Cheung Kong (Holdings) Ltd., which sold the most homes in Hong Kong in the first half, may lead developers’ bids at a government land auction as it seeks to replenish reserves after a pullback in home prices.
The company, controlled by billionaire Li Ka-shing, the city’s richest man, and rivals including Sun Hung Kai Properties Ltd. (16) may pay HK$3.7 billion ($475 million) tomorrow for the site in the Tseung Kwan O district with a buildable area of 793,000 square feet, according to the median estimate in a Bloomberg News survey of five surveyors and analysts.
Cheung Kong has spent more than HK$22 billion snapping up six sites in public land sales this year even as government measures to curb a more than 70 percent surge in home prices since early 2009 take effect. Two sites in August sold below analyst estimates, home price gains have stalled on concern the economy is sliding into recession while transactions fell for eight straight months.
“Cheung Kong’s strategy has always been to sell a lot and buy a lot,” Lee Wee Liat, a Hong Kong-based analyst at Samsung Securities Ltd., said in an interview. “With the amount of properties they sold this year and the cash generated, you can expect them to be quite aggressive in replenishing their landbank.”
The developer currently has HK$9.1 billion in cash, the highest among Hong Kong developers after Hang Lung Properties Ltd. (101), which has about HK$27 billion, according to figures tallied by Samsung Securities. Sun Hung Kai, the city’s biggest builder by market value, is third with HK$5 billion.
Sha Tin Site
Cheung Kong paid HK$6.27 billion in a tender for a site in the city’s North Point district, the government said Aug. 25. The price was below the low end of estimates which ranged from HK$6.47 billion and HK$9.07 billion in a survey by the English- language newspaper the South China Morning Post.
A site in the Sha Tin district sold at an Aug. 9 government auction went for 33 percent below estimates after global stock markets were roiled by the U.S. debt downgrade and concerns about the European debt crisis. A group including Sino Land Co. and Kerry Properties Ltd. (683) bought the site with the only bid at the auction.
Cheung Kong, the city’s second-biggest builder by value, sold HK$14.5 billion worth of homes in a record first half for Hong Kong developers, according to Centaline Property Agency Ltd., the city’s biggest closely held real estate agency. The developer raised its full-year sales target by 25 percent to HK$25 billion, Executive Director Justin Chiu said in July.
The company, which also invests in real estate in other parts of China and Singapore, in April raised 10.5 billion yuan ($1.6 billion) when it listed Hui Xian Real Estate Investment Trust in Hong Kong.
Cheung Kong’s shares fell 1.6 percent as of 10:38 a.m. in Hong Kong, bringing their loss this year to 14 percent.
Most Likely
Cheung Kong and its partners have added land holdings in Hong Kong this year that amount to more than 2.1 million square feet of gross floor area, the company said in its earnings statement last month.
“Cheung Kong and Sun Hung Kai are the two developers most likely to go for the site,” said Jonas Kan, analyst at Daiwa Capital Markets. “Other than being cash-rich, they are also the ones with the most land reserves and existing projects in the area. Adding another one will help them on marketing and pricing.”
Li, dubbed ‘Superman’ by local media for his ability to generate returns, said Aug. 5 the group “has a lot of cash” and that Cheung Kong and unit Hutchison Whampoa Ltd. “have many opportunities in front of us.”
The billionaire built an empire spanning ports, real estate, hotels, infrastructure and energy from a plastic flower factory he opened after World War II. That feat landed him on the 11th spot on the Forbes annual global rich list in March with $26 billion of estimated wealth.
Auction
The Tseung Kwan O site is the biggest among the three in tomorrow’s land sale. Estimates range from HK$3.3 billion to HK$4.4 billion. The government last sold land in the area, made up mostly of reclaimed land in the eastern part of the New Territories, in February 2010 when Sun Hung Kai paid HK$3.37 billion for a site.
The two other sites put up for auction, one in the northern Yuen Long district and other in the rural Sai Kung district, may jointly sell for less than HK$360 million, according to the estimates.
Hong Kong’s benchmark Hang Seng Index (HSI) has dropped more than 21 percent from a November high as investors become more concerned the economy may be slowing down. The Hang Seng Property Index, a measure of Hong Kong’s seven-biggest developers, is down 24 percent in the same period.
Demand for new homes in Hong Kong may be hurt by softening demand from buyers from other parts of China, whose wealth has been affected by a deteriorating global economic outlook and increasingly tighter credit conditions in the country, Samsung’s Lee wrote in a report today.
‘Lukewarm Atmosphere’
“The lukewarm atmosphere from the last two land sales will probably continue,” said Cusson Leung, a Hong Kong-based analyst at Credit Suisse Group AG. “It has become obvious there’ll be plenty of new land supply coming to the market. Developers know that they won’t have to bid as aggressively as before to buy land.”
Hong Kong developers with “healthy balance sheets,” including Cheung Kong, Sun Hung Kai, Sino Land and Kerry are all possible bidders for the site, said Leung.
The government has sold 16 sites through tender or auction in the current fiscal year that began April 1 as it has pledged to provide more land for units to counter rising home values. It sold a total of 17 sites the previous financial year.
Home transactions had the biggest drop since February 2009 in August, according to Land Registry figures.
An index tracking home prices compiled by Centaline fell in June and July, the first consecutive monthly drop since December 2008. It has fallen 0.4 percent from the beginning of last month to Aug. 26.
Hong Kong builders are holding off sales of new project until after the auction, said Wong Leung-sing, an associate research director at Centaline.
“There’re just too many uncertainties in the market right now,” he said. “If you set prices too high then nobody will buy in this market. And if you set them too low and the auction result comes out good, you may get fired by your boss. It’s best for these guys to wait.”