Hong Kong Builders Are Looking Abroad as Sales Slow at Home

Hong Kong developers are looking at overseas projects as residential sales in the city are near a two-decade low because of property curbs, said Jones Lang LaSalle Inc. and Cushman & Wakefield Inc.

Builders have approached Jones Lang LaSalle about investing in London and deals may happen in the next three to six months, Joseph Tsang, Hong Kong-based managing director at the world’s second-biggest property brokerage, said, declining to name the companies because of confidentiality agreements. Cushman said it is seeing interest from Hong Kong developers to invest in London, Tokyo and Bangkok.

Home sales at developers, including Sun Hung Kai Properties Ltd., slowed to the lowest since 2008 in the first half as the government stepped up measures over the past year to quell concerns that housing is becoming unaffordable for the general public. They join mainland Chinese builders that are accelerating purchases of real estate in cities including New York and London.

Hong Kong developers “are sitting on a pile of cash and they need to do something,” Tsang said in an interview in Hong Kong on Oct. 17. “I’m not saying they’re stopping investing in Hong Kong now, but going forward, if they feel Hong Kong is becoming a tougher place to do business, more and more of them will look elsewhere.”

Since 2010, Hong Kong has introduced measures including extra property transaction taxes and tighter mortgage-lending requirements. Total residential transactions in the first half fell to the lowest since 1996, according to data available on the Land Registry’s website.

Overseas Appetite

Cushman, the world’s biggest closely held realtor, has been approached by large and small developers since February when the government doubled the stamp duty on all property transactions above HK$2 million ($257,951), said John Siu, managing director in Hong Kong, without naming the companies.

Colliers International is getting similar “approaches,” Simon Lo, Hong Kong-based executive director of research and advisory, said, declining to name the clients.

Great Eagle Holdings Ltd. will buy a 28-story office building and land rights to 123 Mission Street in San Francisco for $181 million in cash, the company said in a statement to the Hong Kong stock exchange today.

Hong Kong developers have tended to expand in Asia. Hang Lung Properties Ltd. and Wharf Holdings Ltd. have accelerated investments in mainland China since Hong Kong, a former British colony, returned to Chinese rule in 1997.

Local Revenue

Sun Hung Kai, the city’s second-biggest developer by market value, last month paid 21.8 billion yuan ($3.6 billion) for a site in Shanghai in an auction, a record for the city.

While they are picking up efforts to diversify their sources of earnings, Hong Kong still remains the biggest contributor of income for the city’s developers.

Cheung Kong, Hong Kong’s biggest developer by market value, and Sun Hung Kai made 62 percent and 90 percent of their revenue from Hong Kong respectively, according to their latest full-year results. Much of the growth was fueled by the multifold increase in real estate prices in the city over the past decade.

Hong Kong has the world’s highest home prices, most expensive retail rents, and the second-highest office occupancy costs, according to data compiled by brokers including Cushman.

Cash-Rich Companies

Hong Kong developers, including Cheung Kong Holdings Ltd., controlled by Asia’s richest man Li Ka-shing, are among the most cash-rich property companies in the world. Six of the city’s 10 biggest real estate companies have a total debt to common equity ratio of below 30 percent, according to data compiled by Bloomberg.

Chinese companies have taken the lead in branching out abroad in search of higher yields and a safe haven as the government maintains property curbs at home.

Fosun International Ltd., based in Shanghai, last week agreed to buy 1 Chase Manhattan Plaza from JPMorgan Chase & Co. for $725 million, marking the largest purchase of a New York building by a Chinese buyer. Excluding the deal, China leads foreign countries in New York property investments this year, with $1.37 billion of acquisitions, according to property-research firm Real Capital Analytics Inc.

Chinese Interest

Earlier this year, Zhang Xin, the billionaire co-founder of Soho China Ltd., took a stake in midtown Manhattan’s General Motors Building. Greenland Holding Group Co., a Shanghai-based, state-owned developer, agreed this month to buy a 70 percent share of Atlantic Yards, a residential and commercial project in Brooklyn.

For Hong Kong developers, the growth at home is starting to fade as property curbs start to take effect. Home prices in the city may fall as much as 25 percent from their peak in March, while a price war between developers will intensify, Raymond Ngai, a Hong Kong-based analyst at Bank of America Corp.’s Merrill Lynch unit, said at a Oct. 16 briefing.

Developers sold about 4,300 new units in the first half, the lowest since the second half of 2008, and below the 7,200 in the second half of 2012, according to Centaline Property Agency Ltd.

“In a market like Hong Kong right now, how many properties can you sell?” said Lee Wee Liat, Hong Kong-based analyst at BNP Paribas SA. “It’s no surprise some developers are thinking of deploying their cash elsewhere.”

Before it's here, it's on the Bloomberg Terminal.