Bloomberg News

Li Ka-shing Backs Hong Kong Property Curbs Amid Price Surge

March 27, 2013

Li Ka-shing Backs Hong Kong Property Curbs as Transactions Fall

Residential and commercial buildings sit in the Causeway Bay district of Hong Kong. The city’s home prices have doubled in the past four years on record low mortgage rates, a lack of new supply and an influx of mainland Chinese buyers, raising concerns that housing is becoming unaffordable for the general public. Photographer: Jerome Favre/Bloomberg

Li Ka-shing, Asia’s richest man, backed recent measures by the Hong Kong government to curb an “unhealthy” surge in property prices that’s turned the city into the world’s most expensive housing market.

“If prices goes up every day, and a lot of people can’t afford to buy, this would be unhealthy,” Li said after his flagship developer Cheung Kong Holdings Ltd. (1) reported lower property sales yesterday. “The Hong Kong government has said it wants a stable market.”

Li’s comments come after Cheung Kong last month sidestepped government curbs on home sales by selling hotel rooms, before Hong Kong Chief Executive Leung Chun-ying widened the restrictions to include commercial property. Cheung Kong this month became the first major developer to cut prices at an apartment project, with Deutsche Bank AG forecasting home value in the city may decline as much as 20 percent over two years.

“We expect Cheung Kong to be more responsive in adjusting prices to suit the prevailing market conditions,” Deutsche Bank AG analysts Jason Ching and Tony Tsang wrote in a report dated yesterday. The company “has a very good track record of expanding market share, even in difficult markets.”

Shares of Cheung Kong rose 0.4 percent to HK$113.70 at the close of trading. The earnings statement came after the market closed yesterday. Net income fell 30 percent to HK$32.2 billion ($4.1 billion), beating the HK$25.7 billion average estimate of 11 analysts surveyed by Bloomberg.

Tighter Policies

Hong Kong’s home prices have doubled in the past four years on record low mortgage rates, a lack of new supply and an influx of mainland Chinese buyers, raising concerns that housing is becoming unaffordable for the general public.

Chief Executive Leung has made available more land for public housing, imposed extra tax on foreign buyers and doubled stamp duty on all property transactions since taking over in July. HSBC Holdings Plc and Standard Chartered Plc have also led banks in raising mortgage rates in the city after the Hong Kong Monetary Authority tightened risk rules last month.

“Property sales have slowed down recently,” Li, 84, said. “The government wants a stable market. If the policy provides stability and land and home prices are stable, then it should be a good thing.”

Cheung Kong last month raised HK$1.4 billion selling all 360 rooms at its Apex Horizon hotel project. Following the sale, the government said in a statement it will inspect the development to ensure the rooms aren’t being used as residences.

‘Superman’ Li

A day later, the government doubled the stamp duty tax on all properties of more than HK$2 million and raised mortgage down-payment requirements, its first set of measures aimed at non-residential properties, including hotel rooms, offices, shops, and carparks.

Li, who opened a plastic flower factory after the World War II, began investing in Hong Kong real estate in 1967 after riots from China’s Cultural Revolution depressed prices to build Cheung Kong into a company with a market value of $34 billion.

Nicknamed “superman” by the local media for his investing prowess, Li forecast in 2007 that China’s stock-market bubble would burst and in 2009 predicted the rally in Hong Kong home prices. The Shanghai Composite Index lost 65 percent in 2008, the most among the world’s 10 biggest stock markets.

Cheung Kong yesterday reported 2012 profit excluding contributions from unit Hutchison Whampoa Ltd. (13) (13) rose 6 percent as rental income growth offset a decline in home sales.

‘Hedging Themselves’

Profit (1) excluding Hutchison increased to HK$19.1 billion from HK$18.1 billion a year earlier, the company said. Contribution from property sales fell to HK$10 billion from HK$11.2 billion a year ago as it booked sales in projects including La Splendeur and Le Chateau.

Mainland China, where Cheung Kong has projects in cities including Shanghai and Guangzhou, contributed HK$4.7 billion, or almost half of the company property sales profit last year.

“I get the sense that they’re more upbeat on their mainland China businesses,” said Lee Wee Liat, Hong Kong-based analyst at BNP Paribas SA. “They’re hedging themselves. If Hong Kong doesn’t sell that well, China’s going to bring up the numbers.”

Home transactions in Hong Kong will probably fall below 3,000 this month because of the government measures, according to a forecast by realtor Midland Holdings Ltd. (1200) That would be the lowest level since 2003, when Hong Kong was near the end of a six-year property price slump.

Cutting Prices

Cheung Kong will cut prices at the One West Kowloon project by 11 percent after raising its overall home sales target by 10 percent for 2013, Executive Director Justin Chiu said March 7.

The company is cutting prices because it has to take the lead to cooperate with the government, Chiu said March 23.

Other developers are responding to the curbs in different ways. Sun Hung Kai and New World Development Co. in the past month cut sales target by 8 percent and 12 percent for the fiscal year ending June.

Li yesterday repeated comments made in the past two years that if buyers need to borrow too much, they shouldn’t buy properties. He said yesterday that interest rates in Hong Kong would probably stay low as the broader economic environment isn’t supportive of increases.

“The economic fundamental in Hong Kong is still good, so many sellers can still afford to hold on their properties,” said Vincent Cheung, national director for valuation and advisory at property broker Cushman & Wakefield Inc. in Hong Kong.

Li, who’s ranked 15th on the Bloomberg Billionaire Index with a net worth of $26.8 billion, in July transferred a one- third stake in a family trust that controls both Cheung Kong and Hutchison Whampoa from son Richard to elder brother Victor for succession planning.

Li said in August that he will offer financial support to allow Richard Li to build businesses outside of the family’s Cheung Kong Group of companies. Yesterday, the elder Li said his son had spent about HK$10 billion so far.

To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net.


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