Ladies and gentlemen, good evening. Welcome to the Analyst Briefing of Sun Hung Kai Annual Results 2013-2014. The briefing will start with a summary of the annual results and business review. We will then open the floor for the Q&A session. I understand we are eating into your Friday night, but we promise you, we will get this one nice and short. So let me quickly introduce our presenter today, Mr. Patrick Chan, Executive Director and Chief Financial Officer of Sun Hung Kai Properties, and Mr. Brian Sum, Senior Manager of Corporate Planning. May I now invite Patrick. Mr. Chan, please.
Good afternoon, ladies and gentlemen. Welcome to SHKP final results announcement FY 2014. My colleague Brian and I will go through this presentation pack with you in the coming 20 to 30 minutes. I will touch on the key numbers, then Brian will give you an update on our business in Hong Kong as well as on the Mainland. After that, I will wrap up the presentation session by sharing with you our group's business strategies and prospects. Later on, we will open the floor for the anticipated Q&A session. Let's look at the financial indicators first. For the year end, 30th June 2014, the underlying net profits, which excluded the effect of fair value changes on investment properties, net of deferred tax and non-controlling interests, rose by 15.15% year-on-year to HKD 21,415 million.
The underlying earnings per share was HKD 7.95, an increase of 12.8% year-on-year. Comparatively, the reported net profit was HKD 33,520 million, down 16.9% year-on-year, while the reported earnings per share declined by 18.5% year-on-year to HKD 12.45. The drop in reported net profit was mainly caused by smaller revaluation gain at HKD 12.8 billion this year, due to lower assumptions of growth in market rents. I would like to draw your attention to the fact that the underlying EPS growth differed from that of the earnings was mainly a result of the scrip dividends being taken up.
Same things applies to the reported earnings. The Board is proposing to declare a final dividend of HKD 2.40 per share for the year ended 30th of June 2014, which is the same as last year. Together with the interim dividend of HKD 0.95 per share, the total dividend for FY 2014 would be HKD 3.35.
Let's get deeper to the profit breakdown by business segments. As mentioned, a 15% growth in underlying profit was recorded, which was underpinned by the strong profit growth in property sales and stable growth in net rental income. Our profits from property sales increased by 46.2% year-on-year to HKD 10,511 million. Such a surge in profit was mainly driven by strong top-line growth as a result of the booking of The Cullinan and in Hong Kong and Shanghai Arch Phase 1 on the Mainland.
At the same time, profit from rental income rose, respectively by 16.6% year-on-year to HKD 14,272 million. Net rental in Hong Kong increased by 11.5% year-on-year to HKD 11.4 billion with the new contributor, V City. The rental income on the Mainland experienced a prominent rise of 56.6% to HKD 2.3 billion, including a new contribution from Shanghai iapm and the continued ramp-up of Shanghai Two ifc Office.
You may wish to know that the revenue from Mainland rental portfolio accounted for 17.17% of the group's total rental revenue. The profit for our hotel operation registered a material growth of 33.6% year-on-year to HKD 1,252 million. The rise was due to the following. Number one, the increased contribution from Royal Plaza post-renovation. Number two, solid performance at The Ritz-Carlton, Hong Kong, W Hong Kong, and The Ritz-Carlton Shanghai, Pudong. Finally, full year contribution from Crowne Plaza and Holiday Inn Express, which were both opened in 2012. Other businesses amounted to HKD 3,560 million, representing a slight fall of 0.6% year-on-year. That said, growth were recorded in SUNeVision, Route 3, and Yata, although they were offset by the 30.5% year-on-year drop in SmarTone due to increasing market challenges, which included the continuing structural decline in the roaming businesses and increases in operation costs and depreciation.
In sum, the total segment profit of the group as at 30th June 2014 was HKD 29,551 million, an increase of 23.6% year-on-year. As of 30th of June 2014, shareholders' funds and net debt were HKD 414,783 million and HKD 65,203 million, respectively. The year-end gearing ratio after the full payment of land premium for Xujiahui Center project made in January this year remained healthy at 15.7%, which was under the 20%, as we have always mentioned. Reflecting that, the group continues to maintain a prudent financial management discipline. Lastly, the interest cover of FY 2014 was 11.1 x versus 8.7 x last year. Right, this is a timeout for me. Brian will take you through our operations in Hong Kong and on the Mainland.
