20131030-DBS_Group-Land_banking_time_for_deep-pocketed_developers_13页_491kb

Summary of Land Banking Trends in Hong Kong Property Developers

Core Content

This document outlines the current trends in land banking and property development in Hong Kong, focusing on the impact of government policies, developer strategies, and valuation analysis. It highlights how the property market has evolved with developers adjusting their land purchase strategies in response to cooling measures and market conditions.

Main Points

• Reduced Aggressiveness in Land Banking: Most developers have become less aggressive in land banking due to the government's cooling measures, which have increased net debt and led to a softening of land prices.

• Mid-sized Developers Dominate Land Market: Mid-sized developers such as Kerry Properties and Wheelock & Co have been active in land purchases, spending over HK$11bn combined in 2013, and accounted for more than 40% of the land market activity in terms of land premium.

• SHKP's Land Banking Activities: SHKP is the most active land purchaser among large developers, spending HK$6.6bn on land banking in 2013. However, it is expected to focus more on project sales before making further acquisitions due to its current gearing level of 19–20%.

• Cheung Kong and Sino Land's Strategic Position: Cheung Kong has been a net seller, with a low gearing of 6% as of June 2013, and has generated significant revenue through asset disposals and project sales. Sino Land is in a net cash position and is well-positioned to capitalize on land banking opportunities.

• Sector Valuation: The property developer sector is currently trading at a 36% discount to the appraised current NAV, which is significantly lower than the 18% discount over the 10-year average. Within the sector, Cheung Kong is the preferred choice, trading at a 34% discount to its assessed NAV, with a 57% discount after excluding its stake in Hutchison Whampoa.

Key Information

• Land Premium Trends: Land prices have shown signs of softening, particularly in areas like Kau To, where the last site sold for HK$6,837psf, a 37% drop from previous levels.

• Developer Financials:

  • Kerry Properties: Net debt rose to HK$27.5bn from HK$15.9bn.
  • Wheelock & Co: Net debt is estimated at HK$36bn, representing 22% of shareholders' funds.
  • SHKP: Gearing increased to 19–20% following the full payment for the Shanghai Xujiangui Centre project.

• Asset Disposals and Sales:

  • Cheung Kong has sold properties and projects, generating HK$14.4bn in revenue.
  • Notable sales include Kingswood Ginza (HK$5.85bn), Metropolitan Plaza (HK$1.63bn), and Oriental Financial Center (HK$4.478bn).

• Future Outlook:

  • Cheung Kong is expected to increase its gearing to 20%, providing HK$60bn for new investments.
  • Sino Land is also expected to make acquisitions as it has a strong net cash position.
  • Developers are likely to focus on project sales before further land acquisitions due to the current market conditions.

Table: Developer Valuation and Recommendations

Conclusion

The property developer sector in Hong Kong is currently undervalued, with a 36% discount to NAV. Cheung Kong is highlighted as the top pick due to its strong financial position and potential for value unlocking through strategic acquisitions. Mid-sized developers have been more active in land purchases, but are expected to scale back in favor of project sales. Sino Land is also well-positioned to capitalize on the softening land prices and is expected to make acquisitions in the coming year. The overall market is expected to see a shift in developer strategies, with a focus on improving financial health and capitalizing on the current market conditions.