Hang Lung Properties Ltd. (101), the Hong Kong developer investing $8.5 billion on the mainland, is finding local governments in China more willing to sell land, Chairman Ronnie Chan said.
“It has definitely gotten easier,” Chan, whose company derives half of its rental earnings from its shopping malls in mainland China, said in an interview in Hong Kong yesterday. “The local governments want to sell more and you have developers who are eager to buy.”
The value of land transactions in China rose to 96.4 billion yuan ($15 billion) in August, the highest this year, as developers expect home prices to recover after two central bank interest rates cuts in June and July. Prices rose for a third month in August, according to SouFun Holdings Ltd. (SFUN:US), the nation’s biggest real estate website owner.
Chinese developers with improved sales and cash flows are showing renewed interest in land acquisitions. Seven of China’s biggest real estate developers by market value, including China Vanke Co., bought land worth 8.9 billion yuan in major cities in the first week of September, China Daily reported last week.
“We have never stopped negotiating; the question is whether we are going to bite or not,” said Chan. “Our situation is a bit different because we want our sites to be in the best location. So if you want something that’s tailor-made, it obviously would take longer.”
Hang Lung’s shares rose 0.2 percent to HK$27.75 at the 4 p.m. close in Hong Kong. That brings its gain this year to 26 percent, compared with the 28 percent increase in the nine- member Hang Seng Property Index.
Hang Lung last bought a site in the southwestern Kunming city in September 2011, its first land purchase in the country in more than two years. Chan in August 2011 said the company is “financially capable” of increasing its initial investment in China to tap the country’s growing luxury spending.
The company, which is planning to open at least one property in Chinese cities outside of Hong Kong every year, will next week open its second shopping mall in the northeastern Shenyang city. Hang Lung also has projects in Dalian, Jinan, Wuxi, Tianjin and Kunming.
China’s economy expanded 7.6 percent in the second quarter from a year earlier, the slowest pace in three years, as Europe’s debt crisis crimped exports and the government’s property crackdown cooled domestic demand. The slowdown may extend into a seventh quarter, according to Deutsche Bank AG, which cut its growth estimate for the world’s second-largest economy to 7.5 percent for the three months through September from 7.9 percent.
“With consumption down, obviously growth in rental wouldn’t be too strong,” said Chan. “But we don’t have a problem renting our spots out.”
Rental profit from China, which includes shopping malls in Shanghai, Jinan and Shenyang, rose 26 percent to HK$1.17 billion in the first half, Hang Lung said in July.
China has more than 1,000 county-level governments and hundreds of city and municipal councils that rely on revenue from local taxes, land sales and central-government transfers because rules bar most of them from selling bonds. Land sales make up 30 percent of local government revenue and in some cities account for more than half, according to a June 2011 report by Zurich-based UBS AG.
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