Thank you, Patrick. To begin with, let me talk about the group's property business in Hong Kong. As at the end of June this year, the group's total land bank in Hong Kong was close to 47 million sq ft. This includes 28.7 million sq ft of completed investment properties and 18.2 million sq ft of properties under development. You can see from the chart on your left that of the rental portfolio, around 37% is retail space and 35% is office buildings. On your right, the property under development, 77% is for residential purposes, which provides sufficient supply for the group's future development for at least five years. On top of that, the group also holds about 27 million sq ft in terms of site areas, 27 million sq ft of farmland in terms of site area in the New Territories.
On land acquisitions in Hong Kong, eight new sites were added for the year under review, with a combined attributable GSA of about 3 million sq ft. This includes seven sites primarily for residential development and a site for data center acquired by the group's subsidiary, SUNeVision. In July this year, the group acquired two large-scale residential sites adjacent to the Hong Kong Wetland Park. These two developments will provide over 2,500 residential units. Similar to the group's other acquisitions made for the year under review, majority of the units planned for these two sites will be small to medium-sized, meeting demand from end users. Following this acquisition, the group's total land bank in Hong Kong was further increased to 49.2 million sq ft. Turning to the property development business in Hong Kong. In line with the completion schedule, the group completed nine projects with 2.8 million sq ft.
These comprise 2.5 million sq ft of residential properties, 200,000 sq ft of office space, and 110,000 sq ft of retail space. On property sales booking, the group recognized around HKD 27 billion revenue with a satisfactory margin. The sales mainly came from projects such as The Wings II in Tseung Kwan O, Riva in Yuen Long, Century Gateway II in Tuen Mun, and The Cullinan at Kowloon Station. With regard to contracted sales achieved in Hong Kong, the group recorded over HKD 20 billion sales for the year under review, better than the original target. The major projects include Riva, Century Gateway II, The Cullinan, Imperial Kennedy in Island West, and Mount One in Fanling. In addition, we also pre-sold some units at One Harbour Square, an office building in Kwun Tong.
The group has recently launched a residential project, The Wings IIIA, in Tseung Kwan O, and we have sold around 400 units in just three weeks. The group has also launched W50, an office building in Wong Chuk Hang on Hong Kong Island, and it was nearly sold out. Since July this year, the group has already achieved over HKD 7 billion contracted sales. Major projects to be sold in the coming months include The Wings IIIB in Tseung Kwan O and Tung Chung Project Phase 1. Majority of these new units will be small to medium size. Let's turn to Hong Kong rental portfolio. The group's diversified rental portfolio of over 28 million sq ft of GSA generates significant recurring income for the group. With premium services and constant upgrade, the group's well-located properties continue to be the preferred choice for our tenants.
For the year under review, the overall occupancy rates remain high at around 95%, with positive rental reversions. Gross rental income in Hong Kong grew by 10% to over HKD 14 billion in this financial year. The growth was mainly driven by high rents for new leases and renewals and contributions on new investment property. For the past five years, the gross rental income grew steadily with CAGR of 10% per annum. You can see from the pie chart on the right that shopping centers contributed over half of the gross rental income in Hong Kong, while office produced around 1/3. The group is one of the leading players in Hong Kong retail leasing markets with an extensive network of shopping malls covering both populous and tourism-focused areas.
Positive rental reversion with high occupancy were achieved. The overall growth in retail sales of our major malls outperformed the markets for the year under review. The gross rental income generated from retail portfolio was around HKD 7.7 billion, which was about 14% higher than last year. The group continues to strengthen its shopping malls portfolio through new additions and constant property upgrades. The V City Mall in Tuen Mun opened in August 2013 recorded a stronger-than-expected traffic flow and tenant sales. The easily accessible location and wide retailer mix for consumer choice have made us a new shopping hub in the New Territories West. The first phase of the highly value accretive reconfiguration at Grand Century Place in Mong Kok has been completed, and we expect the second phase to be finished in 2015. This repositioned mall will have a brand-new look and boosted rental income upon completion.
