Hong Kong property developer Henderson Land Development has a peculiar problem: too much land. The company is the biggest agricultural land owner in the New Territories and owns millions of square feet of floor area in Hong Kong and the mainland.
Between 2008 and 2010, Henderson Land, which was bullish on the mainland property market, aggressively expanded its land bank there at what it considered to be cheap prices. It also bought a lot farmland in the New Territories in the expectation the area would be developed into towns. Its property inventories rose by more than 60 per cent in that period.
Property sales failed to keep pace, dropping from HK$11.1 billion in financial year 2008 to a low of HK$3.6 billion in 2010. The company as a result has a lot of property inventories on its books.
Roughly speaking, it would take Henderson Land eight years to use all its property inventories at the current rate it is selling developments. By comparison, Cheung Kong (Holdings) and Sun Hung Kai Properties (SHKP) would use all their land in more than three years, and New World Development would take 4½ years.
One might think a developer could never have too much property in Hong Kong. But the market discounts Henderson Land precisely because of its property excess.
Let's break this down.
