Hong Kong Billionaire Fills Funding Gap in U.K.’s Low-Cost Housing Market
New World Development Ltd Chairman Cheng Yu-Tung
Mike Clarke/AFP/Getty Images
New World Development Ltd chairman Cheng Yu-Tung.
New World Development Ltd chairman Cheng Yu-Tung. Photographer: Mike Clarke/AFP/Getty Images
Billionaire Cheng Yu-tung and two fellow Hong Kong investors, faced with soaring real-estate prices at home, are helping the U.K. plug a gap in funding for low-income housing after gaining control of a London-based property manager.
Cheng’s Chow Tai Fook Enterprises Ltd., developer Sammy Lee and businessman Peter Fung last month paid 30 million pounds ($48 million) for 61 percent of Pinnacle Regeneration Group Ltd., manager of 22,000 homes in the U.K. Cuts in social housing are part of the British government’s plan to trim a record deficit with the biggest spending reductions since World War II.
“There is a big opportunity for investors directly coming to the fore because of the cutback in funding,” said James Coghill, a real-estate investment adviser at Savills Plc. (SVS) “Social housing providers are seeking other funds and need to become more commercial.”
A change in U.K. law last year enabled investors to profit for the first time from social housing in Britain, where there’s a waiting list of 1.8 million households. With property prices at home skyrocketing, Hong Kong investors are putting money into U.K. real estate ranging from subsidized housing and office buildings to luxury properties and infrastructure.
Home prices in Hong Kong have risen more than 70 percent since the beginning of 2009 on record-low mortgage rates and an influx of buyers from mainland China. The Hong Kong government imposed restrictions to curb rising values, such as increasing the required down-payments.
‘Very Hot’
“The Hong Kong market is very hot,” said Lee, 53, who also developed a 200-apartment complex in London’s affluent Knightsbridge neighborhood that opened in 2005. “We’ve got to diversify and the first port is London.”
Social housing in the U.K., typically provided by local governments and non-profit associations, is rented out at below- market levels with the state subsidizing the rest. Pinnacle plans to spend as much as 500 million pounds on U.K. housing projects over the next three to four years, Chief Executive Officer Perry Lloyd said.
The closely held company is working with the London borough of Lambeth to create almost 1,000 homes in a jointly funded project with the council. Pinnacle will manage the properties, half of which are social housing. Lloyd said the Hong Kong group’s investment of 30 million pounds may only be the start.
‘Further Investment’
“We’re a key into a door -- this is the price of the key and gives the option for further investment,” he said in an interview in London.
Through Chow Tai Fook, Cheng’s family controls New World Development Co., one of Hong Kong’s biggest property developers with investments in hotels, department stores and public transportation. He is the fourth-wealthiest person in Hong Kong with assets valued at $9 billion, according to Forbes Magazine.
“Pinnacle will probably float in Hong Kong in a couple of years, so this is us dipping our toe in the water,” said Lee. “We’re looking at a much longer projection.”
More overseas investors are likely to look to the U.K.’s social housing market because it offers reliable returns, said Coghill of Savills, which owns 3 percent of Pinnacle, in an interview. Lloyd said the yields will be about 5 percent, similar to some prime commercial real estate.
‘Colonial Roots’
Hong Kong companies, or groups that include Hong Kong purchasers, completed 18 deals involving U.K. assets last year, the most since at least 1999 when Bloomberg began compiling mergers and acquisitions data. The $11.67 billion total value of the deals was more than triple the previous record. Li Ka-shing, Hong Kong’s wealthiest man, is among those looking to Britain. His Cheung Kong Infrastructure Holdings Ltd. made a 2.4 billion- pound indicative offer this month for Durham, England-based Northumbrian Water Group Plc, which serves 4.4 million customers.
Other deals this year include the purchase by Chinese Estates Holdings Ltd. (127), controlled by Hong Kong billionaire Joseph Lau, of buildings in London that are part of Goldman Sachs Group Inc. (GS)’s European headquarters. Last year, Li’s Cheung Kong Infrastructure acquired a stake in U.K. generator Seabank Power Ltd. for 212 million pounds and led a group that bought Electricite de France SA’s U.K. network for 5.8 billion pounds.
“With Hong Kong’s colonial roots with England, investors are very comfortable with the infrastructure over here,” said Pinnacle’s Lloyd. Now part of China, Hong Kong was a British colony until 1997.
‘Huge Demand’
Chow Tai Fook’s chain of jewelry stores plans an initial public offering in Hong Kong that may raise as much as $4 billion, two people with knowledge of the matter said in May. The shares may start trading as early as the fourth quarter, the people said.
The Hong Kong group’s investment in social housing may be a contrarian bet. Luxury-home values in London have rebounded faster than those for other properties, reaching a record last month, according to Knight Frank LLP. The property broker, which is based in the city, estimates that prices for prime residences in central London will increase by 8 percent this year.
“It’s a lottery sometimes with prime assets and sometimes people overpay,” said Lloyd. “With social housing there is huge demand, a willingness from local authorities to engage with us and a real opportunity to generate returns over a long period of time.”
To contact the reporter on this story: Tim Barwell in London on tbarwell@bloomberg.net
To contact the editor responsible for this story: Andrew Blackman at ablackman@bloomberg.net
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