The only way is up

Robin Ching FCCA of Hang Lung Properties, and past President of ACCA Hong Kong, tells Colette Steckel why he hopes the real estate market in Hong Kong has reached the very bottom and is on its way back up

There�s plenty of prime land to be had in Hong Kong. Which may come as a surprise to new-arrivals to this dynamic and crowded metropolis, with its hundreds of mirrored office and apartment blocks sweeping grandly skywards while jostling for space on the ground. Robin Ching (53), assistant director - finance of Hang Lung Properties, one of Hong Kong�s largest property development and investment companies, can tell that I need convincing. �Really, there is a lot of land,� he stresses, reeling off a list of sites considered prime real estate material: the defunct airport at Kowloon; old government premises, decrepit buildings, piers and wharfs which are being knocked down to beautify the city; reclaimed land on Lantau Island, the site of the new and stylish Chek Lap Kok international airport. And then there�s the highly-coveted land above Hong Kong�s slick and ultra-modern Mass Transit Railway and the Kowloon-Canton Railway. Hong Kong, it would seem, is not short of land for property developers to stake their claim and start constructing the next glossy high-rise. �Property is always going up. Like bamboo shoots,� notes Robin, laughing.

Unfortunately, the same cannot be said for property prices, which have plummeted in recent years. A decade ago, Hong Kong was one the world�s most expensive real estate markets. Strict government controls on land pricing combined with a deluge of investment from Hong Kong and China residents all contributed to a speculative price bubble that eventually burst during the Asian financial crisis of 1997. The glory days ended and, with it, property prices plunged. Cumulatively from July 1997, prices have fallen by 60%. Property owners are facing the harsh reality that their wealth has been wiped out and property developers are feeling distinctly uncomfortable with the prospect of yet more gloom and doom. �For the past 10 years, property prices have seen huge ups and downs. It�s a very cyclical business,� says Robin. �We only hope that we have reached the very bottom and that the market will go back up again.�

The languishing economy hasn�t helped matters. Since the Asian crisis, Hong Kong has grappled with climbing unemployment, which recently reached a high of 7.8%. Companies have been streamlining their businesses, cutting down on office space and slashing accommodation budgets for staff. And Hong Kong residents are fearful for their jobs. Hang Lung�s 2001/02 Annual Report bears out the effects that the dire real estate market and the tough Hong Kong economy has had on its bottom line. Turnover decreased 5.5% to HK$2,383.2m and net profit was 12.8% lower than the previous year at HK$1,207m. Most of the drop in the company�s fortunes follows the decreased sales of residential property. �People�s affordability is much higher now than what it was 10 years ago but their confidence is low,� explains Robin. �People won�t rush to buy property when prices are so low. They�d much rather wait and see what happens to the market. Besides, people don�t know whether they will have jobs tomorrow, so why would they commit to a 20-year mortgage?�

The Group�s properties for lease, most of which are based in Hong Kong, have fared better despite the sector as a whole experiencing dwindling rents and falls in occupancy. �The market for office space is not looking too promising, especially in Central (the business district),� rues Robin, explaining that rental rates are being affected by the over-supply of new office buildings in the area. Hang Lung has four office blocks in Central which are suffering, but most of the Group�s other properties in neighbouring districts are holding their own and posting satisfactory rental and occupancy rates. The commercial and retail properties are doing quite well with glitzy shopping arcades placed in very densely populated areas like Causeway Bay. And although demand for luxury apartments has waned in recent months, Robin has high hopes for the latest addition to the Hang Lung stable, The Summit, a 70-storey residential tower in the popular Mid-Levels. The uptake of new leases, which were offered last summer, has been positive so far. �It�s a very encouraging start,� he adds.

Robin admits that Hang Lung�s 2001/02 results would have been worse if it were not for the Group�s two successful and award-winning retail properties in Shanghai, whose income offsets the decline in rental revenue in Hong Kong. Both properties, which are partly owned by Hang Lung, are 100% occupied and boast some of the most glamorous names in high fashion occupants. �When we started looking at opportunities outside Hong Kong, we decided to concentrate on one city in Mainland China,� begins Robin. �Beijing was considered too bureaucratic while Shanghai is more commercial. It�s easier to do business there.� Hang Lung blazed a trail in Shanghai a decade ago although it has been cautious about growing too fast in Mainland China. But with rents expected to rise steadily in the future, the Group is keen to look at further development opportunities in Shanghai. �We�re now looking at another project in Shanghai, building on our existing Plaza 66 site in Puxi. Work will begin next year,� says Robin. �As a mature business we have negotiating power in Mainland China, so I�m now looking at raising about RMB 1bn to finance the construction costs,� he adds, clearly delighted at the challenging task he has ahead of him.

A fast-track career

Robin joined Hang Lung as group financial controller in 1988 after a varied career in accounting. He attended evening classes while working in the audit department of the Hong Kong Government and then the Banking Commission�s office. His career progressed at a dizzying rate, with promotions coming thick and fast within the public sector and industry, to which he moved shortly after qualifying. �Qualified accountants were in huge demand. I was appointed group financial controller of a large listed company in Hong Kong at the age of 24. That was an amazing achievement for me. And all because of my ACCA qualification.� His experience in a range of industries along with his impressive collection of qualifications in banking, taxation, business and accounting has proved invaluable to his work at Hang Lung.

Although his early days at the Group were spent transforming the �not too sophisticated� accounting department into a lean, efficient operation, his department now almost runs itself so he can focus on the financial strategy of the Group. �I enjoy every minute of my work,� enthuses Robin. �Each day brings new challenges.� As company secretary, he ensured that corporate governance was high on the agenda, long before the accounting scandals in the US hit the headlines. And with his background in treasury and banking, he seeks out the best deals in raising finance. Earlier this year he was instrumental in securing HK$3,450m in five-year convertible debt, which has been earmarked for the acquisition of land in Hong Kong.

But the prospect of purchasing some of the most desirable land lots in Hong Kong may be some months off. In late November, Hong Kong�s secretary for housing, planning and lands, Michael Suen, announced a nine-point plan to restore the public�s confidence in the property market. Among the measures is a decision to freeze the auction of land, which is regulated by the Government, until the end of 2003. It�s clearly a blow for Hang Lung. �Obviously the fact that we can�t buy land for the next 13 months is not a good thing for us,� notes Robin. �But when land becomes available, we�ll have the funding to snap it up. In the meantime, we have a healthy cash position and we�re happy with our land bank of 4.5m square feet which is under development. Once our projects are completed, we�ll have plenty of property to sell when we want to sell it,� notes Robin. All four of the properties under development are stylish apartment towers in prime locations on Kowloon, where demand is likely to be high. And, although property prices are still hovering around their lowest in a decade, prices are expected to rise in the future.

Robin concedes that the past five years since the Asian crisis have been challenging ones for Hang Lung and the property industry in Hong Kong. But he�s optimistic about the future. �I don�t expect the real estate market to recover within the next 12 months. But I�m hopeful that, by then, the Government measures will have helped to halt the decline in property prices.� When that happens, the only way is up.

For more information on Hang Lung Properties, visit the website at www.hanglung.com.