Going forward, the group will continue to expand its retail portfolio along railway lines. A mall at YOHO Midtown in Yuen Long, which is one of the core parts of YOHO Mall, is scheduled to open in 2015. Besides, a nearly 300,000 sq ft premium mall at MTR Nam Cheong Station and a 135,000 sq ft mall beneath a residential development on Lok On Waterfront will be completed in phases. Next, let me talk about office portfolio in Hong Kong. The group's sizable portfolio of premium office properties generates gross rental income of HKD 5 billion, up around 7% from last year. We saw stabilized spot rents and high occupancy rates for Hong Kong IFC. Across Victoria Harbor, ICC recorded robust rental reversion and high occupancy. Office properties in decentralized area such as Millennium City portfolio in Kowloon East continue to perform well.
That's covered the property business in Hong Kong, so let's switch our focus to the group's property business on the mainland. As at the end of June this year, the group's mainland land bank amounted to 84 million sq ft of GFA, of which 9.5 million sq ft are completed investment properties and around 74 million sq ft are properties under development. You can see from the chart on the left that of the completed investment property, 55% are shopping malls and another 32% are office. The rest includes hotels and service suites. On your right, of the properties under development, 64% will be residential, 20% offices, and 13% of shopping centers. For the year under review, the group acquired a site with 7.6 million sq ft of GFA to develop the Shanghai Xujiahui Center integrated project.
This project, with direct access to Xujiahui Metro Station, will comprise premium offices, retail, and hotel space. The majority of the floor area, including a large-scale premium shopping center located along Hongqiao Road, will be held as a long-term investment. This project will be developed in phases, and a quality office located at the core sections of Huashan Road will be the first batch of office space available for sale. Together with Shanghai IFC and Shanghai ICC, the group is establishing a strong presence in Shanghai. Turning to mainland property development. The group completed 10 projects with about 4.3 million sq ft of attributable GFA as planned. On property sales, the group booked over HKD 9 billion during the year. Major project booked include Shanghai Arch Phase 1 and Lake Genève Phase 1 in Suzhou.
In terms of considered sales on the mainland, the group recorded over HKD 7 billion for this year despite the challenging market environment. Major projects launched include the premium homes in Forest Hills Phase 1B, Grade A offices in Top Plaza, which is part of the Tianhui Plaza integrated project in Guangzhou, and luxury apartments in Shanghai Arch. We plan to launch several major projects in the coming months, including luxury units at Shanghai Cullinan as part of the Shanghai ICC integrated project, remaining units at Shanghai Arch Phase 1, and quality offices in Forest Hills in Guangzhou, which is near the Guangzhou Hong Kong through train station. Moving on to the group's mainland property investments.
Supported by the positive rental reversion, high rent for new leases, and new contribution from Shanghai iapm Mall , the gross rental income from mainland China grew significantly by 51% to over HKD 3 billion for this year. It accounted for 17% of the group's total gross rental income. Currently, the group owns about 9.5 million sq ft of attributable GFA of investment properties with a strong presence in Shanghai and expects to increase the portfolio size notably in the next few years, mainly in prime cities. As you can see from the bar charts on the left, the rental income grew impressively over the past five years with CAGR of 38%. The orange line here shows the increasing contribution of mainland rental portfolio to the group.
On your right, you can see from the chart that 59% of the rental income came from shopping malls and around 33% from offices. Let me give you some quick updates on the group's two flagship integrated projects in Shanghai. The 1.3 million sq ft iapm mall at Shanghai ICC in Puxi has seen its tenant sales picking up satisfactorily since its opening last year. This virtually fully let mall attracts large numbers of customers looking for new shopping experience and enjoyment. The occupancy rate at One ICC office building stays at a high level, while Two ICC is scheduled to be completed in 2015, and pre-leasing of it has started with positive rent responses. Shanghai ifc in Pudong, another group's flagship development on the Mainland, continues to perform well.
