Hong Kong tycoon calls bottom of China’s property slump

Hong Kong real estate tycoon Adrian Cheng has called the bottom of mainland China’s property market crash, saying his New World Development group plans to invest Rmb10bn ($1.46bn) in land over the next year.

Cheng, chief executive of Hong Kong-listed New World Development and heir to the Chow Tai Fook family fortune, is more upbeat than many analysts, who have said Chinese property prices could fall further amid a liquidity crisis in the sector and a slowing economy.

“Now is the bottom, and it’s going to slowly recover. See, I’m very optimistic that in the next one or two years, it will be recovering very, very well,” Cheng told the Financial Times in an interview. “It’s a good opportunity to start acquiring our war chest, in land and assets.”

Cheng said his group would invest the Rmb10bn over 12 months on land in top-tier Chinese cities such as Shanghai, Guangzhou, Hangzhou and Shenzhen.

New World has in recent years bought both industrial land and greenfield sites in China for development.

The group’s holdings include luxury mall brand K11, which Cheng has used to target the elite market by combining high-end retailers, restaurants and art installations. His 228,500 sq m K11 Ecoast mega retail development is scheduled to open in 2024 in Shenzhen, a city of 18mn across the border from Hong Kong that is a hub for tech companies such as Tencent.

Cheng said New World group companies’ healthy gearing ratios and capitalisation, as well as their experience in the mainland, gave them an advantage in the Chinese auction market.

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“This crisis becomes an opportunity because for us, we don’t have . . . much competition anymore, because a lot of local developers are financially quite, quite strained, they’re very distressed,” he said.

China cut its mortgage lending rate for the second time in a year last week as the People’s Bank of China attempts to limit the damage from the liquidity problems pummeling the property sector.

The crisis, which started last year at developer Evergrande, has spread throughout the industry with a wave of defaults and companies failing to complete apartments that buyers have already partially paid to acquire.

“It’s very hard to say ‘Yes, this is the bottom’ . . . there is no sign of a strong recovery,” said Rosealea Yao, a property market analyst at Gavekal Dragonomics, citing in particular the prospects for retail property. “The big backdrop is people are moving from offline retail to online retail: the demand for retail space is not that strong even in the most popular places.”

Stephanie Lau, a senior credit officer at Moody’s, said Hong Kong developers were typically conservative and would seek favourable sites in first-tier cities. “Even if it is seemingly so that there are opportunities of getting on cheaper deals . . . I think most [developers] are approaching it very carefully,” Lau said.

Hong Kong developers have also suffered from the economic disruption wrought by pandemic border controls between the Chinese territory and the mainland.

Cheng said there would be a delay in tenants moving into his new 11 Skies office and retail project in Hong Kong, which is intended to serve the region around the territory that the Chinese government is marketing as the “Greater Bay Area”.

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New World’s stock price closed at HK$25.95 ($3.31) on Friday, down more than 14 per cent since the start of the year, a fall that is broadly in line with the drop in the Hang Seng Properties index.