Patience is what matters to Hong Kong billionaire Edwin Leong’s venture into residential development. And with a net worth of $4.4 billion, the founder and chairman of Tai Hung Fai Enterprise can afford to be patient.
This story is part of Forbes’ coverage of Hong Kong’s Richest 2022. See the full list here.
Hong Kong’s property market is under heavy pressure. The government’s zero-Covid strategy is isolating the city from the rest of the world and exacerbating a wave of emigration. At the same time, rising interest rates are expected to ramp up borrowing costs for prospective home buyers. In spite of all this, billionaire real estate investor Edwin Leong says now is the time for expansion.
Leong, 70, earned the moniker “King of Shops” from his success in amassing an immense portfolio of retail and commercial properties through his privately held Tai Hung Fai Enterprise. His real estate empire currently gives him a net worth of $4.4 billion, placing him at No. 22 on this year’s list of Hong Kong’s 50 Richest.
Leong’s strategy over the past 25 years has centered on acquiring old buildings and then developing them into shops, hotels and offices. “We bought land plots that were a lot cheaper than they would have been in government tenders, in which we have to compete with so many other bigger players,” Leong, founder and chairman of Tai Hung Fai, explains.
Hong Kong’s commercial property sector has been hit particularly hard over the last three years, however, as the pandemic, social unrest and the U.S.-China trade war pushed the city’s economy into a recession. So, Leong’s solution is to venture into the mass residential market. Tai Hung Fai is beginning to build small and medium-sized apartments in what has long been described as the world’s least affordable housing market.
“Residential developments have a lot of demand in the market, so we are confident in what we are doing,” Leong says in a video interview from Tai Hung Fai’s office in Admiralty, one of the city’s major business districts.
Leong’s confidence stems from experience. Tai Hung Fai’s first project targeting the mass market was a runaway success. Located in Sheung Shui, just across the border from mainland China, Tai Hung Fai managed to sell all 30 units of the apartment block, named Artique, in less than two hours. “The pilot project in Sheung Shui is a test of how good our development team is,” says Leong. “This is a good sign.”
Artique’s appeal to its buyers is partly due to its location—the area around Sheung Shui will be included in the government’s ambitious plan to transform a large swathe of land in the New Territories into a metropolis that offers more than 900,000 flats for some 2.5 million people within the next 20 years.
Leong’s strategy is built on a solid foundation because Hong Kong’s housing sector has shown the most resilience in recent years due to local demand that outstrips supply. The city’s mass home price index continued its long-term climb and reached an all-time high in July, according to government data.
Tai Hung Fai is “doing the right thing” by pivoting into mass residential development at a time when the investment market cooled down amid the pandemic, according to Joseph Tsang, chairman of JLL Hong Kong. Small and medium-sized homes offer quick returns due to high demands, which can offset any downturn in retail and commercial investments. “This is a good strategy because it helps to balance out risks,” Tsang says.
To be sure, the Tai Hung Fai brand will be competing for home buyers’ attention in a crowded field that’s dominated by the likes of Li Ka-shing’s CK Asset (No. 1 on the Hong Kong’s Richest list), Lee Shau Kee’s Henderson Land (No. 2), the Kwok family’s Sun Hung Kai Properties and the Cheng family’s New World Development, which all possess massive land banks and financial resources.
Tai Hung Fai recently went up against those heavyweights when it competed in government tenders for residential plots over the past year. In two fierce rivalries among dozens of property developers, Tai Hung Fai’s bids fell short to CK Asset and Peter Woo’s Wheelock Properties.
“Obviously, right now, we didn’t have much success because we are newcomers,” Leong says. “But it gives us a chance to see what the market is accepting and how our competitors put up the pricing. It’s a learning experience for us.”
As a private company, however, Tai Hung Fai can play the long game when it comes to acquiring old buildings for redevelopment, says Leong. The acquisition process is tedious because developers usually have to spend years buying up an 80% stake of an old property to trigger a compulsory sale. Without the pressure of shareholders, Leong can afford to be patient.
