1) HNA sold a pair of land parcels at Kai Tak at 12.7% premium

News

HNA subsidiary Hong Kong International Construction Investment Management Group has agreed to sell two Hong Kong land parcels, both located at Hong Kong’s famous former airport area, Kai Tak, to developer Henderson Land for almost HKD15.8 billion (USD2.1 billion), granting the indebted Chinese conglomerate a much sought-after cash infusion. HNA had paid an above market rate price of HKD14.2 billion (USD1.83 billion) for the two land parcels through government tenders in late 2016. The sales price represents a 12.7% premium over the purchase price. (Source: Mingtiandi, 13 February 2018)

Research View 

The China’s National Development and Reform Commission has been monitoring overseas property investments by PRC buyers in 2017 more closely, likewise, the China Banking Regulatory Commission has required banks to check their credit exposure to selected companies including HNA. We think that the sale of the land parcels by HNA is not material for other PRC buyers’ decisions about purchasing properties in Hong Kong. Despite capital controls, we expect PRC investment interest in Hong Kong to remain firm. We think that PRC enterprises will mainly make investments for owner-occupation purposes or to pursue business growth rather than for speculation. If so, then the PRC buyers may be less aggressive than before, moderating upward pressure on expensive land prices.

2) Vacant schools, old telecoms stations, and podium housing above Hong Kong’s roads and railways are being considered for residential developments

News

The Task Force on Land Supply, a government-appointed committee on boosting land supply, discussed proposals aimed at boosting the land supply in a meeting on February 13. For short-to-medium term supply, the members suggested that most vacant school premises were not suitable for large housing developments. 70% of the currently 183 vacant schools are in rural areas without adequate transport infrastructure, and might be too small for housing developments. For medium-to-long term supply, the task force said housing on potential podiums above infrastructure including utilities, highways, railways, and roadside, would be considered as an option, but it would pose engineering challenges. The task force has also identified a total of 81 sites reserved for telecom companies since the 1950s and 1960s for redevelopment. As the need for telephone exchanges has been shrinking drastically due to digitalisation, more than 40 such sites could be freed up for housing or other developments. However, most of the sites are zoned for non-residential use and therefore require a complicated land converting process, they are also subject to a premium for redevelopment. (Source: HKEJ and SCMP, 13 February 2018)

Research View

Redevelopment of old or vacant buildings can be a solution for the supply shortage, but for creating sustainable development, urban planning is important. According to the Census and Statistics Department, Hong Kong’s average population density stood at about 6,700 persons per sq km, being one of the world’s most densely populated cities in 2017. Some of the urban areas have limited capacity to accommodate more residents. Kwun Tong, the most densely populated district, currently accommodates 57,250 persons per sq km. Redevelopment can serve as a short-term solution, but the government should consider seeking stronger collaboration with developers to develop agricultural lands into residential use, and should speed up the negotiation process of purchasing lands in The New Territories owned by individual owners to secure long-term supply. 

3) Retail glee as mainland visitor numbers leap

News

Immigration Department statistics showed that 527,751 mainland Chinese travellers visited Hong Kong during Chinese New Year from February 15 to 18 - an increase of 14.2% YOY. Overseas visitor figures rose by 3% YOY to 122,799 over the four days. Overall, 650,550 visitors came to Hong Kong from Thursday to Sunday - a jump of nearly 12% YOY. The retail industry was optimistic about sales during the holidays, and shopping malls enjoyed a positive start into the Year of the Dog. From February 10 to 19, more than 16 million people visited the 12 shopping malls owned by Sun Hung Kai Properties, increasing 13% from last year. The sales of the malls totalled more than HKD390 million (USD50 million), up 16%, the company told The Standard. Meanwhile, Sino Land said its shopping malls Tuen Mun Town Plaza and Olympian City recorded a total foot traffic of 5.4 million people from February 14 to 19, up 10% YOY. The group expects a double-digit YOY increase on sales for both malls during January and February. (Source: The Standard and HKEJ, 20 February 2018)

Research View

Hong Kong’s tourism continued to accelerate due to a stable economy and weakening Hong Kong dollar. The Hong Kong Tourism Board statistics showed that the number of mainland Chinese visitors increased 3.9% YOY in 2017, compared to a 6.7% YOY decline in 2016. The department also forecasts the total number of visitors to increase 3.6% YOY in 2018, faster than the 3.2% growth in 2017, reaching 60 million this year. Meanwhile, the renminbi has appreciated about 10% since its low point in January 2017 against the Hong Kong dollar. With the renminbi strengthening, retail goods are getting comparatively cheaper, making shopping in Hong Kong more attractive for Chinese tourists and supporting retail sales growth this year. Consequently, we expect the overall rent for high-street retail shops in core areas to increase 1-3% in 2018.