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New faces are showing up on the HK property development scene
It may be a good time to enter the HK property development market now if abundant financial resource is available

A WSJ article today titled "Hong Kong Developer Cartel Being Challenged: Barclays" reports that it is surprising to see new players coming into the HK property market recently.  There are many factors behind the recent "perceived" changes in the Hong Kong property development market with showing up of new players and re-emergence of old faces. The fact is that HK is such lucrative market for property developers that no one will let go of it, only more would like to get in. There are many factors behind what is perceived as change.  Apart from what Barclays noted, the perceived change in HK property development market can also be interpreted in the following way.  

Limited small plot supply
There had not been abundant supply of smaller development sites suitable for “small & mid sized" developers in the recent past in HK. Activities of “small & mid sized" developers were not as obvious as the large developers, thus giving the impression that they were shut off from the market. It is predicted that there will be more smaller sites released. Probably it has started happening.

Limited scope for further sharp property price rise
HK, being a totally free market, ie. no control on money going in & out, has experienced sharp fluctuation (or, rise and sharp rise only in recent years) of property prices due to large influx of hot money from QE I, QE II in US and huge financial stimulus package in China (originally meant for tackling GFC). It is expected that the government will implement policies to "control" the "uncontrolled" property price rise. It has been started with more land release in recent months. The only direction for the HK property market is either "flat" or "down". Large developers have scaled back their bidding price for development sites, giving more chances for "smaller & mid-sized" developers. 

PSPS housing scheme
HK has not reacted to the effect of hot money flowing into the property market quick enough by starting PSPS (Private Sector Participation Scheme) or other similar housing schemes which cater for the lower/middle income class.  The property prices in the heated market has galloped off to much higher levels, making it out of reach of many middle class.  These types of PSPS housing development projects are more suitable for the participation of "smaller & mid-sized" developers. The new HK chief executive has promised to re-start PSPS asap....that means more opportunities for "small & medium sized" developers.

Political factor
The sharp rise in HK property prices in recent years has created a huge gap in housing affordability, especially for young people and families. If so called "high-income professionals" with college degrees cannot afford a decent shelter, the tough living condition of the non-professionals can be imagined. The noise from the society shouting, allegating and accusing of "官商勾结” (collusion between government & businesses) and "地产霸权" (monopolizing power of property developers), and echoing of this noise by middle class, sends a signal of risk of social unrest, if the situation is not managed properly. Changing the perception by having new & infrequent faces on the market will be logical and welcomed.

Chinese developers "going abroad"
The appearance of more main land based Chinese developers in the HK property market is expected, due to active push & "encouragement" by China for private enterprises to "go-abroad".  Chinese private enterprises can now lever investment finance in foreign currency with their main land assets and personal guarantees. China is releasing the power of their huge foreign reserve for foreign investment.  HK, being an on-shore "off-shore" location with the same language, will be the favourite first stop for many Chinese private enterprises, including property developers, to exercise their newly found government facilitated financial muscle.

HK is a lucrative market for property developers.  No one wants to let go, only more wants to go in.  If you have the financial resources, perhaps now is a good time to enter the HK property development market.

AAPAC Group can help
If you need assistance in terms of entering the HK property development market, our company can help, particularly in the area of property development, project finance, JV arrangement, project management, planning, architecture, design, engineering, construction, building material & system.

Fabian Chan
Source: WSJ - 20.7.2012

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Hong Kong Property Development Scene - Surprised with New Faces?

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