Hong Kong developers, real estate agencies put on alert as Wuhan virus threatens to inflict more retail losses after protests

By Lam Ka-sing kasing.lam@scmp.com / https://www.scmp.com/property/hong-kong-china/article/3047047/hong-kong-developers-real-estate-agencies-put-alert-wuhan?utm_medium=partner&utm_campaign=contentexchange&utm_source=EdgeProp | February 4, 2020 2:54 PM SGT
Hong Kong developers and property agencies are beginning to step up efforts to defend against the Wuhan virus amid heightened concerns that the outbreak could have a long-lasting impact on home and retail sales.
The Wuhan virus comes as the latest challenge to the industry that has yet to recover from the effects of eight months of anti-government protests and the US-China trade war. The virus, now proven to be transmittable among humans, has claimed four lives thus far, with cases reported in Hong Kong, Japan and South Korea.
While it is still early to assess the potential damage, the health menace brings a grim reminder of the far-reaching fallout during the SARS (severe acute respiratory syndrome) outbreak in 2003. That epidemic afflicted 8,098 people in 37 countries and killed 299 in Hong Kong after the first carrier travelled to the city from southern China's Guangdong province.
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Hang Lung Properties has doubled the cleaning frequency in all its assets, including those in mainland China and Hong Kong, chief executive Weber Lo said at a media briefing on Tuesday. Staffers are also required to tell the company if they or their family members are sick, he added.
Medical staff transfer patients to Jinyintan hospital where patients infected with a new strain of Coronavirus identified as the cause of the Wuhan pneumonia outbreak are treated in Wuhan, Hubei province, China. Photo: EPA-EFE alt=Medical staff transfer patients to Jinyintan hospital where patients infected with a new strain of Coronavirus identified as the cause of the Wuhan pneumonia outbreak are treated in Wuhan, Hubei province, China. Photo: EPA-EFE
"Since mid-November, across the company, we have urged staff to take vaccination, including those who need to travel from Hong Kong to mainland or stationed in mainland and Wuhan," Lo added. So far, there has been no signs of retail sales losing momentum as a result, he added.
CK Asset, Hong Kong's second largest developer by value, said it would clean sales venues every hour, offer masks and sanitiser to visitors and strengthen cleaning of air conditioners.
Local agencies Centaline Property Agency, Midland Realty, Ricacorp Properties and Hong Kong Property (Services) said they would clean branches regularly and ask sick staff to take leave so as not to infect others in the workplace.
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Hang Lung is also closely monitoring the progress of its current project in Wuhan, known as Heartland 66, a 460,000 sq m complex with shopping centre, 61-storey grade A office tower and serviced flats.
The group bought the Wuhan land in February 2013 for 3.3 billion yuan (US$478 million). The project is estimated to cost 12 billion yuan and construction started in November 2013. The offices are due for opening in the middle of this year, according to its website. The retail space will follow next, a spokeswoman told the Post.
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The progress of Heartland 66 will depend on "the number of workers who return to work" after Lunar New Year which begins on January 25, according to executive director Adriel Chan.
"Hang Lung Properties may be at greatest risk among Hong Kong landlords due to its sizeable exposure to China retail leasing, as it anticipates opening a new mall in Wuhan in mid-2020," said Patrick Wong, senior research analyst of Asia Real Estate at Bloomberg Intelligence in a note. "The landlord's 41 per cent retail leasing turnover in mainland China is the highest of peers."
Tenants' sales growth at mainland China shopping malls could be slower than last year, Wong added, due to an intensifying pneumonia outbreak that could keep wary shoppers away.
"Several Hong Kong landlords with retail leasing businesses at mainland China shopping malls could suffer from falling rents due to the pneumonia outbreak in Wuhan," added Wong.
Raymond Cheng, head of Hong Kong and China research at CGS-CIMB Securities, also echoed the view as "most of the group's assets are in China."
"Considering everything, its shopping malls in China will be affected, including those in Shanghai and Shenyang, if local people reduce shopping and dining outings," he said. That may explain its stock price plunge.
As for Hong Kong's retail, Cheng said "mainland visitors to Hong Kong could further decline if the outbreak of Wuhan pneumonia worsens".
While most of these companies have been offering rental concessions to their tenants instead of cutting rents, "we believe that rental reversions could turn negative in 2020 as the weak retail sales momentum continues", Cheng said.
"We expect their share prices to be under pressure after the recent 10 to 20 per cent rebound from the bottom."
Wharf REIC's share price plunged 5.9 per cent in two days on Monday and Tuesday. Hysan dropped 4.9 per cent on Tuesday. Hang Lung fell 4.4 per cent on Tuesday.
Hang Lung's net profit fell 24 per cent to HK$6.17 billion in the 12 months to December 31, while revenue dropped 6 per cent to HK$8.9 billion. It declared a final dividend of 59 HK cents per share.
This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2020 South China Morning Post Publishers Ltd. All rights reserved.
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