Cheung Kong says it won't scale back
Cheung Kong will not reduce its investments in Hong Kong despite escalating construction costs that are making it increasingly difficult for developers to run their businesses, says chairman Li Ka-shing.
'With the numerous infrastructure projects the government is undertaking, and rising labour costs, construction costs will increase by 30 to 40 per cent over the next four years,' said Li. 'That will make the growth of construction costs higher in Hong Kong than in any other country in the world.'
Li's made the remarks after announcing Cheung Kong's interim results for the six months to the end of June - including a 9 per cent fall in core earnings to HK$7.57 billion, excluding the contribution from subsidiary Hutchison Whampoa.
Li later said that in the mass market, current construction costs excluding interest expenses and professional charges amounted to HK$3,000 per square foot, while in the luxury market they were as high as HK$8,000 per sq ft.
'But although the market environment is getting tougher, we will not reduce our property investment in Hong Kong. Our land bank will be sufficient for development for the next four years,' he said.
Deputy chairman Victor Li Tzar-kuoi said Cheung Kong would continue participating in land auctions, and its fast-asset turnover strategy would remain unchanged. As at the end of July, he said Cheung Kong had earned HK$32.4 billion from selling more than 7,000 flats in Hong Kong, on the mainland and in Singapore.
The comments followed similar remarks made last month by Henderson Land Development chairman Lee Shau-kee, who said developers' profit margins were being squeezed by rising construction costs and increased land supply.
After contributions from subsidiary Hutchison Whampoa and a revaluation gain from its investment properties, Cheung Kong said its first-half net profit plunged 54 per cent to HK$15.45 billion.
Last year, Cheung Kong reported an interim net profit of HK$33.25 billion, largely due to a one-off gain of HK$18.57 billion from the spin-off of its 33.4 per cent-owned Oriental Plaza in Beijing into yuan-denominated Hong Kong reit, Hui Xian Real Estate Investment Trust. Hutchison's initial public offering of Hutchison Port Holdings Trust also contributed.
Earnings per share for the first half fell 54 per cent to HK$6.67 per share, from HK$14.36 at the halfway stage last year. Property sales tumbled 35.62 per cent to HK$15.52 billion, but rental income jumped 36.70 per cent to HK$905 million. Turnover, excluding the contribution from Hutchison Whampoa, fell 32 per cent to HK$17.71 billion. Directors declared a same-again interim dividend of 53 HK cents per share.
Li Ka-shing also dismissed media accusations that Cheung Kong was withholding land from development on the mainland. He said the group had paid a few million dollars for a Dongguang site for reasons other than delays, and it had never been fined for other sites.
'We want to start construction as soon as possible once we secure a site,' he said.
Cheung Kong shares fell 1.06 per cent to close at HK$102.3 before the results announcement.