Wang On Properties chairman sees challenges from flurry of land deals by mainland developers
Company to continue its strategy of bidding aggressively for private and government sites in Hong Kong that offer good value
Gary Wong Yiu-hung is used to the envious stares of his industry peers when he meets them at industry get-togethers. The chairman of Wang On Properties, a mid-cap Hong Kong developer has every reason to be happy, as his company’s shares have risen by more than 1,000 per cent less than four months after being listed on the Hong Kong bourse.
The 59-year-old chief executive, who heads the property unit of conglomerate Wang On, says that he is not afraid of taking on industry bigwigs like Cheung Kong Property and New World Development, while bidding for prime real estate in the city. His steely resolve could also be due to the long years he worked with big developers like Chinachem and Henderson Land Development.
Wong says his most fascinating industry experiences have been witnessing the transition of Wang On from a small department store selling cough syrup and Chinese medicine across the city to a publicly traded group and joining it as general manager in 2004.
In an interview with the South China Morning Post, Wong said he was astonished to see the flurry of big mainland developers willing to rake out huge sums for land acquisitions in Hong Kong. “In Hong Kong, the higher the price you offer, the better the chances are of acquiring plots, especially in government land sales,” he said. “This is a challenge not only for us, but also for all developers.”
Although widely known as a “specialist” in developing properties featuring small-sized flats, as reflected by its latest The Met Blossom project, Wong said that his company would not hesitate to ramp up its offerings should the need arise.
What kind of land acquisition strategy does Wang On follow?
Although Wang On is not as big as some local firms, it will continue to pursue active acquisition opportunities for private or government sites. When it comes to private sites, we mostly look for old buildings, whereas in the case of government sites, it would be plots priced at and below HK$2 billion. Over the long-term, we will have a cautious stance on land acquisitions. What this means is that while we would continue be aggressive in bidding, we will be cautious in setting the offer price.
What is the best strategy to get favoured sites when tendering for government land in Hong Kong?
I would say that only the brave will win. The HK$7,000 per square foot residential plot in Yau Tong [paid by mainland developer Minmetals] is way beyond the estimates of surveyors and the market consensus. Some bidders are very proactive, and have various strategies. We take into account the costs and returns when tendering for a site. That said, we also have to manoeuvre our debt-to-cash flows. We currently have four projects under construction, and have to take into account the credit ratings.
What kind of projects interest you normally?
The most important criteria is obviously the kind of cash flow that the site can generate. Then comes the question of whether it fits our overall agenda. In our view, an ideal site is one that is close to MTRs and shopping districts. If the site falls within these parameters, we will actively bid for it.
What are your views on the spate of mainland developers buying property in Hong Kong?
There are times when you cannot foresee whether there are any new rival bids from consortiums from mainland or overseas. We are not very familiar with plans of mainland peers and we may have various agendas and risk tolerance. We are more risk-averse and therefore we may not opt to offer to pay a very high price. I would reckon that the rising enthusiasm of our mainland peers poses new challenges for Hong Kong developers.
How do you plan to conquer these challenges?
We have a deeper understanding of the local demand. Mainland developers may be willing to splash out a more money to acquire land, but it does not mean that they can make money from it. It remains unclear whether they would be able to pass on the price premium to property buyers. But on the other hand, if you don’t take the such steps, you would never get an entry into the market.
What is the main difference between mainland and Hong Kong developers while choosing favoured sites?
Mainland property developers value the sites with a sea-view. This may be due to the fact that there is a very small parcel of land located on the sea front on the mainland. Local developers are not that much into waterfront sites as Hong Kong has a long sea line. Of course, developers here also like the sea-view, but customers might not want to offer a 200 to 300 per cent premium for it.
With several mainland developers looking to enter the Hong Kong realty market, does Wang On have any plans to enter the mainland market?
Not yet. For the time being, we will focus on cultivating our Hong Kong business. It costs a lot to build up a new team on the mainland or in other overseas markets.
The markets have viewed the mainland players as proactive bidders who love splashing out on big projects. What do you think?
If mainland developers attempt to make a foray into Hong Kong, they will have to start making big investments. If you only have two people in your team, you will not be able to sort out a range of issues here. So that may be the reason why they are so aggressive.
Do you think growing demand would drive up prices in the long-term?
There will still be plenty of land supply. We would rather mind our own business for the time being. We will have to have more cash at hand if we have to convince banks about repayment capabilities while taking loans.
Do you expect more mainland developers to snap up land in Hong Kong?
Definitely. I think the mainland players have realised that they need to be more aggressive for getting a share of the Hong Kong property market.
I guess it has something to do with the weakening yuan. For instance, as a businessman, if you see the British pound falling, you also smell the opportunities there. But we are also quite curious about what has made them so proactive – it was out of our expectations.
It has more to do with the huge risks that developers are willing to take, the kind of yields that they expect from their investment and the total labour costs.