Hang Lung Properties: a successful business will come with price

Ronnie Chan, the Chairman of Hang Lung Properties (101.HK) and Hang Lung Group (10.HK), is very proud of the company’s achievement. And rightly so.

Photo: Richter Frank-Jurgen, Creative Commons

He has an enviable track record: before Hong Kong real estate bubbles burst in 1997, he sold some of the investment properties at high prices and raise capital from the capital market. He bought land after the burst in more or less the bottom of the market. Now, they are still hoarding hundreds of apartments which were built on these sites which were bought years ago when the property market was at the bottom. Last years when they sold some of their hundreds of apartments at the HarbourSide Project, they earned a profit margin of over 70%, which was probably unheard of in the history of Hong Kong real estate development. This is an enviable track record, and he beat his father who got burnt by the real estate bubble burst in 1982.

In China, they started early, but success only came very slowly. They opened their shopping malls, Grand Gateway and Plaza 66, more than 10 years ago, and has experienced tremendous growth in rental income in recent years. Then they speeded up their venture into second-tier cities in China. Their first shopping mall outside Shanghai, Shenyang Palace 66, was opened earlier this year with good response. They have 5 more commercial properties projects in the pipeline to be launched in the coming 5-10 years, located in second-tier cities like Jinan, Dalian, Shenyang, Tianjin, and Wuxi. They have also expressed interest to build more.

The interesting thing about Hang Lung Properties is the fact that it is probably the only one Hong Kong-based developers out of the top five names which has done well in China. For instance, although Cheung Kong (1.HK), Sun Hung Kai Properties (16.HK), and Henderson Land (12.HK) all have sizeable landbank in China, their developments in China are extremely slow. Another interesting about Hang Lung Properties is that, excluding their Hong Kong-based peers which are not doing well in China, its competitors in China are not good at building commercial properties. Indeed, China real estate developers are mainly focusing on building residential properties, but Hang Lung Properties are bring their expertise in building and managing commercial properties in Hong Kong to China, perfected it in Shanghai, and expand their empire over China. Thus although it is often said that vacant shopping malls are easily seen in China, Hang Lung Properties shopping malls are always full.

That said, the China growth story of Hang Lung Properties are very well-received by investors. Its share price has greatly outperformed its peers. Investors are certainly having a very high expectation. The management will have to prove to investors that they can execute their strategies and justify that the company is worth that much.

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About Zarathustra

Zarathustra: Founder and Managing Editor of Also sprach Analyst. Once an analyst, now an investor and entrepreneur. Based in Hong Kong, but Londoner at heart.