung Kong deputy chairman Victor Li Tzar-kuoi said the company has a strong presence in both first-tier and second-tier cities and will continue to increase its holdings.

"In just Shanghai alone, the land bank from our two recent projects is already over 1 million square meters," Li added. He said contribution from properties in the mainland was not substantial last year, as projects have yet to be completed.

"Contributions will increase in 2007. All of our projects in China are making money," Li said, adding that including its share in associate Hutchison Whampoa (0013), Cheung Kong's mainland land bank exceeds 10 million sq m.

Meanwhile, SHKP also intends to step up the pace of its property investment in China where its investments now account for about 10 percent of its total assets.

"We hope our China investments will account for 15 percent of our total assets in the next few years when new projects are completed," SHKP chairman Walter Kwok Ping-sheung said.

The company has committed over HK$22 billion to new China projects.

SHKP owns an attributable 2 million sq m of gross floor area in the mainland, comprising completed investment properties and properties under development.

"We are emphasizing quality of our projects more rather than the size of our land bank," Kwok said.