Is Hongkong Land Holdings Limited Heading For Trouble?

Hongkong Land Holdings Limited (SGX: H78), as its name partly suggests, is a prominent real estate investment company based in the city of Hong Kong.

While Hongkong Land does engage in the development of real estate, its dominant business is property investment.

According to the company’s latest 2015 annual report, it has US$28.3 billion worth of investment properties. 79% of that value comes from its properties in Hong Kong. The company’s portfolio includes some of Hong Kong’s most valuable real estate such as Exchange Square, The Landmark Atrium, and Chater House.

The bad news

But, Hong Kong’s economy is clearly not one of the brightest in the world at the moment. There are reports of crashes that will happen in Hong Kong’s real estate market. In any case, the slowdown has already begun: In some districts in Hong Kong, land prices have collapsed by close to 20% in the first half of this year.

Will the decline in land prices have a negative spillover effect on Hongkong Land’s numerous properties in the territory?

Moreover, the company’s second largest geographical market, Singapore, is not having the best of times as well. (Hongkong Land has interests in Marina Bay Financial Centre and One Raffles Quay here). Singapore’s economy grew by only 2% in 2015, the slowest rate seen since 2009.

With two of Hongkong Land’s key markets facing challenges, will the company experience more headwinds ahead?

The good news

A positive point about Hongkong Land is its extremely strong balance sheet. With a net debt to equity ratio of just 8%, the company has very little debt held against its investment properties.

This means that even if its investment properties experience a sharp decline in value, Hongkong Land would easily survive. Although its profits and property values might be affected over the short-term, Hongkong Land would still continue to own some of the most prominent real estate assets in Hong Kong and Singapore.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore writer Stanley Lim does not own shares in any companies mentioned above.