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Big developers ‘on easy street’


Government and property big guns accused of being too cosy, with official policy on land prices and project sizes giving large players too much power in market

Yvonne Liu
Updated on May 06, 2012
The arrest of another property tycoon last week has turned the spotlight on the often cosy relationship between property magnates and the Hong Kong government.

In the wake of Thursday’s arrest by the Independent Commission Against Corruption of property tycoon Walter Kwok Ping-sheung (pictured) in connection with a bribery investigation that earlier snared his younger brothers – the co-chairman of property giant Sun Hung Kai Properties – analysts said the government’s strategy of encouraging high land prices and big developments had entrenched property empires at the expense of smaller developers.

Research by Centaline Property Agency shows about 75 per cent of all completed flats in 2010 were built by Sun Hung Kai Properties and Cheung Kong. Last year, the two companies accounted for about 78 per cent of the total.

While that figure will drop to 32.3 per cent this year, Sun Hung Kai Properties and Cheung Kong are still the biggest players in the market.

Surveyor Albert So Chun-hin said the government had favoured large-scale development over the last 20 years. In 1976, it introduced a zoning policy that discouraged small developments, which it saw as ruining the urban landscape. In the process, the government shut small and medium-sized developers out, So said, as only big developers could afford the huge costs and risks.

Big developers had another ace up their sleeves in the form of their land banks, he said.

“Major developers like Sun Hung Kai Properties, Henderson Land, Cheung Kong and New World Development have a good supply of agricultural land in the New Territories. Even if the government didn’t release sites for land sales as it did in 2003, those firms could still develop their agricultural sites,” he said.

“But other developers such as Sino Land have to rely on government land auctions to replenish their land banks. That’s why they’re smaller than Sun Hung Kai Properties, despite being aggressive bidders.” ”

He said only big developers could get old sites in the New Territories, because the process was so complex.

“You have to get help from local experts. You need strong financial capability.”

Kwan Cheuk-chiu, a former professor of economics at Chinese University, said property big guns established their businesses in the late 1960s and early 1970s.

“They gained a first-mover advantage and secured higher market share. It’s helped them win sites at auction under the government’s high-land-price policy. As the economy grew and housing demand rose sharply, theirempires developed. It’s hard for newcomers to compete.”

Land sales are a major source of income for the government. In the financial year to March 31, about 19 per cent of its income of HK$433.1 billion came from land sales.

In Hong Kong, the government sells sites by land auction or through tenders conducted by the MTR Corporation. Most of the sites got snapped up by Cheung Kong and Sun Hung Kai, said Lau Chun-kong, international director at Jones Lang LaSalle. “The bigger the company, the more advantage they enjoy in winning the sites in auction.”

Another advantage for big developers is that only a few sites have become available over the last few years.”Big developers have to bid aggressively for sites to maintain their operations,” Lau said. This made it difficult for others to compete.

According to Simon Pritchard of GK Research, a provider of global investment research, the environment changed briefly when the first chief executive Tung Chee-hwa and his housing czar, Leung Chun-ying, sought to clip the big developers’ wings. But he said their strategy of boosting home ownership ended in late 2002, leaving the big developers with more market control than ever.

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