A Brave Time to Act: Robert Wong's Thoughts on the Property Crisis

Though the property crisis on the mainland has been discouraging for some, Robert Wong, chief of a 133-year-old business, believes that now is actually a brave time to act.

Robert Wong isn't afraid of the mainland's property crisis.

At a time when few companies are investing in China's beleaguered property market, Hongkong Land is doubling down. Over the past two years, the developer has made its largest-ever investment commitment in its 133-year history to transform the riverfront south of Shanghai's city center into a new financial hub, while also adding residential projects in select Chinese cities. While other companies are pulling back or slowing their investment in China, Hongkong Land is forging ahead with its transformation of the riverfront south of Shanghai into a new financial hub. This commitment is the largest the company has ever made in its 133-year history, and showcases its belief in the long-term potential of the Chinese market. In addition to its major financial hub project, Hongkong Land is also adding residential projects in select Chinese cities, further underlining its confidence in the country's future.

Looking to the future, Hongkong Land remains bullish on the Chinese real estate market, despite the recent economic slowdown. The company has continued to invest heavily in new developments across the country, and as of December 2021 it now has 35 projects underway in seven different cities. While other developers have started to show financial strain, Hongkong Land remains committed to its long-term vision for the Chinese market.

Wong's vision for the future is one of opportunity and growth, despite challenges that may arise. He believes that Hongkong Land should continue to invest in Asia, including expanding its Southeast Asian footprint. This will help the company to remain strong and resilient in the face of any challenges that may come up.

Shanghai West Bund financial hub (artist rendering). The project will deliver a gross floor area of 1.1 million square meters.Courtesy of Hongkong Land
Looking at the rendering of the Shanghai West Bund financial hub, it is clear that the project will be a massive undertaking. With a gross floor area of 1.1 million square meters, the project will be one of the largest of its kind in the world.

Jardine Matheson's Hongkong Land is a true survivor. Through its long history, the company has overcome many challenges, from the Japanese occupation of Hong Kong during WWII to the 1997 Asian financial crisis. The company has helped shape the city's famous skyline and turned Central into one of the world's most prestigious business districts. Thanks to its resilience, Hongkong Land is a true crown jewel of the Asian conglomerate.

Despite challenges, Hongkong Land remains a powerful force in the Asia-Pacific region. The company has a long history of weathering market downturns and taking advantage of opportunities that arise in difficult times. Its Exchange Square development in Hong Kong is a prime example of this, as it was completed during the city's stock market collapse in the 1980s. More recently, Hongkong Land has been active in snapping up sites in Southeast Asia during periods of depressed prices, such as after the 1997 financial crisis. This has allowed the company to become a major regional developer. However, with mainland China's prolonged property market slump and a wave of defaults by leading local developers, coupled with rising vacancies in Hong Kong amid tough Covid-19 restrictions, Hongkong Land once again faces turbulence. Despite these challenges, the company's strong track record suggests that it is well-positioned to weather the current storm and emerge even stronger in the long term.

Wong has been with the company for over 35 years and has been CEO for six. He is known for staying the course during difficult times and for taking advantage of opportunities when they arise. Between the Asian financial crisis and the 2003 SARS outbreak, he rebuilt Hongkong Land's residential property business from scratch. Today, the company is a leading player in the Hong Kong real estate market.

I remember when Wong first started working on Lai Sing Court. There was a lot of skepticism from the homeowners, and Wong had to work hard to convince them to sell. But he persisted, and eventually the project went ahead. It was a great success, and despite the economic downturn, Wong was able to make a profit. I'm glad he stuck with it, because it's a beautiful complex now.

Fraser Hall/Getty Images
As someone who cares deeply about the environment, I was dismayed to read that Fraser Hall at Getty Images was found to have potentially hazardous levels of asbestos.

Wong is once again confident that Hongkong Land's investments in mainland China and measures to enhance the appeal of its Hong Kong portfolio amid the current market uncertainty will reap dividends. The company's earnings and stock performance reflect his optimism. In the first half of 2022, revenue edged up 0.9% from a year earlier to $894 million despite a 69% drop in contracted sales on the mainland to $419 million, and it swung to a net profit of $292 million from a $865 million net loss in the year-ago period, Hongkong Land said in its latest earnings report. Looking ahead, Wong is confident that the company's investments in mainland China and efforts to make its Hong Kong portfolio more attractive will pay off. The company's recent results reflect this optimism, with revenue rising 0.9% in the first half of 2022 to $894 million, despite a 69% drop in contracted sales on the mainland to $419 million.

The Shanghai joint venture is a great opportunity for the company to succeed. The project will deliver a gross floor area of 1.1 million square meters, equivalent to about 110 Manhattan city blocks, along the West Bund riverside. It will offer 650,000 square meters of grade A offices, 230,000 square meters of luxury retail space, 1,700 high-end residences and serviced apartments, two five-star hotels, an exhibition and conference center, and a 1.4-kilometer waterfront with green spaces, according to company presentations and Wong. This is an incredible opportunity to be a part of something special and to make a name for the company.

Looking back now, it was absolutely the right decision to acquire that site. The opportunity would have been lost forever if we had not acted. Hongkong Land's bet is showing early signs of paying off, with some companies and retail brands incorporating the project into their spending plans for the next three to five years. S&P Global Ratings analyst Oscar Chung expects the project to start contributing to Hongkong Land's cash flow in 2022 and 2023, with the commencement of pre-sales of the residential portion. "While the pandemic remains an uncertainty for the near term, we think the West Bund project is well situated in Shanghai," says Chung.

