Hong Kong property

Mico Chung, the upstart Hong Kong developer who aims to join the ‘big boys’ league

Once touted as ‘Richard Li’s right-hand man’, does one of Hong Kong’s savviest deal makers have what it takes to found a new property empire to rival that of Henderson or New World?

PUBLISHED : Friday, 11 May, 2018, 8:00am
UPDATED : Friday, 11 May, 2018, 8:00am

Hong Kong’s property market is so dominated by the local elite property developers – the so-called big boys – that it’s often thought these developers will never be usurped from their positions of power, or that their ranks will ever change.

But don’t say that to Mico Chung Cho-yee, chairman of Capital Strategic Investments (CSI), an upstart property developer keenly intent on joining the ranks of those big boys. His company, which thus far has focused on redeveloping commercial properties and more lately on luxury homes, is working its way up the ladder.

Revenues for CSI have steadily climbed since Chung took over the company, then just a corporate shell, in 2004. In 2005, CSI recorded revenues of HK$368 million (US$46.9 million at current rates), with net profit attributable to shareholders of HK$71 million. In 2017, it was HK$1.86 billion in revenues, with HK$1.35 billion profit to shareholders. In 2012, a banner year for CSI, revenues reached HK$3.2 billion, with profit at HK$1.7 billion. That’s still a fraction of big boy numbers: in 2017, New World Development posted revenues of HK$56 billion, with profit attributable to shareholders of HK$7.6 billion.

But such figures don’t deter Chung, who has a step-by-step vision to get to the top tier of Hong Kong’s property developers.

Mico Chung got his first taste of the property business when his father started his own, small property development company in the 1960s. His father had migrated to Hong Kong from Shantou, a Chiuchow city at the eastern end of China’s southern Guangdong province and a historic commercial centre. Chung’s father first worked as a blue-collar labourer before starting his own factory, later trading properties and finally getting involved in development projects.

Looking up to his father

Chung’s family was not particularly well off; there were no maids or nannies, and young Mico Chung would often find himself visiting properties and construction sites with his father. Property prices famously collapsed after the 1967 riots, and it was then that Chung’s father made his move into property.

“Property is in my father’s blood, and I’m accustomed to it,” Chung says. “[When] I was growing up, I felt this is my future – you always look up to your father.”

Property is in my father’s blood, and I’m accustomed to it … [When] I was growing up, I felt this is my future – you always look up to your father
Mico Chung

Though his father drove Mico around town looking at construction sites, his father had other plans for his son. “He wanted me to study law, which I did for him. He felt that he was paying so much for lawyers,” Chung recalls. The plan was for Chung to work in the family firm as a lawyer – and save some overhead expenses in the process.

In 1983, Chung graduated in law from the University of London. But it was then that financial and political turmoil over Hong Kong handover negotiations had begun. By 1984, his father’s firm had gone bankrupt as a result of high and volatile interest rates (in October 1982, Hong Kong prime lending rates reached 19.6 per cent) and Chung had to go to work for a law firm, effectively putting an end to the vision of a family property business.

Chung, however, quickly found the law boring and too conservative for the wheeling and dealing he was interested in. After a few years, he went to work for Standard Chartered as an investment banker, which was more to his liking.

Rise of the deal maker

After a brief interlude working at the Bond International Corporation, during which time he led the 1990 HK$1.72 billion acquisition of the World Trade Centre in Causeway Bay, Chung was discovered by Singaporean business scion Oei Hong Leong in 1991. Oei had bought a stake in the company running the World Trade Centre, and though that deal ended in a legal dispute, Oei was keen enough on Chung to hire him to run a new investment vehicle. Oei was himself interested in the potential of China and was known in Singapore for his love of fast-moving deals.

That was an opportune moment for Chung. These were the first years that mainland Chinese companies were attempting to list on overseas stock markets.