The fully let Shanghai ifc mall recorded high shopper traffic and encouraging rental reversion, despite a slowdown in the retail market on the Mainland. The two office towers achieve high occupancy as well as high rents. The group will continue to expand its retail network in key locations of prime cities on the Mainland. The 50% owned Parc Central, a shopping mall in Tianhe Road in Guangzhou, is scheduled to open in 2015. Pre-leasing of this nearly 900,000 sq ft mall has been progressing very well. The mall at 33% owned, Tianhui Plaza in Zhujiang New Town in Guangzhou, will have 1 million sq ft of retail space, providing a wide selection of high-end products. These new projects, upon completion, will further strengthen the group's retail networks on the Mainland. Last but not least, let me go through the performance of our hotel portfolio.
The group's hotels business achieved strong growth in both revenue and operating profits during the year under review. These were mainly driven by full-year contribution from two new hotels in Shanghai and strong performance from Royal Plaza Hotel after completions of its renovation. The hotel portfolio in Hong Kong continued to deliver solid results and achieve an average occupancy of over 90%. The Ritz-Carlton Shanghai, Pudong, posts decent growth in business for the year under review, and its REVPAR was one of the highest in Shanghai.
The group will have two new hotels in Hong Kong, adding over 1,300 rooms. One will be located in the North Point waterfront, with constructions commenced. The other one will be in Sha Tin, and construction of it will start soon. That concludes my part of my presentation. Now I will pass the microphone to Patrick Chan to talk about the group's strategy and prospects. Thank you.
Thank you, Brian. Before we dive into the Group's strategies and business prospects, I would like to share with you our views on the market. With broadening recovery in the U.S. and stabilizing growth on the Mainland, the global economy is expected to proceed on firmer footing for the year ahead. Hong Kong economy, however, shall show modest growth as quoted by a mildly improving export outlook, continuing infrastructure works, and solid consumption demand supported by low unemployment. Zoom in on the Hong Kong property market. Positive demographics, growing income, end-user demand, and reasonable affordability should help sustain transactions at healthy levels, particularly in the primary market. On the other hand, demand from investors and non-local purchasers will be curbed by the stringent housing measures in place, while private residential completion shall remain limited in the near future.
Leasing markets in Hong Kong shall remain stable, with low vacancies in shopping malls and Grade A offices. For shopping malls and office buildings situated in good locations in key Mainland cities, they are expected to outperform under professional management. The Group's well-established business strategies will continue to steer the sustainable business development. Let's have a quick recap on our time-tested strategies, which are: achieve a balance between income from property sales and rental business. Strengthen the Group's brand with quality products and services. Adhere to a selective and focused approach to the investment on the Mainland. Last but not the least, abide by the discipline of prudent financial management. Turning to the page to the business prospects, I will cover property development portfolio first. The Group foresees a promising outlook for property development.
Total contracted sales target for FY 2014-2015 is HKD 32 billion, i.e., around 14.14% higher than last year. This is mainly attributable to higher contracted sales target of HKD 25 billion in Hong Kong. Over the medium term, there will be 30% more residential projects completions in Hong Kong. The Group's average annual residential completion in the next three financial years will be of 2.6 million sq ft. We will continue to observe the discipline of a prudent financial management policy in land acquisition and factor in safety margin amid the rising land supply in Hong Kong. The Group is also endeavor to build premium properties with cost-effective designs.
Moving on. The group's rental business is expected to fare well in the coming year. In Hong Kong and on the Mainland, there will be continuous positive rental reversion and sustained high occupancies. The group will constantly review and optimize its property investment portfolio through refining its tenant mix and upgrading properties. In addition, as mentioned by Brian earlier, the group's retail network will continue to expand in Hong Kong and the first-tier cities on the Mainland. Last but not least, the three large-scale integrated projects, namely Shanghai IFC, Shanghai ICC, and Xujiahui Center project in Puxi, create synergies and solidify the group's strong presence in that area. With which, the Mainland investment properties together is going to be a notable growth engine for the group in the near future. This is the end of my presentation. Thank you for your patience.
