Developers unload properties for land rush funding
Updated: 2012-08-01 06:56
By Bloomberg(HK Edition)
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Hong Kong developers, exploiting a surge in prices since 2009, are selling shopping malls, offices and parking garages at the fastest pace in at least seven years to raise cash ahead of an increase in government land sales.
Sino Land Co and Hang Lung Properties Ltd are among builders which have been divesting commercial property in the past six months. The value of such deals, excluding residential and land sales, more than doubled in the first half from a year earlier to HK$53 billion, the highest six-month tally since the first half of 2005 at least, according to CBRE Group Inc.
"This is something developers have rarely or never done in the past," said Dominic Chung, an executive director at CBRE, the world's biggest commercial broker. "Developers are gathering ammunition because there'll be more sites available."
Developers are seeking to replenish land reserves as the government resumed regular sales last year after a seven-year hiatus. Sales had been sporadic since 2004, when the government stopped regular auctions after home prices plunged 70 percent from their 1997 peak amid the Asian financial crisis and the SARS epidemic.
Hong Kong's new chief executive, Leung Chun-ying, pledged to put more land on the market after home prices jumped over 80 percent since the start of 2009, which are now the world's highest.
Home sales at developers including Sun Hung Kai Properties Ltd, the city's biggest, and Sino Land have been dented by government measures such as extra transaction taxes and higher mortgage down-payment requirements.
"Developers have to use the disposal of these non-core assets to bridge their earnings gap," said Nicole Wong, an analyst at CLSA Asia-Pacific Markets in Hong Kong. "Many developers are concerned about earnings stability. They may also see the current level as peak pricing."
The average office price rose 3.6 percent in the second quarter from the previous quarter to HK$23,700 per square-foot (sqf), CBRE said. The value of prime-street shops rose more than 10 percent to almost HK$218,000/sqf.
Prices for offices and retail properties will remain flat in the second half of this year because of uncertainties over the global economy, said Marcos Chan, regional head of research at Jones Lang LaSalle Inc.
Hang Lung Properties, Hong Kong's third-biggest developer by value, in May sold a building for HK$528 million and a car park for HK$220 million, the first time it sold non-core commercial assets in Hong Kong since 1998.
Sino Land and its parent in March sold an office building for HK$2.5 billion. That came after the developer in December sold a shopping mall for HK$588.4 million.
New World Development Co, controlled by Hong Kong's third-richest man, Cheng Yu-tung, is reportedly offering to sell a mall for HK$1.2 billion. Fiona Wan, spokeswoman for New World, declined to comment on the report.
Swire Properties Ltd, the biggest landlord in eastern Hong Kong Island, booked an HK$8.6 billion profit from the sale of its Festival Walk shopping mall in Kowloon Tong in July last year to Singapore's Mapletree Investments Pte.
Buyers of such properties, mainly professional investors, pensions, private-equity funds and wealthy families, are seeking out the assets for their stable returns, said CBRE's Chung. The average yield on commercial properties in Hong Kong is 2 percent to 4 percent, according to Wong Leung-sing, a research director at Centaline Property Agency Ltd, the city's biggest closely held realtor. Yields on government bonds are close to zero as the city's interest rates are tied to the US Federal Reserve.
The government may boost housing supply about 40 percent annually, according to CLSA. Hong Kong home prices may fall as much as 20 percent in the next 12 months on increased supply and the global economic slowdown, according to a report last month by Deutsche Bank AG.
(HK Edition 08/01/2012 page2)