The real-estate developer wants to raise property investment from 10 per cent to 30 per cent of total assets by 2006 Developer Hang Lung Properties is pinning its future on the growing mainland property market. The company is aiming to increase property investment from 10 per cent to as much as 30 per cent of its total assets by 2006. Executive director Terry Ng Sze-yuen said the future expansion had been sparked by the company's successful experience in Shanghai over the past 11 years. 'In the past two months, I have been in China almost every weekend looking for opportunities,' Mr Ng said. 'We have been looking at many cities, including Beijing, Tianjin, Chengdu, Suzhou and Guangzhou, and expect to make some announcements in about six months. 'We are one of the few developers making money in China.' Hang Lung's major property investments in Shanghai include an office-retail complex on Nanjing Road and The Grand Gateway shopping complex above Xujiahui station. Both the developments are being expanded, with the finished gross floor area, expected to be completed within four years, being 521,000 square metres. This will almost equal the scale of investment properties Hang Lung has built up in Hong Kong over the past 40 years. The company's property leasing in China last year had earnings of $218 million before interest, tax and amortisation, compared with its total ebitda earnings of $1.43 billion. However, the mainland expansion strategy has raised some analysts' concerns over its earnings prospects in the medium term. CLSA analyst Keith Yeung said the higher risk-lower return mainland investment would mean the company missing out on Hong Kong's property market reflation. 'While the long-term growth story is in China, the best of the next two to three years' growth will be found in Hong Kong,' Mr Yeung said in a research report. Mr Ng said Hong Kong's property market had bottomed out but confirmation would take longer. Lack of confidence in the local property market meant that Hang Lung had not made any major land purchases in the past decade. Its existing properties for sale are the 1,122-unit Harbourside above Kowloon airport railway station, the 188-unit Camel-on-the-Hill in Homantin and the 1,616-unit Aqua Marina in Lai Chi Kok - all housing projects scheduled for completion this year. It also has the 1,823-unit The Long Beach in Tai Kok Tsui, which is expected to be completed in the second quarter of next year. CLSA, which last month downgraded Hang Lung from 'buy' to 'underperform', said the company's lack of available land in Hong Kong clouded its long-term earnings. Mr Yeung said Hang Lung's profit would start to decline in 2005 if the company did not acquire land in the next 12 months. BNP Paribas Peregrine analyst Adrian Ngan said: 'We don't see the company as a property developer.' He said a developer should buy land and trade properties to generate cash for new development, but Hang Lung had done neither. Nr Ngan said the uncertainties in the timing of the company's residential launches and its land replenishment strategy had raised investors' concerns over its balance sheet. Defying analysts' criticism, Mr Ng said he was confident of the company's outlook in the near to medium term. The luxury residential project, The Harbourside, would give a handsome profit to the company when it was offered for sale after the Lunar New Year, he said. CLSA estimated the total cost of The Harbourside at $3,270 per square foot and predicted the selling price would average $5,344 per square foot. Mr Ng said while The Harbourside would help the company's short-term profit, Shanghai rental properties would amount to 25 per cent of its total rentals - at present 15 per cent - by 2006. The increased rental contribution would help profit in the next three to five years. However, the contribution remained small at this stage, he said.