It's my pleasure to introduce the panel to you. Starting from the left, we have Mr. Brian Sum, Senior Manager of Corporate Planning of Sun Hung Kai Properties. Mr. Allen Fung, Executive Director of Sun Hung Kai Properties. Mr. Victor Lui, Deputy Managing Director of Sun Hung Kai Properties. Mr. Patrick Chan, Executive Director and Chief Financial Officer of Sun Hung Kai Properties. Mr. Raymond Kwok, Chairman and Managing Director of Sun Hung Kai Properties. Mr. Thomas Kwok, Chairman and Managing Director of Sun Hung Kai Properties. Mr. Thomas Chan, Executive Director of Sun Hung Kai Properties. Mr. Mike Wong, Deputy Managing Director of Sun Hung Kai Properties. Mr. Eric Tung, Executive Director of Sun Hung Kai Properties, and Mr. Eric Chow, Executive Director of Sun Hung Kai Real Estate Agency. The question and answer sessions will now begin.
Please kindly signal for the microphone if you wish to ask a question, and speak clearly for our webcast. Videos of today's briefing will be uploaded to our corporate website. Before starting your questions, kindly, please identify yourself and the name of your company. May I now invite the first question, please? Hi. The gentleman on the third row. Ken.
Hello. Ken Yeung from Citi. I have a question on Hong Kong and a question on China. On the Hong Kong side, I see in your recent announcement, you said that altogether three projects will be launched in 9 months. It seems to me it's a little bit conservative, which because you have Ho Man Tin and the Acappella is going to have the OP in the next nine months. Is there any reason for you not mentioning these two projects are going to launch in the next nine months? This is the questions on the Hong Kong. On the China side, basically the China sales are a little bit below expectation, which is below your target. What we have seen, what has changed the strategy, basically they focus less on China residential. Do you have any change of strategies in view of the China residential market nowadays?
Yes. On the contrary, we have many projects to be launched in this financial year. Apart from The Wings IIIA that we are selling now and response have been overwhelming. Another project follow would be The Wings IIIB together with the first phase of Tung Chung and then Deauville , our project in Castle Peak. Also units at upper floors of The Cullinan II, and together with the first phase of Ho Man Tin and the Yuen Long . Apart from residential projects, we also have sold recently the entire office tower in Wong Chuk Hang. Then we shall continue to sell the remaining floors in One Harbour Square along Hoi Bun Road at Kwun Tong. We also have a few industrial projects to be launched in the coming months that include those projects in Tsuen Wan and Cheung Sha Wan respectively.
Overall, we should be very active again on launching new projects, and we are expecting to have new projects to be launched every month.
Can I give a comment on China. On our development for sale business in China, our scale is quite a bit smaller than Wharf. Even for the next coming year, we're targeting about 5 billion RMB. Secondly, I think our projects are more focused on the Tier 1 cities in very good locations. Therefore, I think in the first-tier cities when the location is very good, we believe in the long-term future for the project. Therefore, for the first-tier city in a very good location, we would just pace ourselves. We are not going to drop prices in the first-tier cities in a very good location because we cannot replace land. As you know, in the first-tier cities in China, in the best location, the land prices have not come down at all.
I want to add that residential market in the Mainland have slowed down a little bit. But those projects in the first-tier cities and those commercial projects are relatively resilient. In this financial year, we shall focus on this project, like those remaining units in the Shanghai Arch and also those pillars in Suzhou. Together with our high-reach luxury project in Puxi, the Shanghai Cullinan. For the office project, we have two office projects to be launched in Guangzhou, one being the office portion in Forest Hills, the other Top Plaza at Guangzhou .
Thank you. Second question. Anyone? Gentleman in the fourth row.
Hi, from Cusson Leung from JP Morgan. I think Sun Hung Kai Properties has been one of the two most active developers buying land in Hong Kong over the last 2.5 Years. Does it actually imply the company think the land prices in Hong Kong has actually bottomed?
Property market have slowed down a little bit in last year, partially due to the new measure of stamp duties on both essential and commercial projects. Also, most of the developers need to adapt the new ordinance of the first-hand sales. As a result, the new launches of some of the projects have been slowing down, and interest on the land sales have been relatively low compared with the previous period. But the sales have rebound quite strongly, starting from this year. On record, we have already witnessed a whopper sales in the first 8 months. Actually, now most of the developers are quite strong financially and very keen to replenish their land bank. A later example is the Urban Renewal Authority project in Kwun Tong being sold in the retender, and also the middle site also disposed at a price above market expectation.
