HONG KONG — The reshoring of luxury spending in mainland China appears to have eased pressure on premium shopping mall operators, which have been under rising threat from e-commerce and a slowing economy in recent years.
Ronnie Chan Chi-chung, chairman of Hang Lung Properties, which owns landmark shopping centers Plaza 66 and Grand Gateway 66 in Shanghai and malls in major cities across China, said on Thursday that he is seeing light at the end of the tunnel and China’s retail market is evidently on the mend.
“The luxury goods market, caught in a perfect storm few years ago, is leading recovery,” Chan told reporters after the Hong Kong-based developer released interim results.
He noted that some tenants at Plaza 66 — located on the bustling commercial area of Nanjing West Road in downtown Shanghai — were seeing revenue growth of over 50% in the period versus a year ago, putting those only managing to book growth “in the teens” to shame. The largest asset in Hang Lung’s mainland portfolio, Plaza 66 recorded a 23% increase in rental revenue on the back of a reopened basement, which was recently renovated.
But outside the tier-one cities such as Shanghai, Hang Lung’s six other shopping malls in the mainland registered an average 3% decrease in rental revenue, with one in Shenyang, Forum 66, seeing a 28% reduction. Located in the northeastern province of Liaoning, Shenyang suffers from a glut of properties due to the commodity boom and easy credit of a decade ago.
“Oftentimes rental revision is still under pressure in tier-two cities,” said Chan, noting it will take a year or two before these locations show signs of improvement. Hong Kong is also lagging behind the recovery of tier-one mainland cities, said Chan.
His son, Adriel Chan Wenbwo, who assumed the role of executive director in December, said online shopping had some “small” impacts on Hang Lung’s business so far, but not enough to trigger a downward rental revision. He said the company would adjust tenant mix for that reason, in order to provide more service- and entertainment-oriented offerings at its malls.
Deriving 30% of its income from property leasing in mainland China, the company reported that its underlying net profit attributable to shareholders for the six months ended in June dipped 4% on the year to 3.04 billion Hong Kong dollars ($390 million).
It said reasons for the decline included lower interest income and a 5% depreciation in the Chinese yuan.
Mainland developers
Still relying on home sales in Hong Kong for 40% of its revenue, the company is struggling to win auctions for land parcels in its home market as an increasing number of mainland developers, paying huge premiums for market share, are joining the fray.
The five major local developers, including Li Ka-shing’s Cheung Kong Property, Sun Hung Kai Properties, Henderson Land Development, and New World Development, saw their share of residential land auctioned by the government in terms of total land premium shrink to 10% in 2016 from about 90% the previous year, data from real estate consultancy Jones Lang LaSalle shows.
Expecting the city’s new chief executive Carrie Lam Cheng Yuet-ngor to push for more land supply, company chairman Chan said he believed Hong Kong’s property prices would see a correction in a few years. He welcomed Hang Lung’s mainland counterparts, but had no plans to partner with them to bid for land in the city.
“We have been focusing on mainland China in the past two decades,” said Chan. “To fully develop the land in hand we will need to devote an extra tens of billions of dollars.”
He emphasized that Hong Kong should go for greater economic integration with the mainland, adding that he sees “no issue” with the move to allow mainland police and customs officials to operate at the West Kowloon terminus of the mainland-Hong Kong high-speed railway. This controversial proposal was announced by the local government on Tuesday.
The proposal, which allows mainland officers to exercise full criminal jurisdiction on trains, platforms, and the border clearance zone leased to the mainland by the Hong Kong government, has drawn concerns that the “One Country, Two Systems” principle will be breached.
But Chan said the plan would bring economic benefits to Hong Kong in driving more traffic to the city. “It would be a mistake to not push it through.”
The company recommended an interim dividend of 17 Hong Kong cents, despite the market call for a higher payout. But Chan said the company was being cautious over the dividend, as there will be lower property sales in the future.
Hang Lung’s Hong Kong-listed shares closed 0.1% lower at HK$19.32 on Thursday, returning 17.52% year-to-date. The benchmark Hang Seng Index gained 0.71% the same day, and 23.32% this year so far.