Oei and Chung set up China Strategic Investments, whose business was privatising China’s state-owned enterprises in manufacturing and property. Chung says he was more or less running the company from 1992 to 1998. “There was a lot of opportunities along the way; the boss gave me freedom to do some business – my job was to deliver a profit every year. The leadership and capital were provided by him.” That business included some of the very first overseas listings by China’s state companies. The strategy often involved finding ways to modernise China’s antiquated factories and turn them into competitive enterprises that could later be sold off.

To this day, Chung remains connected to the sprawling Oei family through his directorship with HKC, a Hong Kong-listed China property developer headed by Oei Tjie Goan, elder brother of Oei Hong Leong, and by Tjie Goan’s son, Kang Oei.

By 1999, Chung had moved to Pacific Century Group under Richard Li Tzar-kai, just as Li was getting started in corporate acquisitions. Hong Kong was in the middle of the Asian financial crisis, but Li was trying to raise money for acquisitions. Francis Yuen Tin-fan, one of Hong Kong’s best known figures in stock market and financial circles who was already working for Richard Li after selling his insurance firm to Li, encouraged Chung to join Li’s new venture, having known him as an investment banker from before.

“He (Chung) joined as a deal making person – he is a brilliant deal maker,” says Yuen. “He has a rare talent for identifying business opportunities – [he is] quite creative in devising solutions to close a deal.” Yuen receded from the limelight after retiring from PCCW in 2006, but he regained attention in 2015 when he sold his home at 22 Barker Road to Jack Ma Yun, founder of Alibaba Group, which owns the South China Morning Post, for HK$1.5 billion. Yuen bought it from the Belgian Consul General in 2000 for HK$163 million.

It was Chung’s deal making ability that was essential to getting Li’s nascent conglomerate on its feet. “At the time, Pacific Century Group was like a start-up. We needed enterprising people; we had nothing but capital, connections and knowledge,” Yuen says. “We needed deal makers to help create the business. Sometimes we had to dispose of some of the difficult assets to create capital. Mico was involved with that.”

As if to underscore the fact that Chung doesn’t burn bridges, Pacific Century Group bought Tricom, which at the time was owned by his former boss, Oei Hong Leong, which led to the creation of PCCW. To this day, Chung sits on the board of Hong Kong Telecom.

By the early 2000s, the rush of mergers and acquisitions that marked Richard Li’s ascent was mostly done. Chung describes the evolution of PCCW into something like a utility firm, with limited scope for the kind of wheeling and dealing that he enjoys.

Returning to property business

As early as 2002, Chung, then in his early 40s, was already thinking about starting his own company, and getting back into the real estate business. It was during the severe acute respiratory syndrome (Sars) outbreak in 2003 that Chung decided the time was right to make his move. In 2004, he bought CSI, then a holding company with some cash and no assets, and raised a HK$200 million fund to get started.

Yuen, who had encouraged Chung to leave and set up his own company, put money into that first fund and is still a shareholder in CSI.

CSI’s first purchase was 88 Gloucester Road in 2004. The building, located across the road from the Revenue Tower in Wan Chai, was then owned by the Louis Vuitton family, who had purchased it for HK$850 million in 1996 and spent an additional HK$50 million on renovations. Chung secured the building in 2004 for HK$190 million.

At the time, Pacific Century Group was like a start-up … We needed deal makers to help create the business
Francis Yuen

Sars had scared pretty much everyone involved in property in Hong Kong, but CSI had the capital to make a play. It was at this point that Chung’s father came back into his life as a confidante and counsellor. “He had gone through difficult times,” Chung says. “He told me, in situations like that, if you don’t buy, you’ll never buy, so be brave and buy it.”

That first purchase helped pave the way for CSI’s business model, and for Chung’s confidence in moving ahead. “We bought that building at 15 per cent yield, which was amazing, then the market quickly recovered.” Chung sold the building in 2007 for nearly HK$800 million.

