The Zhitong Finance App learned that UBS released a research report saying that under the new land use rights renewal policy in the Mainland, the Wharf Group (00004), Kerry Construction (00683), Henderson Land (00012) and Hang Lung Properties (00101) may face the greatest potential impact. Among them, considering the maturity structure of the investment property portfolio, Kerry Properties, Hang Lung Properties and Henderson Land faced the most urgent renewal pressure. The bank believes that the market has yet to fully reflect the cash outflows that may be brought about by the new policy.
UBS estimates that if developers currently extend the land use rights of all mainland investment properties for 20 years and amortize the relevant premiums based on the remaining land use rights, the annualized renewal premium will be equivalent to 10% to 29% of their annual dividends.
The bank stated that most of the core property portfolios of Kerry Construction, Hang Lung Properties and Henderson Land have less than 20 years of remaining land use rights. If the current land use rights for related projects are extended for another 20 years, the annualized land premium will be equivalent to 6% to 8% of the predicted dividend in 2027.
The premium due to most Hong Kong-funded developers for all renewals is about RMB 4 billion to RMB 17 billion
According to UBS's estimation method, if the land use rights of all mainland investment properties are currently renewed, most Hong Kong-funded developers should account for a renewal premium of about RMB 4 billion to RMB 17 billion. Among them, Kerry Construction and Hang Lung Properties were the most affected compared to share capital value. It is estimated that renewal premiums are equivalent to 19% and 10% of net asset value, respectively.
If only projects with less than 20 years of remaining land use rights were extended for 20 years, the land premiums for Hang Lung Properties, Kerry Construction, Hysan Development (00014) and Henderson Land Properties would be approximately RMB 2.6 billion, 2.4 billion, 1 billion and RMB 5.8 billion respectively, equivalent to 4%, 3% and 3% of their respective net asset values.
UBS believes that mainland developers with high investment property exposure, particularly Hang Lung Properties and Kerry Construction, may face lower valuations. In Henderson Land's mainland rental property portfolio, 42% of the remaining land use rights are less than 10 years old, so the pressure to renew is even more urgent.
Furthermore, the bank believes that more Hong Kong-funded developers may consider monetizing assets through China Real Estate Investment Trusts (C-REITs), especially non-luxury projects with remaining land use rights for more than 20 years, to reduce the risk of future cash expenses associated with renewing land use rights.