New | Smaller Hong Kong developers go head to head with the major players

Most of Hong Kong's small and medium-sized developers were stuck on the sidelines of the city's property market four years ago. Lacking financial muscle, they were ill-equipped to duke it out with the major developers in bidding for development sites offered for sale by the government. But the 97-pound weaklings stopped getting sand kicked in their faces late last year, much to the market's surprise. They started turning the tables on the 800-pound gorillas, outmuscling the major developers in two major land sales. The secret to their success? Teaming up with hungrier gorillas from north of the border. Facing single-digit profit margins in a depressed housing market, fierce competition and growing economic uncertainties, cashed-up mainland developers are keen to diversify overseas. Most big firms have embarked on acquisition sprees in Hong Kong, Southeast Asia, the United States, Australia and Europe. Some market watchers see the trend as a "perfect marriage made in heaven". Unfamiliar with the Hong Kong market, mainland developers want local partners, and small players - not major developers - can be ideal. "Short of cash, small local players have embraced their moneyed partners with open arms," said Victor Lai Kin-fai, chief executive of property consultancy firm Centaline Professionals. "For the first time in years, smaller players are now on almost even terms with major developers." Thomas Lam, head of valuation and consultancy at Knight Frank, said some major development sites had recently been acquired by small players with help from "big brothers" on the mainland. "This was unthinkable in the past," he said. In December, Chun Wo Development, a local construction firm, teamed up with state-backed China City Construction to snare a 23,500 square metre site in Sha Tin for HK$2.14 billion, right from under the noses of the city's major developers. In May, Emperor International teamed up with Shimao Property chairman Hui Wing-mau - one of the mainland's richest men - and another Nanjing-based developer, Mingfa International, to win a luxury residential site on Shouson Hill, Wong Chuk Hang, for HK$2.7 billion. The chairman of mid-sized developer Far East Consortium, David Chiu Tat-cheong, said he would not rule out teaming up with mainland developers on future land acquisitions. "It is possible as we have close business contacts with a number of mainland developers," he said. Small local players have embraced their moneyed partners with open arms Victor Lai, Centaline Professionals With more companies bidding for government-offered plots, a sharp departure from the past, homebuyers will have more housing projects to choose from. But the domination of the market by a few major developers is unlikely to change overnight. Homebuyers bought 16,600 new flats last year, but 77 per cent, or 12,798 units, were sold by just five developers, according to data compiled by Centaline Property Agency. That compares with 70 per cent supplied by seven developers between 1991 and 1994, according to a Consumer Council study conducted in 1996. After the government suspended regular land sales for almost a decade from 2002 because an economic downturn was dragging prices down, it became more difficult for newcomers to break into the industry. Land sales were switched to the land application list system, which relied on expressions of interest from developers to trigger auctions. Although property prices soared from the fourth quarter of 2003, the government refused to resume regular land sales, saying the list system could reflect market demand for land. It was not until 2011 that the government took the initiative to sell land if the application list system failed to generate enough sites for sale. Eddie Hui Chi-man, a professor at Polytechnic University's building and real estate department, said the government's suspension of regular land sales had reduced developers' land replenishment options, especially for smaller players. "Property giants have sufficient capital to trigger big sites for land auction and also hold big portfolios of farm land that can be converted to residential purposes through paying land premium to the government," Hui said. "They can also participate in the tendering of prime sites offered by the Urban Renewal Authority." Between 2006 and 2010, during former chief executive Donald Tsang Yam-kuen's administration, only 35 sites were triggered for sale under the land application list system, and they were sold to just 13 developers. Twenty-four of them sold for between HK$1.3 billion and HK$10.9 billion. "The results showed most sites went into the hands of the big guys," Hui said. Smaller players staged a comeback after Chief Executive Leung Chun-ying, who assumed office in July 2012, scrapped the land application list system and, in a policy U-turn, made more small plots available for sale in an effort to increase the supply of housing. Under Leung's administration, more than 60 different local and mainland developers have bought 84 sites. With barriers to entry lowered - a small plot on Peng Chau went for just HK$15 million - four out of 10 successful bidders in government tenders have been first-time buyers. Besides big names like Poly Property and China Metallurgical Group Corp, less-well-known developers such as Neutron Property Fund, Wang On Properties and Chuang's China Investments have secured land for projects in Hong Kong. Charles Chan, Savills' managing director for valuation and professional services, said he now saw a more level playing field in the market. "The advantage of having more competitors is that it would avoid government land being sold at unfairly low prices," he said. More competition could see land prices bid up to record highs, even in secondary locations, in the short term. Chan said land-hungry developers had to be more aggressive if they wanted to establish a presence in Hong Kong's property market. "Small and big new entrants have no choice but to pay higher prices than local giants as the latter have already built up large land banks," he said. A case in point was CSI Properties, which paid HK$427.1 million, or HK$5,307 per square foot, for a residential site in Tuen Mun, a record for the area. While the government was releasing more smaller plots for tender, Chan said that charging corporate buyers a higher rate of property tax - a measure introduced in an effort to cool the market - had discouraged redevelopment. "As a rising property levy will raise developers' investment cost, they prefer replenishing land bank through government tenders," he said. However, the increasing number of competitors was unlikely to change the market-share picture in the short term. "New supply remains in the hands of a few big players," Chan said.

.css-sioo19{color:#c79a00;}New | Smaller Hong Kong developers go head to head with the major players

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Small and medium-sized Hong Kong developers can now go head to head with the major players thanks to cashed-up partners north of the border

New | Smaller Hong Kong developers go head to head with the major players

Small and medium-sized Hong Kong developers can now go head to head with the major players thanks to cashed-up partners north of the border