Dwindling land bank seen taking bite out of Henderson earnings

Henderson Land Development will see its profit margin fall from 42 per cent to 18 per cent by the time its cheap land bank is exhausted in 2001, according to brokerage Dresdner Kleinwort Benson.

Property analyst Terry Ip said Henderson's margin would be still above his forecast market average of 16.4 per cent for developers in 2001.

The sector had enjoyed an average development profit margin of 58 per cent in 1996, he said.

Cheung Kong's (Holdings) would drop to 27 per cent and New World Development's to 18 per cent in 2001 compared with about 40 per cent at present, he said.

Other developers face increasing pressure on margins given their expensive land costs.

Mr Ip said Henderson's profit margin would be squeezed by the depletion of a cheap land bank accumulated through the exercise of land-exchange entitlements.

The entitlements, commonly known as Letter-A and Letter-B certificates, were issued between 1960 and 1983 to New Territories landowners whose properties were acquired for development.

'Henderson Land now enjoys a relatively high [profit] margin compared with other developers because of its extensive land holdings in Tseung Kwan O,' Mr Ip said.

The land cost for its Tseung Kwan O projects - Metro City II and III and La Cite Noble - was about $200 to $300 per square foot as it bought the site by surrendering Letter-B exchange certificates.

The two developments were selling at $3,000 to $4,000 per square foot against an overall development cost of $1,100 per square foot.

Henderson Land expected to release Metro City III for pre-sale in the first half of the year.

Mr Ip said Henderson Land had secured $4 billion in development profit for this year from the sale of Dawning Views in Fanling and La Cite Noble. The group sold 88 per cent of the 2,688-unit Dawning Views and 80 per cent of the 2,200-unit La Cite Noble.