Hong Kong’s biggest developers continue to buy prime land sites in top-tier cities in mainland China, as they take advantage of the general malaise among competitors that are struggling to survive an unprecedented debt load in the industry.
Kerry Properties, controlled by the Malaysian billionaire Robert Kuok, paid 13.3 billion yuan (US$2.1 billion) for four plots of mixed-use land in Shanghai during the municipal government’s first auction of the year on January 4. It plans to turn the site near The Bund, measuring 38,102.7 square metres (410,134 square feet) into what it calls a new Landmark, comprising a hotel, offices, shopping centres, high-rise apartments and town houses in Shanghai’s signature shikumen style.
“We anticipate the project will contribute good property sales income and add significant rental income, with capital value creation in line with the growth of mainland China,” executive director and chief financial officer Serene Nah said in a statement.
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2022 is likely to be another high water mark for China’s debt defaults, with US$38.3 billion of offshore bond payments due in the first half. With many of China’s biggest land buyers – China Evergrande, Kaisa Group – all hamstrung by debt, Hong Kong’s developers are swooping in to pick up choice parcels.
The last time the Kerry group made such a big acquisition on its own in China was nearly three years ago when it paid 6.8 billion yuan in May 2019 for a residential-cum-commercial site in Hangzhou, the capital of eastern Zhejiang province.
Shui On Land, founded by Hong Kong billionaire Vincent Lo, teamed up with state-owned Wuhan Real Estate to acquire a plot in Wuhan, the capital of the central Chinese province of Hubei, for 17 billion yuan in December.
Hong Kong Land, the biggest landlord in Hong Kong’s Central business district, bought two plots in Chengdu, in southwestern Sichuan province, for HK$2.33 billion yuan during the city’s third land auction on December 7.
Hong Kong Resorts International, the developer of Hong Kong’s Discovery Bay, paid 830.4 million yuan for a residential plot in Shanghai’s southwestern suburb of Songjiang on November 30.
“Hong Kong developers now stand a better chance of getting high quality land at a cheaper price, as many of the Chinese developers are watching from the sidelines of these auctions due to their liquidity crisis,” said Yan Yuejin, director of Shanghai-based E-house China Research and Development Institute.
“We may see more Hong Kong and international developers and property funds joining the competition this year, considering most local players will still be busy cutting debt,” Yan added.
Evergrande, Kaisa, Fantasia Holdings and Modern Land (China) all made headlines over their failure to repay onshore and foreign creditors last year. Their debt woes are far from over as they face an onslaught of bond maturities in the coming months.
Some US$19.8 billion worth of offshore bonds are due in the first quarter, almost double the amount in the final three months of 2021. Another US$18.5 billion will mature in the second quarter. Onshore, they face 84 billion yuan of repayments in the first quarter and 91 billion yuan in the second.
As a result, many private developers that used to go on land acquisition binges like Evergrande and Shimao Group have disappeared from these auctions since late last year.
In the last round of land auctions in 22 major cities in China, 80 per cent of the plots were snapped by state-owned developers like China Resources Land and Poly Development, according to data from China Index Academy, an independent property research organisation.
S&P Global Ratings said in a research note on Monday that mortgage easing in China was stabilising the housing market to a certain extent, but sales were unlikely to rebound to the pre-tightening level seen in the second half of 2020.
“We forecast a 10 per cent drop in residential sales in 2022, with more of the pain felt in the first half due to high base impact and weak buyer sentiment,” it added.
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