* Mainland developers driving up prices for premium lots
* Attracted by city's legal stability, global connections
* Local developers cautious after rapid price growth
By Yimou Lee
HONG KONG, July 2 Chinese developers are moving
aggressively into Hong Kong, outbidding their cross-border
rivals for prime sites as policy uncertainty and falling
property prices on the mainland send them scouring for
opportunities to invest overseas.
The mainlanders see the southern territory as a lucrative
market based on the absolute earnings enjoyed by Hong
Kong-listed developers, which have beaten those of companies
listed in mainland China over the past decade.
With some bids up to 20 percent above analysts' forecasts,
mainland companies such as state-controlled Poly Property Group
Co Ltd are pushing up prices for popular sites in one
of the world's most expensive real estate markets.
Fears of a bubble - prices have more than doubled in the
Asian financial hub since 2008 - have proven no deterrent, while
forecasts from some analysts of a 10 percent drop in prices this
year have fallen on deaf ears.
But fatter margins aren't the only thing Hong Kong has to
offer. Chinese developers also like its legal stability and
status as a world city, giving them a platform to gain
experience abroad and build brand awareness, industry watchers
"More and more Chinese developers are coming to Hong Kong,"
said Alvin Yip, managing director of investment and advisory
services at property consultancy DTZ.
"They are not coming only for opportunities in Hong Kong,
but also using Hong Kong as a base to invest in Europe, the
United States and other parts of the world."
In Kai Tak district - one of Hong Kong's largest
developments covering 320 hectares (790 acres) of residential
and commercial complexes - half of the six available land plots
were bought over the past year by state-owned developers,
including China Overseas Land & Investment Ltd and
While hard data is not yet available to quantify the trend,
it is rare to see mainland developers so active in public
auctions of Hong Kong land. Observers also have been surprised
by the mainlanders' willingness to out-spend their Hong Kong
In May, a luxury residential site on Hong Kong island
fetched the city's fifth-highest land price per square foot when
it was sold to a consortium of local and mainland Chinese
developers, including Hui Wing-mau, chairman of Shanghai-based
Shimao Property Holdings', and mainland commercial
developer Mingfa Group International.
"The premium price they (Chinese developers) offered
surprised the market," said a senior executive at a Hong Kong
property company, which was out-bid by state-owned developers in
several land auctions.
"Chinese developers are more optimistic, while locals remain
pessimistic due to uncertainty in the market," said the
executive, who declined to be identified as he was not
authorised to speak to the media.
China Overseas Land declined to comment, while Poly did not
respond to several interview requests.
Mainland investors are boosting their exposure to Hong Kong
just as the city's homegrown developers have started to slow
their own pace of site purchases, in response to rising land
prices, sliding sales and pressure on margins from competition.
Hong Kong billionaire Li Ka-shing's Cheung Kong (Holdings)
did not buy anything in Hong Kong or China last year -
for the first time in 15 years.
Another major Hong Kong-based developer, Sino Land Co Ltd
, spent just HK$4.5 billion ($580.53 million) on land
over the past two years, a slower rate of spending than normally
would be expected, according to Macquarie. It also became a net
cash developer, taking a conservative position by amassing
enough cash to invest in future projects after total liabilities
are accounted for.
The local firms' caution has opened opportunities for
mainland rivals seeking a more stable investment environment
than they have at home, where the government has introduced a
raft of regulations to control rampant speculation.
China has spent more than four years trying to tame record
home prices on concerns that they were stoking an asset bubble,
with measures including strict rules for mortgages and
restrictions on the number of homes that one family can own.
Banks have made it harder for home buyers and small developers
to get loans.
"We always have full confidence in Hong Kong. We just
recently bought a piece of land in Wan Chai," Yu Liang,
president of the country's biggest developer, China Vanke Co Ltd
, said in May, referring to a residential site near
Hong Kong's Central business district. Media reports said it
paid a 20 percent premium to similar sites recently sold in the
The company's Hong Kong subsidiary last year set a new
record for prices in Tsuen Wan district when it bought a
residential site in partnership with Hong Kong's New World
Development for HK$3.4 billion.
Analysts warned, however, that the new Chinese entrants may
have to sacrifice margins in order to gain a foothold in the
city, where overall home transactions are expected to hit a more
than five-year low in the first half of 2014 and construction
costs are soaring due to labour shortages.
"They may be willing to sacrifice margins for their first
one or two projects in town," Macquarie property analyst Raymond
Liu said in a research note in May.
"New entrants may have low or even no margin expectations
versus local developers."
($1 = 7.7515 Hong Kong Dollars)
(Additional reporting by Tripti V Kalro; Editing by Anne Marie
Roantree and Stephen Coates)