Hang Lung bets big on mainland property sector

Hang Lung Properties Ltd received more than half of its rental revenue in the fiscal year 2018 from projects in the Chinese mainland, and the executive director of the Hong Kong-based developer expects the ratio to grow further along with its business expansion there.

In its annual fiscal report of 2018, Hang Lung Properties reported that its eight projects in the Chinese mainland contributed HK$4.24 billion ($540.7 million) in rent to its HK$8.18 billion revenue, and Shanghai accounted for 65.9 percent of its total rental revenue generated from the mainland.

"We are positive toward the (Chinese) commercial property market in the long term. The Chinese mainland will continue to increase its weighting in our rental revenue, and will probably reach between 60 percent and 65 percent in five years," said Norman Chan, executive director, Hang Lung Properties Ltd.

According to Chan, since its first project was unveiled in Shanghai in 1999, Hang Lung has taken on the construction and operation of 11 projects in nine cities in the Chinese mainland.

"Projects in the mainland are the long-term vision for Hang Lung Properties. We now have more commercial property space in the Chinese mainland than in Hong Kong, and the revenue is growing steadily. The mainland and Hong Kong together make a great and long-term foundation for Hang Lung Properties," Chan said.

In the real estate sector, once GDP per capita reaches a certain level, commercial property will play a leading role, and can be used for office space, shopping malls, logistics, education, research and development, and healthcare, Feng Lun, founder of Vantone Holdings was quoted as saying by China News Service.

The consumption upgrade and positive economic outlook have also attracted record overseas investment into the real estate sector.

Total commercial real estate transactions soared to 251.7 billion yuan ($37.49 billion) in 2018, up 4 percent from the previous year, according to global real estate consultancy CBRE.

Foreign investors invested 78 billion yuan into Chinese commercial real estate, up 61.5 percent year-on-year, the largest amount since 2005.

"Value-added investments in first-tier cities look promising in 2019. Also, opportunities in second-tier cities with stable leasing fundamentals such as Nanjing and Hangzhou are noteworthy," said Xie Chen, head of research at CBRE China.

The rapid development of coworking and rental housing has created massive conversion opportunities for aging and small to medium-sized retail properties in core areas. Additionally, regional malls in populous emerging areas lacking modern retail facilities are good investment options, Xie said.

Analysts said the upgrade in consumption presents opportunities as well as challenges.

"The difficulties in operating commercial properties have increased a lot," Feng said.

"In order to stand out among the fierce competition, operators need to invest lots of money and effort into a commercial property," said Zhang Hongwei, chief analyst with Shanghai-based property consultancy Tospur.

In the past few years, Hang Lung invested 1.6 billion yuan in the upgrade of its two Shanghai projects - Plaza 66 and Grand Gateway 66.

It is investing HK$31.19 billion in five projects that are under construction - four in provincial capitals of Kunming in Yunnan province, Wuhan in Hubei province, Hangzhou in Zhejiang province and Shenyang in Liaoning province, in addition to one in Wuxi in Jiangsu province.