Hong Kong property tycoon Ronnie Chan Chi-chung came to China’s defense on Thursday, saying U.S. President Donald Trump would eventually become realistic and “shut up,” amid concerns over a looming Sino-U.S. trade war.
“China is not the same as before. If the U.S. can create troubles for China, it can do the same to the U.S.,” said Chan, chairman of Hang Lung Properties, referring to Trump’s plans to slap punitive tariffs on Chinese imports. “Don’t bother too much about a dog barking.”
Chan’s remarks came as Hang Lung, one of the first Hong Kong developers to announce annual results, saw its Chinese business outstripped by a stronger Hong Kong market.
The group reported a full-year net profit of 6.2 billion Hong Kong dollars ($800 million) in 2016, up 22% from a year ago. Underlying profit that excludes the impact of property revaluation jumped 45% on the year to reach HK$6.3 billion.
Turnover was up 46% to HK$13.1 billion, driven by higher property sales in Hong Kong that grew more than four-fold to HK$5.3 billion. The developer increased sales after a rebound in home prices last April amid an influx of mainland capital, selling some 430 units, including two semi-detached houses in Happy Valley and the upscale Long Beach project.
Rental revenue was flat. In Hong Kong, the group countered a downtrend in the retail sector with a 5% increase in rental income following mall upgrades to bring in popular sportswear tenants.
A sluggish economy and retail environment hurt income on the mainland. Rental income from the company’s portfolio of prime offices and eight shopping malls in cities such as Shanghai, Shenyang and Tianjin fell 5% on the year to HK$4 billion. The group blamed renovations that affected occupancy, adding it would continue to develop projects on acquired sites in cities including Wuhan, Wuxi and Kunming.
“We have 24 million square feet of buildable space in China — it’s a lot of work to follow up on,” said Executive Director Adriel Chan Wenbwo, Chan’s son, who was promoted to the position in November. Asked how he felt about chairing his first earnings briefing, he said: “It’s okay.” He described Managing Director Philip Chen Nan-lok as a “role model.”
Mainland competition
Hong Kong developers are facing intense competition as their mainland counterparts accelerate their shopping spree in the territory. On Wednesday, Chinese tourism conglomerate HNA Group outbid 18 developers for its third residential site in Kai Tak, bringing its total investment in the former airport site to HK$20 billion in three months. The latest deal, totaling HK$5.5 billion, is equivalent to HK$13,000 per square foot, about 10% above market valuations.
Data from the Lands Department showed that Chinese developers splashed out HK$28.1 billion to buy land for building homes in Hong Kong last year, accounting for 41% of the territory’s residential land sales.
Beijing’s recent capital controls may do little to reverse this trend. Patrick Wong, a property analyst at Bloomberg Intelligence, expects mainland developers to maintain a similar share of land sales in 2017, as active companies are listed in Hong Kong with funding channels abroad. “Despite the cooling measures in Hong Kong, regulatory risks here are mild relative to that on the mainland,” he said, referring to restrictions imposed on homebuyers in more than 20 major Chinese cities.
Hong Kong developers will face a “tough time” in the land market, Wong said, although they are less aggressive in placing bids due to abundant land reserves. Local developer Hopewell stressed its priority was for existing projects rather than land acquisition. “It’s not very meaningful to look at a particular deal that has deviated from the market,” said Hopewell Managing Director Thomas Wu Man-sun on Tuesday.
Hang Lung’s elder Chan has a similar view. “It’s a market of short-term irrationality and long-term rationality,” he said, adding that it was a “natural development” for Chinese companies to diversify their investments abroad.
After a year of aggressive property sales, Hang Lung was left with about 100 units on its inventory list, including 16 luxury houses. Asked whether the group would replenish its land bank, he said: “When ‘black swan’ events such as the 1997 Asian financial crisis happen, that’s our chance to buy land.”