Rise in land sales, and more small lots, benefit smaller developers
Big developers still rule the roost but smaller rivals have more chances to snap up plots
An increase in the amount of land released for housing - as well as smaller lot sizes - has helped small- and mid-sized developers previously priced out of land-sale auctions.
One of those to benefit has been Paliburg Holdings, a mid-sized developer controlled by property magnate Lo Yuk-sui.
The Hong Kong-listed investment holding group teamed up with its listed hotel investment arm and subsidiary Regal Hotels International to get its hands on a residential site in Yuen Long in 2011 and a residential site in Sha Tin and a shopping mall site in Ma On Shan this year.
It spent HK$3.41 billion on the acquisitions.
"Previously, the government released large sites in prime locations such as Ho Man Tin and Stubbs Road in Mid-Levels East," said Donald Fan Tung, a director of Paliburg and Regal Hotels.
"The land cost for one site was already more than HK$10 billion, which was out of the budget of mid-sized developers."
But Chief Executive Leung Chun-ying's government has released more small sites for development, some of which cost only a few hundred million dollars.
"His gave more opportunities to developers other than the four largest in the market," Fan said.
Data from the Lands Department show the government sold 35 sites in the 2011-2012 financial year.
Between them, the two biggest developers in Hong Kong by market value - Cheung Kong (Holdings) and Sun Hung Kai Properties - snapped up nine of the sites.
Add the sites acquired by the other major developers active in land bidding during the year, such as Sino Land, Nan Fung Development and Kerry Properties, and between them the big players snapped up almost half of the sites on offer during the year.
In the 2012-2013 financial year, the two biggest developers bought fewer plots, acquiring just six.
But nonetheless the biggest developers together accounted for about 40 per cent of the land acquisitions during the year.
That situation has changed this financial year.
Of the 18 sites sold since April, one has been acquired by SHKP, while Cheung Kong has not bought a single site. In total, major developers bought only two sites independently and one joint-venture project.
In their place, Wheelock & Co, through its wholly subsidiary of Wheelock Properties, has become the most active player in the land market, having now spent HK$22.72 billion on eight sites since July 2011.
Mainland companies China Overseas Land and Investment, Kingboard Chemical Holdings and a director of Country Garden have also emerged as buyers.
Small- to mid-sized developers such as Wing Tai Properties, CSI Properties, HKR International, and Far East Consortium - none of whom featured in any major deals in previous land auctions - have also bought several sites.
But Fan said despite the greater role played by smaller developers, the market continued to be dominated by the big players.
"If you look at the record, 70 to 80 per cent of government sites in the past three years were bought by big developers," he said. "Only 20 per cent of the sites are in the hands of the small- to mid-sized developers. We have had opportunities, but not that many."
Fan said large developers had deeper pockets and greater resources, and although they had big land banks if they were interested in a particular site, they could easily outbid smaller players and were able to offer aggressive prices.
Paliburg Holdings and Regal Hotels bought a residential site in Sha Tin's Kau To for HK$2.39 billion or HK$6,837 per square foot, last month. The price was 18 per cent below the winning bid for a nearby site sold two weeks previously.
Fan said the companies were able to pay less than they otherwise would have done because big developers had become cautious about buying, as they judged that market sentiment was weak.
"Also, many sites have been released for sale in the area and since the big developers have now acquired sufficient sites, they don't want to buy several sites in the same area."
Another reason why Paliburg and its partner were able to get the site, he said, was that the government planned to release more sites in the Kai Tak area in Kowloon. Since this was a prime spot, big developers were holding fire on acquiring smaller sites is less desirable locations.