Shoppers walk past the Miramar Shopping Center, a mall built by Henderson Land Development Co in Hong Kong. The blue chip developer has bought stakes of between 30 to 90 percent in buildings in the residential districts of Kowloon, according to the company's Chairman Lee Shau-kee. Jerome Favre / Bloomberg News

Lower costs, convenient locations, higher profits motivating strategy

Henderson Land Development Chairman Lee Shau-kee revealed Friday that the blue chip developer has spent over HK$10 billion in buying up stakes in 30 old buildings in various parts of Kowloon.

Lee said Henderson has bought stakes of between 30 to 90 percent in buildings in the residential districts of Ma Tau Wai, Tai Kwok Tsui, Shan Shui Po and To Kwa Wan, paying between HK$4,000 to HK$6,000 per square feet.

"If all the buildings are redeveloped, there will be supplies of about 10,000 residential units," Lee said, adding many owners of old buildings want to sell their flats as a means of improving their quality of life.

Henderson is well known among the major developers for its patience in quietly buying up old buildings in traditional residential areas, even though some individual sites may be relatively small. This strategy is in contrast with those developers that often pay high prices in land auctions, such as Sino Land.

Henderson's strategy allows it to buy at a lower average cost, which leads to a higher profit margin, as the redeveloped properties can usually fetch a high price because of their convenient location in traditional residential areas.

However, the record-breaking prices at a luxury project in 39 Conduit Road, located at the traditionally up-market mid-levels of Hong Kong island, led to accusations that some of the transactions were not genuine, creating a false market.

Lee strongly denied such accusations Friday. He said all the sales were genuine, and has even offered odds of 100-to-1 to anyone who would dare to bet against him on the authenticity of the transactions.

However, he admitted that over 20 transactions were postponed at the request of buyers, with Henderson having agreed to defer these deals for two or four months.

He said if the buyers eventually fail to pay up, their down payments will be forfeited.

He said the high prices of luxury homes will not push up the prices of mass residential flats, as they are two different markets. He believes that the way to stabilize property prices is to increase supply.

As for Henderson's mainland business, Lee said the developer will speed up its projects and aims to complete them in the next few years, as authorities are now cracking down on land hoarding. Regarding scope of the company's operations on the mainland, Lee said Henderson owns about 130 million square feet of land there.

China Daily

(HK Edition 03/20/2010 page2)