Hong Kong real estate mogul Adrian Cheng has called the bottom of mainland China’s property market meltdown, claiming his New World Development business wants to spend Rmb10bn ($1.46bn) in land over the next year.
Chow Tai Fook heir and CEO of Hong Kong-listed New World Development Cheng is more optimistic than many experts, who predict more declines in Chinese real estate prices due to a liquidity problem in the industry and a weakening economy.
It has bottomed out, and growth will resume gradually from here on out. According to an interview Cheng gave the Financial Times, he is "quite hopeful" that the economy will be rebounding well over the next year or two. “It’s a terrific chance to start amassing our war chest, in land and assets.”
Over the course of a year, Cheng claimed his company will spend Rmb10bn purchasing property in major Chinese metropolises including Shanghai, Guangzhou, Hangzhou, and Shenzhen.
In recent years, New World has purchased both greenfield sites and industrial property in China for future development.
The group’s interests include luxury mall brand K11, which Cheng has used to target the elite market by mixing high-end boutiques, restaurants and art installations. His 228,500 sq m K11 Ecoast big retail complex is expected to open in 2024 in Shenzhen, a city of 18mn over the border from Hong Kong that is a magnet for digital giants like as Tencent.
Cheng said that the New World group firms had an edge in the Chinese auction market due to their strong gearing ratios and capitalization and their extensive experience operating on the mainland.
The majority of local developers are financially pretty, quite stretched, and they are really upset, so "this problem creates an opportunity for us," he added.
China decreased its mortgage lending rate for the second time in a year last week as the People’s Bank of China strives to contain the damage from the liquidity concerns pummeling the property industry.
A wave of defaults and businesses failing to construct apartments that purchasers have already partly paid for have escalated the problem, which began last year at developer Evergrande and has now spread across the sector.
“It’s really hard to conclude ‘Yes, this is the bottom’ . . . there is no hint of a robust recovery,” said Rosealea Yao, a property market analyst at Gavekal Dragonomics, highlighting in particular the prospects for retail property. “The main background is people are going from physical retail to online shopping: the need for retail space is not that high even in the most popular places.”
Moody's senior rating analyst Stephanie Lau noted that developers in Hong Kong tend to be cautious and look for good locations in major metropolitan areas. I believe most [developers] are addressing it very cautiously," Lau added, "even if it is ostensibly so that there are prospects of getting on lower prices."
The economic disruption caused by the quarantine measures at the border with the Chinese mainland has also affected Hong Kong's developers.
The Chinese government is promoting the area around Hong Kong as the "Greater Bay Area," and Cheng indicated there would be a delay in tenants coming into his new 11 Skies office and retail building in Hong Kong.
New World's stock price dropped by more over 14 percent year-over-year on Friday, closing at HK$25.95 ($3.31) This decline is about in line with the decline in the Hang Seng Properties index.