Chung’s model involved buying up commercial properties, refurbishing or repurposing them, and selling them on quickly. The aim is to return money as soon as possible, to build up cash reserves. Having been listed since 2004, Chung feels this gives CSI a better shot at raising capital for projects than private firms might have. It is in this, he says, that his time as an investment banker has been invaluable.

CSI has expanded its headcount from just two in 2004 to over 100 in Hong Kong and now 30 in Shanghai, CSI’s next biggest development market. The aim of the capital raising was to transition from real estate trader to property developer, as Chung’s father had done decades ago.

Small Hong Kong developers trying to break into the big leagues by buying, converting, then flipping properties is a “well-tread path,” according to Denis Ma, head of research for Hong Kong, JLL. But Ma says in recent years, some new opportunities have opened up a way forward for the small players to break into the big time. He notes that mainland companies look for local partners on Hong Kong projects – often smaller developers – because the mainland firm may not have the local knowledge.

Even the big players of Hong Kong may find themselves in need of joint venture partners on property plays, thanks to the extraordinarily high prices they face, according to Ma, giving more space for the “small guys to participate in projects that might otherwise be out of their reach.”

Chung’s reputation for deal making seemingly puts him ahead of the curve in this respect. In 2017, CSI partnered with Wing Tai Properties on a HK$1.9 billion project to redevelop a plot in SoHo district in Central to create an office-retail-hotel complex.

More recently, CSI sold a residential project on Glenealy Road, just up from Lan Kwai Fong, Hong Kong’s central bars and entertainment district, for HK$2 billion in cash, along with the right to co-develop the project with Richard Li’s Pacific Century Premium Developments and half of the future profits, according to media reports.

Chung has also been eyeing up property projects in West Kowloon, in the hopes of taking advantage of the opening of the West Kowloon terminus. His model of buying, renovating and selling commercial properties should serve him well, as West Kowloon is full of old residential and fading commercial buildings ripe for renovation.

Taking advantage of mainland tourists coming to Hong Kong, looking for a “Hong Kong” experience, has been a mainstay of Chung’s strategy. “We feel that with a lot of older locations – less popular with Hong Kong locals – will get more popular with Chinese coming in.”

This strategy netted returns of 40 per cent or better on a turnaround of two to three years, according to Chung. While there are plenty of other small-scale, family-run property businesses that may do this kind of property play, Chung says none are listed and plugged into capital markets the way CSI is. Nonetheless, Chung insists that most financing for CSI projects is done internally.

CSI is now getting attention. In April this year, FinanceAsia announced that CSI Properties Limited was voted “best mid-cap company in Hong Kong”, in a poll of the finance industry conducted by the Hong Kong-based financial trade publication.

The next step up the ladder is in luxury residential projects, and it was in 2007 that Chung started his first residential project, which takes more capital and a turnaround time of four to five years.

In 2011, he set up Couture Homes, a subsidiary of CSI, to develop CSI’s luxury portfolio. The big project that’s currently underway is a luxury development with truly large proportions – Fan Kam Road project. Spotting a place in the New Territories along Fan Kam Road near Fanling, Chung has made a big bet on a luxury development that will consist of just six houses, each at 7,000 square feet, with 4,000 sq ft gardens. The gardens are to be individually designed by famed landscape architect Randle Siddeley: “our main selling point,” according to Chung.

By comparison, other projects that have tried to create a luxurious villa feel in the New Territories or islands have been considerably smaller in unit size – the Whitesands development by Swire offers villas of 2,000 to 2,500 sq ft, and the Botanica Bay development by Sino offers detached homes between 3,700 and 5,500 sq ft. At Kau To Shan near Tolo Harbour, Wing Tai’s Le Cap offers residences ranging from 1,700 to 4,700 sq ft.

By going very large and spacious in an area near the border with Shenzhen, Chung hopes to capitalise on Shenzhen-based businessmen wanting a great place to entertain clients in Hong Kong. He expects to charge somewhere between HK$150 million and HK$200 million per unit. Each of the six houses will have a 20-metre pool. Chung aims to have the project completed some time next year.

