There will always be a demand for luxury, says Hang Lung boss
Despite the anti-corruption campaign on the mainland, Hang Lung chairman Ronnie Chan Chichung is committed to building shopping centres that cater to the luxury goods sector
Ronnie Chan Chichung took over as chairman of Hang Lung Properties in 1991 and foresaw the opportunities that would arise with the dynamic economic growth in mainland China.
Under his leadership, the Hong Kong-based company embarked on a HK$92 billion expansion into the mainland’s high-end shopping mall sector, targeting “the best locations in major populated centres”.
On September 26, Hang Lung will open its seventh mall, Riverside 66, in Tianjin, and it has five other projects under construction.
It has completed more than 10 million sq ft of shopping malls on the mainland.
Chan said the company had completed the equivalent of one Empire State Building annually in the past four years. At this speed, it will take 12 to 13 years to build out the 30 million plus square feet still under construction.
Q: Will you consider reviewing your strategy of building shopping malls to target mass-market consumers instead, in view of declining spending on luxury items amid President Xi Jinping’s anti-corruption drive on the mainland?
A: Our strategy of building four- and five- star shopping malls in China will not change. Previously, sales of luxury goods were dominated by rich businessmen and the “gift” market.
In future, demand from professionals will replace the gift market, which was hit when Beijing imposed restrictions on giving expensive gifts.
My son once worked as a junior staff member in [Big Four accounting firm] KPMG on the mainland. He saw that all the female senior executives had Prada or Dior bags. Brand loyalty is particularly strong among Asian women. There has always been a market for luxury goods.
We need not review our strategy because of today’s mainland policy.
Q: Will the luxury retail leasing market be affected by the sharp fall in luxury retail sales?
A: It will be a tough market ahead, and retail rents will under pressure. Most big brands have no budget for expansion this year, as a result of sales being hurt by the anti-graft campaign.
For instance, return on cost for our soon to be opened new mall, Riverside 66, in Tianjin will be at the low end of 5 per cent, compared with others’ 8 per cent to 10 per cent. But it is within our management’s expectations.
Q: What is your feeling about it taking nearly 10 years to complete that 1.6 million sq ft shopping mall?
A: Some city governments are more capable than others. Tianjin was our first site acquired outside Shanghai, in 2005. Later, we acquired four plots – two in Shenyang [in Liaoning province] and one each in Jinan [in Shandong province] and Wuxi [in Jiangsu province] – on which we have completed shopping centres.
In our experience, our projects will open the door for business five to six years from the day we purchase the land.
The Tianjin project was stalled for [nearly] 10 years by the complicated and prolonged procedures for seeking approval. What do you think? Is it our problem or the city government’s problem? It is really ridiculous.
Q: You told everyone that you “loved to hug bears”, as a bear market presents the opportunity to buy land at lower prices. In Hong Kong, do you think now is the time to buy?
A: We have not bought land in Hong Kong for more than a decade, except that we won a government commercial plot in Tung Chung with other developers last year. The entry barrier for government land sales is still high.
Q: But Hang Lung’s land bank will be exhausted soon, as it has slightly more than 1,000 units left unsold in Hong Kong?
A. It takes time, and we are not in a hurry for land replenishment. We still have a large land bank in [mainland] China.
Q: Other developers launch their projects for sale once they obtain presale consent, but Hang Lung is still holding slightly more than 1,000 empty units at both The Harbourside at Kowloon Station and The Long Beach in Tai Kok Tsui, which were completed 10 years ago. Critics question why you, as a supporter of Chief Executive Leung Chun-ying, whose focus is on addressing the housing shortage, hoard completed flats at The Harbourside and The Long Beach instead of selling them to ease the tight supply?
A: I didn’t hoard any properties. It is nonsense if we hoard flats when home prices continue to rise. We decided to sell them two years ago, when we felt the prices reached the optimal point.
Different companies have different strategies. For instance, somebody likes salted fish, but I like salted vegetables. Not all developers are the same.
Q: What is your view on the outlook for the residential market?
A: The government’s curbs proved to be effective faster than I expected. In just 18 months, home prices have stabilised after the introduction of cooling measures. It is the first time in a decade I have seen a healthy development in the property market.
Q: In future, do you think Hong Kong people’s living spaces will continue to shrink, as more developers are building studio flats, with some as small as 166 square feet?
A: Today, small flats are selling much faster than large units. The trend is not only in Hong Kong but also in Western countries. My son lived in a studio unit less than 100 sq ft when he worked in New York.
Demand for flats will change constantly. Several years ago, we saw brisk sales of 1,000 sq ft units, but now developers are changing to smaller sizes to meet the growing demand for first-time buyers.
But I agree we have to help people to upgrade their living environment.
Q: Where would you prefer to live on the mainland after your retirement?
A: I can travel and live in different cities. For big cities, I prefer Shanghai and Beijing. For mid-size cities, I like Kunming and small cities in Tengchong, Yunnan.