Squeezed Chinese developers deepen push into Hong Kong property market

China City Construction's move on Sha Tin site seen as shift from tight market at home

PUBLISHED : Friday, 12 December, 2014, 10:41am
UPDATED : Saturday, 13 December, 2014, 6:04am

With their margins squeezed at home, mainland developers are increasingly rushing to buy land in Hong Kong.

State-backed China City Construction (International) has a 90 per cent stake in a venture which won a waterfront site in Sha Tin for a higher-than-expected HK$2.14 billion on Wednesday.

The bid, with Hong Kong developer and construction firm Chun Wo Development Holdings, is seen as deepening a push by mainland developers into the city's market.

Nicole Wong, CLSA's regional head of property research, said mainland firms faced single-digit profit margins in the depressed domestic market, exacerbated by fierce competition and growing economic uncertainties.

"Hong Kong will become an alternative market for mainland developers planning expansion," Wong said.

In Hong Kong, projects not only generated a net profit margin of 13 per cent but also had lower funding costs, she said.

The city's interest rate is about 3 per cent, against more than 7 per cent on the mainland.

For Chun Wo, the venture with China City Construction is a good fit. "We have been approached by numerous local and mainland developers to bid for land together as we have been in the construction industry for four decades," said Anthony Poon Chi-choi, a director of Chun Wo.

Poon said Chun Wo's expertise could help to save up to 10 per cent in building costs by achieving a faster development cycle. "We should be able to complete this project four to six months faster," he said, adding that the Sha Tin project's investment cost would be HK$4 billion.

The site, at 601 Yiu Sha Road, Whitehead, could yield a gross floor area of 387,000 sq ft.

The price tag translates into HK$5,517 per square foot, the highest in terms of per square foot in the area.

In May, a consortium formed by Hui Wing-mau, the chairman of Shimao Property Holdings, Mingfa Group (International) and Emperor International Holdings bought a site in Shouson Hill for HK$2.71 billion.

In February, a unit of mainland-backed Poly Property Group won a residential site in Kai Tak for HK$3.92 billion.

Alan Jin, an analyst at Mizuho Securities, said moves into the Hong Kong market helped mainland developers gain overseas experience. "For the moment, their participation level is still limited but it will rise and competition will intensify," he said.