The real estate veteran is always on the lookout for opportunities to acquire dilapidated sites with the potential for redevelopment into properties with higher values. Among his most prominent recent acquisitions is a 60-year-old-plus building in Sai Ying Pun which Leong acquired over a timespan of 10 years at a cost of more than $75 million. The lot, which saw its market value jump to nearly $119 million last year, will be transformed into a tower that will offer about 200 small and medium-sized homes. Leong says the company has also successfully acquired 11,000 square feet of land in Kowloon that will be transformed into a residential building with another 300 units.
Leong is the sixth son of businessman Henry G. Leong, a comprador of British trading house Jardine Matheson. The junior Leong founded Tai Hung Fai in 1977 after returning to Hong Kong from Canada with a master’s degree in computer science from the University of Toronto. The company started out by trading stocks and foreign currencies, but the business struggled initially.
“Your wealth changes every hour. One day you become very happy and the next day you become very wary,” Leong says. “I learned from my bitter experience that the winner of shares trading is only a few.”
In 1997, Leong opted to invest in real estate, a sector he thought would bring more stability to his life. His strategy of snapping up properties during Asia’s financial crisis propelled him into the three-comma club in 2012.
But Tai Hung Fai isn’t about to turn away from the formula that led to its success. The firm’s current pipeline of projects includes two more commercial properties. It is building two separate Grade A office buildings in Sheung Wan, one of which will consist of 300,000 square feet and the other will have 180,000 square feet. The two sites, which were acquired over the past decade for a total cost of more than $640 million, are now said to be worth $1.3 billion.
Tai Hung Fai’s expansion comes as a new wave of Covid infections has multiplied daily cases by 60 times since February and disrupted many employers’ return-to-office plans. Grade A offices across Hong Kong recorded a vacancy rate of 9.4% in January, up from 6.1% the same period two years ago when the city first reported coronavirus infections, according to JLL.
The government’s zero-Covid strategy has included banning flights from a number of countries, including the U.S. and the U.K., and subjecting all arriving passengers to lengthy quarantine periods. The anti-virus measures may keep Hong Kong isolated from the rest of the world until 2024 and spark an exodus of foreign companies, according to a draft report by the European Chamber of Commerce reviewed by Reuters and Bloomberg.
Meanwhile, Hong Kong’s population dropped 1.2% in the year ended 2020, its largest decline since the government began to record such data in the 1960s. The trend continued into the first half of 2021, with nearly 90,000 residents leaving the city.
The mass exodus comes after Beijing imposed the national security law in June 2020, in response to the massive pro-democracy protests, that punishes acts of secession, subversion, terrorism and collusion with foreign forces. Critics say the legislation has been used to stifle freedom of speech and jail opposition lawmakers and activists.
Leong, however, reckons a weak market is the best time to start new projects. And he cites the two office towers in Sheung Wan as examples which are intended to cater to tenants of mainland Chinese companies looking to set up offices in Hong Kong in about three years time when they’re due to be completed.
While business groups have warned that Hong Kong’s recent troubles have put its status as an international financial hub at risk, Leong is optimistic that the city won’t lose its appeal. He believes that Hong Kong will synchronize its Covid measures with other places and reopen its border soon. The property tycoon adds that the city has stabilized following the introduction of the national security law, which he believes helped to restore Hong Kong’s rule of law, an important element for the city’s property market to prosper.
Leong says his philosophy now is to adopt a conservative approach when it comes to his property business. The chairman says Tai Hung Fai is in the process of deleveraging now to adjust to the current environment. He reckons his business will see relatively steady growth in the near term, citing the government’s efforts to increase land supply in hopes of improving housing affordability.
“Before in 2020, we had both the pandemic and social disturbances, but now we only have the pandemic to worry about,” says Leong. “It’s all a matter of time and patience. The one that survives will be the one able to gain and flourish at the end of the day.”