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Hong Kong Property

Mainland China's 'acquisition binge' of Hong Kong land: state-backed developers splash out HK$33 billion in last 2 years

PUBLISHED : Sunday, 01 November, 2015, 12:00pm
UPDATED : Sunday, 01 November, 2015, 1:08pm

The rapid expansion of Chinese mainland developers who splashed out about HK$33 billion to buy land over the past two years is challenging the dominance of Hong Kong giants in the city’s property development business.

The mainland acquisition binge accounted for 24.6 per cent or nearly a quarter of the HK$134 billion in government land revenue since 2013.

Big players including China Overseas Land & Investment; Vanke Property (Hong Kong), a unit of the mainland largest listed developer China Vanke, Poly Property Group and Shanghai-based Shimao Property Holdings began to be more active in Hong Kong in 2013.

“We think keen competition from new players will reduce the competitiveness of traditional players,” Eva Lee, a property analyst at UBS, wrote in a research report.

Hong Kong’s top five traditional developers “have been losing market share in their Hong Kong land acquisitions,” she said.

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The quintet are billionaire Li Ka-shing’s Cheung Kong Property, Sun Hung Kai Properties, New World Development, Sino Land and Henderson Land Development.

For instance, Shimao Property Holdings in September defeated six local companies to win a prime luxury residential site in Lung Ping Road, Kowloon Tong - its first wholly-owned development site in the city - for HK$7.02 billion.

Shimao has been actively participating in Hong Kong government tenders over the past two years. The Shanghai-based developer said it would invest a further HK$5 to HK$8 billion on the project, raising the total investment cost to HK$15 billion.

Last year, it also defeated five local players to secure a 1,100-room hotel site in Tung Chung in a partnership with another mainland commercial developer, Mingfa International.

Vincent Cheung, a chartered surveyor, said mainland Chinese players have risen to prominent positions owing to the total value they had spent in Hong Kong’s land market but not in terms of gross floor area.

“Their spending per site is greater than the number of sites they bought when compared with local players,” he said.

In order to outsmart local developers, mainland developers have to pay a high price to establish a foothold in Hong Kong.

Although some are big players in the mainland, they expanded their reach to the city by forming partnerships with small local developers as they are unfamiliar with Hong Kong’s development business.

After two years of learning, they have started to go on their own.

Thomas Lam, the head of valuation and consultancy Knight Frank, said their expansion into Hong Kong’s land market will continue for the next three to five years.

“It may take 10 years for a developer to grow big,” said Lam.

Faced lower margins and deepening correction at home, mainland firms started to expand overseas to look for higher growth.

Lam said their entry into Hong Kong is similar to the city’s coffee market.

“Will a few more new successful coffee brands open the door for business affect the market share of Starbucks in Hong Kong? The answer is no,” he said.