When it comes to luxury residences, Chung prides himself on having a sense for luxury beyond that of most property developers. His office is filled with art, and on his desk, you’ll find stacks of superyacht magazines. Having spent plenty of time on superyachts himself (Richard Li is well known for his love of high-performance motor yachts), Chung says he wants to bring superyacht design aesthetics and technology to his luxury property developments.

“I believe in creating a brand, so people remember us,” Chung says, reckoning that his willingness to take risks and push the envelope higher in Hong Kong luxury residential will earn him yet more capital – and the chance to finally push into the elite world of mass housing projects. This week, CSI Properties won with Sino Land the tender to develop a residential site in Yau Tong in Kowloon for an estimated HK$3.8 billion.

“In (terms of) branding, we (CSI) are Louis Vuitton now, but we are moving down to Giordano,” Chung says, aware of the irony.

The property market in Hong Kong, driven by tight supply and big demand from the mainland, is no place for the faint of heart. Chung acknowledges that the Hong Kong property market is “tough on the little players”. Hong Kong, he says, is the only place where [listed] real estate companies are trading at a big discount to earnings. Big property developers can do mass housing units that pre-sell quickly, allowing them to raise money easily.

Looking outside Hong Kong, Chung shows little appetite for expansion anywhere other than China. He singles out Shanghai as his next major focal point, as well as Beijing. “If you get big in both, that’s good enough – that’s BIG,” Chung says in a rare moment of satiation. CSI has a 50 per cent stake in a major residential development and two commercial developments in Shanghai.

On China, Chung is bullish, noting that 1.3 billion people and a growing middle class make for a great real estate market in the long term. He also evinces that Hong Kong may one day outlive its usefulness as a property destination for mainland Chinese, particularly after the Chinese yuan achieves full convertibility. “I think the Hong Kong magic will evaporate soon. Now, a lot of (Chinese businessmen) are going wherever they want – Milan, Japan.”

I think the Hong Kong magic will evaporate soon. Now, a lot of (Chinese businessmen) are going wherever they want – Milan, Japan
Mico Chung

One of the major constraints of Hong Kong as a business centre has been its notoriously high property prices. On this, Chung reckons the government can do a lot more to ease supply without intervening in the market. In particular, he singles out the Town Planning Board for making it challenging to reclassify industrial land as residential land. He also points to unused infrastructure such as abandoned schools that could be converted to residential or commercial properties.

“I think we need an overhaul at how land becomes available. That’s the number one priority.”

Another priority is reforming Hong Kong’s system of land tender. Hong Kong introduced a blind auction system – where bidders do not know each other’s bids and therefore must bid very high to ensure a winning bid – during the Sars period. “People in government were worried that no one would bid for property. It replaced the auction because the government was worried it couldn’t sell land,” Chung says. He now thinks it’s past time to go back to a regular bidding auction, which could serve to bring down prices.

Whatever happens in Hong Kong’s property market, Chung is not one to rest on his laurels before achieving his goal of being one of the “big boys”. “His strength is in doing deals, not being a professional manager,” says Francis Yuen. “He trades assets frequently and well. He’s been able to build up a good portfolio.”

Denis Ma, JLL’s Hong Kong property watcher, knows CSI: “It doesn’t seem like they’ve done anything wrong so far.”

For years after Mico Chung rejoined the property game with CSI, his father would continue to be his counsellor, often bringing lunch to Mico’s office and to talk over the business. Chung’s father passed away last year, but the aim of building a property empire to rival has not ended. “I got my inspiration from him,” says Chung.

Chung has two daughters – Ashley, who studies at New York University, and Jasmine, who now works in commercial sales at CSI. With that, a new family legacy in Hong Kong property is being built, one deal at a time.

(This article is published in the May issue of The Peak magazine, available at selected bookstores)