Hong Kong Developers Surge on Lam’s Northern Metropolis Plan

(Bloomberg) -- Carrie Lam’s plans for a new metropolis in northern Hong Kong came as a big relief to investors in the city’s property giants. 

Shares of major developers including Henderson Land Development Co. jumped a day after Chief Executive Lam unveiled her target to turn the remote northern part of the New Territories into an urban area for 2.5 million residents. 

Investors are betting that the move -- aimed at alleviating Hong Kong’s housing crisis -- will benefit developers who hold large tracts of land in the area. They’re also cheered by the absence from Lam’s address of any measures to cool the property market, such as higher taxes. That lifts a cloud following speculation that China’s government may put more pressure on the real estate tycoons to solve the city’s housing woes.   

“Developers that now have the most agricultural land on hand will benefit the most under this policy address,” said Philip Tse, director and head of Hong Kong and China property research at Bocom International Holdings Co. “The market is reacting on both: policy overhang pressure is lower and there’s potential for more business for them.”

Farmland on Hand

The Hang Seng Properties Index rose 2% on Thursday, paring this year’s decline to about 5%. Henderson Land jumped 7.1%, the most in two years. New World Development Co. closed 3% higher and Sun Hung Kai Properties Ltd. rose 2.4%. CK Asset Holdings Ltd. advanced 1.2%. 

The project can create value for builders that have more land holdings in the area, when they develop it into homes or sell it to the government, according to analyst Kenny Ng.

“The market initially was worried that housing supply would drastically rise in the short term after the policy address, but the policies turned out to be relatively gentle,” said Ng, a securities strategist at Everbright Sun Hung Kai Ltd. “This alleviated the market’s concerns, thus benefiting shares of property developers.”

Home owners in the New Territories are already betting on the metropolis plan. Some put their apartments up for sale asking for prices that are 3% to 5% higher than the market level, according to Lam Lam, a sales manager at Midland Realty specializing in Yuen Long district, part of the area targeted for development.

“Since the news including upcoming infrastructure in the area is promising, owners are very positive about the future,” Lam said. “They won’t offer much of a discount now.”

Real estate firms will also be cushioned by the likelihood that the plan won’t tame Hong Kong’s sky-high home prices any time soon. 

“It isn’t something that can happen instantly,” said Patrick Wong, a property analyst with Bloomberg Intelligence. He estimates Hong Kong’s home values will rise between 5% and 10% this year.

©2021 Bloomberg L.P.