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1. SHKP, China Resources link up for second-tier project

1. SHKP, China Resources link up for second-tier project
KEN LO, SCMP 14 December 2005

Sun Hung Kai Properties (SHKP) has again teamed up with China Resources Group to invest in a mainland property project, this time a residential and commercial project in Jiangsu province.

Sources said the two companies would establish a strategic alliance in investing in China property developments, especially in residential projects in second-tier cities. But an analyst from a leading United States investment bank dismissed any move by SHKP to establish a permanent partner as unnecessary and unrealistic.

SHKP would not comment on the Jiangsu project in Wuxi city, and China Resources could not be reached for comment.

The booming economy and robust demand for housing and office space in mainland cities have lured international players to tap into the China property market. However, some Hong Kong developers are wary of political risks and have been selective in where they invest. As shown in SHKP's annual report, the company until recently had targeted only first-tier cities such as Beijing, Shanghai, Guangzhou and in the Pearl River region.

The 1.12 million square metre Wuxi development, officially claimed to be one of the two largest prime sites since the municipality launched its land sales programme in 2001, was sold for 2.5 billion yuan through a public tender by China Resources in October. The other site, at 1.19 million sqmetres, was bought by a Shanghai developer in the same tender for 3.2 billion yuan.

This is known to be the second time in less than three months SHKP and China Resources have linked up on mainland property projects. In September, SHKP agreed to take a 40 per cent stake in a residential and commercial project in Hangzhou, Zhejiang province, with the remaining 60 per cent held by China Resources. Initial investment was 700 million yuan.

The partnership began in 1997 when both sides took part in a Tsing Yi Town development project, Villa Esplanada, in which China Resources Enterprise - China Resources' listed flagship - owns a 55 per cent share, while SHKP and Cheung Kong (Holdings) split the remaining share in half.

The relationship extended to China after SHKP gained access to a prime residential site in Shanghai that was later developed into Shanghai Arcadia, a shopping centre and residential complex, with the help of China Resources.

In July this year, SHKP secured a prime residential site in Shanghai's Pudong district for 3.19 billion yuan.

Analysts said SHKP has incentive to push into second-tier cities where growth may be less affected by government policies than in first-tier cities.

According to a mainland property report by Goldman Sachs, second-tier cities are less vulnerable to near-term risks than their first-tier counterparts.