It is clear that the Covid-19 pandemic has had a significant impact on the economy of Shanghai. The city was forced into a lockdown in late March, and this has resulted in a significant decline in economic activity. Retail sales have slumped by 21% year-on-year, and the economy as a whole shrank by almost 14% in the second quarter. Despite this, the Chinese government remains committed to stopping future outbreaks of the virus through mass testing and movement restrictions. This is in line with the country's goal of ensuring its economic growth does not decline any further.

The property crisis in mainland China appears to be worsening, with reports that frustrated homebuyers of 328 stalled housing projects across 100 cities are threatening to withhold mortgage payments. Most of the affected projects belong to Chinese developers who are already saddled with debt, including billionaire Hui Ka Yan's Evergrande and Sun Hongbin's Sunac. If the situation deteriorates further, S&P has forecast that Chinese banks could face $350 billion in mortgage losses.

Robert Wong in Hongkong Land's headquarters in Exchange Square.KEN WU FOR FORBES ASIA
As the head of one of Hong Kong's biggest real estate developers, Robert Wong is used to thinking big.

Wong's focus on building quality homes in just seven Chinese cities has kept Hongkong Land out of trouble, he says. "The market dynamics are changing in China," Wong explains. "In the past, you only needed to have the courage to take action because after that, rapid urbanization would have saved you anyway.

I believe that the Shanghai project will continue to increase the developer's debt in the coming years. However, I believe that the company's net debt will remain relatively low. I also believe that the company's credit ratings will remain strong.

Asia's Footprint on the World

Hongkong Land is one of the largest commercial property developers in Asia

Source: Hongkong Land
Hongkong Land is one of the leading developers in Asia.

Hongkong Land is one of the leading developers in Southeast Asia and is continuing to grow its presence in the region. The company has developed several iconic projects in Singapore, including the Marina Bay Financial Center and One Raffles Quay. In 2021, Hongkong Land acquired three new residential plots in Singapore, which it will develop jointly with billionaire Kwek Leng Beng's City Developments. The projects are among Hongkong Land's 18 developments in the pipeline in Southeast Asia, which also includes a high-end condo codeveloped with Jardines' Indonesian unit Astra International. Hongkong Land is committed to creating world-class developments that improve the quality of life for residents in Southeast Asia.

Hongkong Land is a developer that has minimized vacancies at a time when the number of empty offices is soaring. The city’s overall office vacancy rate is forecast to climb to 13.5% by end-2022 from 10.9% and 11.2% in the first and second quarters of the year, respectively, as new supply comes on the market and leasing demand dwindles, real estate services firm Colliers said in a July report. The new developments include two prime offices built by billionaire Li Ka-shing’s CK Asset and Lee Shau Kee’s Henderson Land, which are set to be launched a few blocks away from Hongkong Land’s commercial cluster in Central next year. Despite this, Hongkong Land has been able to maintain a strong position in the market, contributing 49% of its underlying profit in 2021. This is a testament to the company's sound strategy and management, which will continue to serve it well in the future.

I believe that Hongkong Land's recent efforts to revitalize its portfolio in Central will pay off in the long run. The vacancy rate may have increased in the short term, but this is to be expected when making such changes. In the long term, the portfolio will be more resilient and attractive to tenants, which will ultimately lower the vacancy rate.

According to Wong, Hongkong Land's relatively low vacancy rate is due to its ability to retain its major tenants, as well as a shift towards quality office space as rents decline. The company's top 30 tenants occupy approximately half of its office portfolio in Central, with a weighted average lease expiration of 5.6 years as of June. Major office tenants include JPMorgan, KPMG, Mayer Brown, PwC, and the Stock Exchange of Hong Kong. On the retail side, Hongkong Land has major tenants such as Giorgio Armani, Hermes, LVMH, and others.

While Hong Kong's financial status may be at risk due to travel restrictions and political unrest, Wong remains optimistic about the company's future. He believes that the Chinese government's efforts to deleverage mainland developers will help restore the long-term health of the sector and create new opportunities.

Wong's comments remind us that even during tough times, we should remain open to new opportunities. Crisis can often create unique chances for advancement, and we should be ready to seize them.

There is no one-size-fits-all answer to the question of whether or not assistance by Robert Olsen is a good thing.

Iconic Empire: A History of the World's Greatest Civilizations

Jardine Matheson is a company with a long and storied history, dating back to the early days of Hong Kong's development. The company has been involved in some of the most important events in the city's history, from the First Opium War to its current status as a diversified conglomerate. Jardines has played a significant role in shaping Hong Kong's destiny, and its impact on the city is still felt today.

Martha and Ben Keswick.Jessica Hromas/Getty Images for the Mandarin Oriental Hotel Group
The Keswicks are a power couple in the hotel industry, and they continue to impress with their string of successful businesses.

Jardines is a company with a long history dating back to the British colonial era. It is now a multinational conglomerate with businesses in a variety of sectors ranging from property development to hospitality to car dealerships to heavy engineering. Jardines generate over $109 billion in revenue each year and employs over 400,000 people. Its recent move to list its shares on the Singapore stock exchange has raised eyebrows in London and Beijing, but the company remains headquartered in Hong Kong.

Looking back, it is clear that the delisting of Jardine Strategic was a shrewd move by the company. By simplifying its ownership structure, Jardines has made itself a more attractive target for potential acquirers. In particular, the move clears the way for a possible takeover by Li Ka-shing, who has long been interested in acquiring the company. With Jardines now in a more vulnerable position, shareholders should keep a close eye on the situation in case a hostile takeover attempt materialises.

I envision Jardines continuing to be a successful and well-respected company under the leadership of Ben Keswick. I believe he will continue to steer the company in a positive direction, building on the legacy of his family.