23 October 2018
M.K. Koo is among the Hong Kong businessmen who have benefited immensely from real-estate assets in China. Photo: HKEJ
M.K. Koo is among the Hong Kong businessmen who have benefited immensely from real-estate assets in China. Photo: HKEJ

HK industrial firms reap big from China real-estate assets

Chinese property developers’ appetite for land seems unstoppable.

Kaisa Group Holdings (01638.HK) announced this week that it agreed to pay US$110 million for 17.7 percent stake in US-listed Nam Tai Property.

Nam Tai Property was founded by M.K. Koo, one of early birds among Hong Kong entrepreneurs who expanded their business into mainland in 1980s and 1990s.

The 72-year-old Koo established the company in 1974, which was then called Nam Tai Electronics, and had been a contract manufacturer for big names like Toshiba and Canon until recent years when it became no match for much bigger rivals like Taiwan’s Hon Hai and China’s BYD.

Koo decided to shut down the manufacturing operation earlier this year and focused instead on wringing value from the firm’s real-estate assets– two land plots in Shenzhen.

The two sites cost around 100 million yuan, and now they are worth up to 3.5 billion yuan. Koo initially planned to sell the two land plots but found out that he would need to pay 50 to 60 percent tax for the incremental land value. Therefore, he changed his mind and planned to build medium to high-end property complexes for start-ups and R&D companies.

The company filed applications to convert the use of two land plots in Shenzhen into commercial and residential complexes, namely Nam Tai Inno Park and Nam Tai Inno City.

The two projects have a combined floor area of more than 700,000 square meters, with total investment estimated to be 9 billion yuan. Construction work is expected to commence next year.

Given that it doesn’t have enough property development experience, it makes sense for the company to team up with Kaisa.

Kaisa disclosed in a stock-exchange filing that things are progressing “smoothly”. Once completed, the projects are expected to bring in substantial rental income.

Koo would bag US$110 million from the deal, which valued Nam Tai Property at US$620 million, a big premium over the company’s market capitalization of US$300 million based on its closing price on Tuesday.

Many other Hong Kong entrepreneurs also made big fortune from land plots they acquired at much lower prices in the 1980s in the mainland.

For example, Kingboard Chemical Holdings (00148.HK) has amassed considerable industrial land plots across China over the years. And it has altered the use of these sites into residential and commercial properties in recent years in light of the nation’s housing boom.

Last year, the firm’s property unit generated total revenue of 5.49 billion yuan and profit of 1.7 billion yuan. Kingboard also sold one land plot in Shenzhen to Evergrande for 2.36 billion yuan.

Karrie International Holdings (01050.HK), World Houseware (Holdings) (00713.HK) and China Paint Manufacturing Company (01932.HK) all have industrial land plots in the mainland in once underdeveloped areas, thanks to the initiatives of their controlling shareholders.

The industrial entrepreneurs have benefited from China’s cheap labor in the last few decades. Now, when their core businesses may not continue to do well, they can still count on their land plots for profit, as the asset values have multiplied many times amid the country’s long housing boom.

This article appeared in the Hong Kong Economic Journal on July 13

Translation by Julie Zhu

[Chinese version 中文版]

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Hong Kong Economic Journal columnist

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