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HONG KONG

Rapid Rise of Chinese Developers is a Game Changer for Hong Kong

More joint ventures between local and mainland property developers likely


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The December sale of a Kai Tak residential site for a record-breaking HKD 13,600 per square foot A.V. underscores how the expanding footprint of mainland Chinese developers is reinventing the rules of engagement for their local counterparts. The tender, awarded to a company associated with mainland Chinese conglomerate HNA Group ("HNA"), set a new record high price for residential development sites in Kowloon East in terms of A.V.

An influx of cash-rich mainland developers and the entrance of new small-to-medium sized local players pose a challenge to Hong Kong's top five developers – namely Cheung Kong Property, Sun Hung Kai Properties, New World Development, Sino Land and Henderson Land –  who have dominated the sector for three decades. Their share of the government residential land sales market has shrunk dramatically over the past five years, reduced from about 90% in 2011 to 10% in 2016, in terms of total land premium consideration. 

To date, mainland developers have purchased 27% of all residential sites in Hong Kong in 2016 - on par with 2015 - amid a push to diversify their investments away from mainland cities. This competition in the government's public land sales market saw 11 out of 14 residential sites sold at prices above market expectations in the second half of the year, as more prime sites were made available. Bidding in the commercial sector also reached new heights when Lifestyle International Holdings paid HKD7.4 billion for a plot in Kai Tak, the largest sum to date for a commercial site in the city.  

"It has become harder for Hong Kong's heavyweight developers to win land sites and we believe the situation will continue into 2017," says Dorothy Chow, a Regional Director with JLL's Valuation Advisory Services team. "Mainland developers will remain active in government land sales to expand their business in Hong Kong, whilst local developers will likely focus more on opportunities in the New Territories, and MTR projects."

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Hongkong Island Construction Properties Limited ("HIC"), a company associated with HNA, paid 88% above market expectations for a residential site in Kai Tak in November, parting with HKD13,500 per square foot, A.V. One month later another company related to HNA,