Land sales to benefit big developers

The restart of land sales will mainly benefit the cartel of large developers dominating the SAR's property market at the expense of their smaller counterparts, analysts say.

They said smaller developers would be left on the sidelines despite the appealing size of some sites.

Dresdner Kleinwort Benson said in a report the sites were in prime locations to ensure good take-up.

But the size of developers, such as Cheung Kong (Holdings), Sun Hung Kai Properties and Henderson Land, would allow them to dominate bidding, the bank said.

'Medium and small-sized developers are financially strained and the land sale will enhance the dominant position of the big developers,' Dresdner said.

It said private developers such as Nan Fung Development and Chinachem could also be bidders.

In a recent report Morgan Stanley Dean Witter said investment property companies, such as Hongkong Land, Hysan Development and Wharf (Holdings), could also show interest when the land sales resumed, despite their past non-aggressive stances.

'Most of these companies have excellent balance sheets, but are facing very dull prospects in their core commercial property businesses over the coming couple of years,' Morgan Stanley said.

'The residential market prospects are generally better and provide the scope to juice up dull earnings.' Vigers Hong Kong vice-chairman Alfred Lai said bidding interest would provide a much-needed barometer of property-sector sentiment.

'Nobody knows how the developers feel about the market,' said Mr Lai.

Many analysts expect developers to be cautious in bidding for the bigger sites.

'Developers are into a volume game now,' one analyst said.

'They have to get in and restore their land bank.' Another analyst said: 'There are a lot of outstanding land premium discussions that have not been resolved.

'The developers will look at the land sales programme as setting a benchmark for those negotiations.' As a result, bidding could be conservative, he said.

Morgan Stanley said developers were unlikely to base their bids on a sharp recovery in prices.

'Developers are likely to prove risk averse when buying land, and therefore any upside to prices, will likely ensure solid margins,' the investment bank said.

One broker said the full impact of the resumption could not be gauged accurately until a number of deals had been completed.

Morgan Stanley said the resumption would boost longer-term earnings potential of property companies.

'It would enable developers to replenish their land banks at low cost while heading into an environment in which housing prices, in our view, are likely to recover somewhat over the next couple of years.' Monitor, Page 20