Wharf sees property downturn as a short-term blip
Having been around for nearly 130 years, The Wharf is not fazed by the downturn in the property market in Hong Kong and on the mainland.
Stephen Ng Tin-hoi, deputy chairman and managing director of the property-based conglomerate, which was founded in 1886, recently took the wraps off a new chain of luxury hotels on the mainland called the Niccolo, named after the father of Venetian explorer and merchant Marco Polo.
Wharf’s Marco Polo Hotels unit already operates 13 hotels in the Asia-Pacific.
The first Niccolo hotel will open in the first quarter of next year within the newly opened International Finance Square (IFS) Chengdu in Sichuan province.
Ng says the market potential is huge and the slowdown in the property market on the mainland and in Hong Kong is a short-term fluctuation.
“The outlook of the hotel or property sector on the mainland is good in the long run. We will see a short-term correction, but it will not affect our long-term investment strategy,” said Ng.
The Niccolo hotels will be mostly aimed at chief executives and other affluent individuals.
“We target sophisticated customers with high spending power,” said Ng. “I am not worried about occupancy.”
The draw for customers would be the linked high-end shopping centre in places like Chengdu.
The brand will also run three other hotels, in the group’s IFS complexes in Chongqing, Suzhou in Jiangsu province, and Changsha in Hunan province.
In the longer term, it will aim to manage other hotels not owned by Wharf.
Compared with hotel penetration rates in mature markets – Britain, for example, has 10 hotel rooms per 1,000 of the population, and the United States has 20 – China has only four rooms per 1,000 people.
With assets standing at over HK$300 billion, Wharf has the financial strength to take advantage of the short-term consolidation in the market for long-term expansion, Ng said.
Wharf is developing investment properties under the IFS brand in China. The developer is also building a residential development portfolio in mainland cities.
“The residential volume [on the mainland] did not drop, but margins fell because of price cuts,” Ng said.
Following a strong property market in 2013, the mainland’s property market is facing a slowdown, with developers in non-first-tier cities cutting prices to boost sales.
A report by Barclays said Wharf recognises “the current difficult operating environment in China’s housing market and, as such, it is not in a rush to add to its China landbank.”
In the long run, the mainland residential market will remain strong, because the country is still at the stage of rapid urbanisation, Ng said.
In Hong Kong, he said, the business performance of Wharf’s major retail assets, such as Harbour City in Tsim Sha Tsui and Times Square in Causeway Bay, has significantly outperformed the market.
Investment bank Macquarie forecasts Harbour City’s retail sales will grow 4.7 per cent this year, and Times Square’s 16.7 per cent, against forecast growth in overall Hong Kong retail sales of 1.2 per cent.
“We do not worry too much about proposals to cut the number of individual travellers from the mainland. We are still fine,” Ng said.
He said the company is also looking to other sources of retail customers, from countries such as Russia and South Korea.