Developers will hold flats rather than sell below cost, says Wheelock chief

Stewart Leung Chi-kin has spent about 80 per cent of his more than five decades in Hong Kong’s property industry at New World Development. Since joining the company in 1970, Leung has helped former chairman Cheng Yu-tung turn it into one of the four biggest developers in the city.

In 2010, Leung stepped down from his roles as executive director and group general manager to become a non-executive director so as to make room for the younger generation of Chengs. He left New World in January 2012.

On February 1, 2012, Leung, at the age of 73, became chairman of Wheelock Properties, a wholly owned subsidiary of Hong Kong-listed Wheelock & Co. He is also chairman of the Real Estate Developers Association of Hong Kong.

Q: When you took the helm of Wheelock Properties, you had plans to turn the company into one of the leading players in the Hong Kong property market. Is everything on schedule? Are you satisfied with the performance so far?

A: The company’s focus was more on investment properties rather than development before I joined. I wanted to make a change. We bought eight sites from 2012 to 2013, including four in Tseung Kwan O, one in Tuen Mun and one in Ho Man Tin, at a total cost of about HK$16 billion. I had set a target for myself: when I spend HK$10 billion on land purchases, I should earn back property sales of HK$10 billion.

Q: How is your report card?

A: The company reaped close to HK$11 billion last year. Just a pass.

Q: What is the company’s sales plan this year?

A: We will start selling residential projects from May onwards. The first one will be the second phase of The Austin in West Kowloon. It will be followed by the projects in Tseung Kwan O and the luxury project in Mount Nicholson Road.

Q: In the face of weakening market sentiment, will you cut prices below cost to speed up sales?

A: I must generate revenues that exceed costs. No one will employ you if you cannot make profits for them. Prices of the second phase of The Austin development should be higher than those at the first phase, because of the better location. Having said that, we need to set prices along with the market conditions. Developers will earn less but will not sell below cost. They prefer to sit on their projects, waiting for the right time to sell. Developers have strong staying power nowadays, unlike what they experienced in the 1997-98 crisis.

Q: Wheelock Properties is the largest landlord in Tseung Kwan O, an area described by analysts as facing an abundance of housing supply. The four sites owned by Wheelock can provide about 2,400 new homes. How hard will it be to sell them?

A: I am still confident and optimistic at the moment. Those sites are located at Tseung Kwan O South, where there is a sea view. It is different from the existing high-density buildings in Dream City, which faces public housing. The density of Tseung Kwan O South is much lower. The entire area is a large housing estate like Taikoo Shing, targeting the middle class.

Q: How much do you expect home prices to fall this year?

A: About 5 to 10 per cent. Construction costs have risen 60-70 per cent since late 2011 to more than HK$4,000 per square foot. Government does not want to cut land prices, making total costs rise. Developers will not sell properties below cost. How could home prices fall sharply?

Q: What is your plan to dispose of the luxury residential project in Mount Nicholson Road on The Peak, as we are seeing a sharp fall in buying from mainlanders?

A: We do not sit here to wait for [mainland] buyers. We go north to find them. In a slow market, colleagues from the marketing team will have to work harder, think of more strategies.

Q: You have proposed importing labour to fill a shortage?

A: Labour costs account for more than 20 per cent of overall construction costs. The cost is rising because of a shortage in the face of increased infrastructure projects and public housing developments. I am not asking to import labour for the private sector. I am proposing the government import labour to do public works but not compete with the private sector for manpower in the industry.

Q: Do you think the government will roll back the successive cooling measures?

A: I do not think the government will impose these measures permanently. Developers do not object to temporary measures to cool off rising prices. But I think the government should focus on the production of more public rental housing and Home Ownership Scheme flats, rather than hit the private sector. The pain will be mostly on the middle-income class who has mortaged homes.

Q: What is your management philosophy? Are you a pushy boss?

A: No, I always remember that I am wearing two hats – one representing my boss and one representing my staff. I always want to make sure my staff are working happily. To build up the relationship, we will have afternoon tea together. Sometimes we will have after-office activities, such as karaoke.