Together with the improved sentiment in the stock market, we are expecting the land price should be supportive and be stable in the coming 12 months.
Good evening. I am Pauline Wong from HSBC. I have two questions. The first one is on the office market, which management kindly share your outlook for the Hong Kong office rental market with us and also the rental reversions that you expect within your portfolio. The second question is on opportunities for divestments of non-property assets. We are wondering if you see any of these opportunities within your portfolio. Thank you.
Yes, the office leasing market has gained its momentum recently in most of the sub-markets. We have recorded a positive take-up since 2011. CBD has been very active and we have seen a lot of finance companies are expanding from the mainland or also from other Asian countries, maybe partially due to the Shanghai-Hong Kong Stock Connect. We have also seen a lot of non-finance users are expanding and increasing their headcounts. In fact, most of the Grade A buildings in Central are now in high occupancy. Like Two IFC, we are almost fully let. I think core locations like Tsim Sha Tsui and Central should be supportive and continue to be buoyant as actually we have not seen any major completion in the near future. Like ICC, we are doing a pre-rent as backed by a strong take-up.
Apart from core location, we have also seen a lot of relocation outside Central, especially in Kowloon East. Those are companies from insurance, product sourcing, and retail sectors are expanding and these reliance company are usually really selective on landlords, management, and project quality. So, all our buildings in the Millennium City portfolio are really benefited. In fact, for office supply in Hong Kong, the trend has been quite stable in the past decade, which is in the range of 2.5 million sq ft per annum. So, overall, we should expect that the office rental market should be sustainable and with a solid rental.
Let me answer a little bit about the question around non-property assets and businesses and also your question about whether we would divest them. As you know, we have a pretty good set of businesses in a variety of sectors in IT, in telecom, in logistics, infrastructure, and so on. They actually have been a meaningful contributor, material contributor to group's earnings. You look at it, obviously, SmarTone is a bit more volatile, but actually has been growing quite steadily at a good pace as well. I think we have recently reviewed these assets, and to us, we are actually quite confident about the future of further growth for these businesses. So we feel that they are good assets and business to have, and they have a clear, good growth pathway as well. So we have no such plans of divesting them.
In fact, we will look for growth opportunities in them.
Okay. Thank you. Perhaps maybe two more questions. Joyce. The lady on the second row.
Just a quick question. Joyce Kwok from Credit Suisse. Just a quick question on the contracted sales for China. HKD 5 billion to HKD 6 billion of contracted sales target from China. Is the Suzhou Bay office strata title sales included in it?
No.
Nice.
No.
Not yet.
Yeah, okay. Thank you. As we call it in the last results announcement, the strata title sales is scheduled in FY 2015. Is it still on track? Thank you.
I think we are moving very smoothly on that one. We already obtained the approval on the principal design parameters, including building height, including all the building allocations. We have already started work on site 1. The foundation work is well underway, and we have already awarded the main contract, which is due to start next month. The first phase, which is in site one near Huashan Road, will be completed by the end of 2016. We are actually moving very fast and very smooth.
Thank you.
Last question.
Thank you for presentation. Alfred Lau from Bank of Communications. Two questions I have. Number one is, in terms of Hong Kong properties, seems like management is still positive or at least seeing property prices quite steady going forward. May I ask why in a rush to sell properties like The Wings IIIA in a record-breaking pre-sales month in this case? Number two is on the dividend. We have a solid growth in terms of core profit this year. But on the other hand, we maintain the same dividend per share, yet we still have a very good financial position. So how should we look at the dividend growth going forward? Thank you.
On the dividend, the payout is 42%.
42%.
Yeah. I think our range of dividend payout is always between 40%-50%. Yeah. I think we are just within the range. Yeah. In any case, there are still a lot of uncertainty globally. So this is the best It's better to be more conservative on the balance sheet side, yeah. Your first question was on the
Why rushed?
Oh, yes, Victor.
Yes.
Yeah.
Actually, for those project to be launched, as soon as we are ready and we have got the sales consent normally, we will launch the project. For The Wings project, we have gained valuable experience in the past year on selling the first phase and the second phase, and we are selling successfully. Now for the whole area in Tseung Kwan O city center, we have all the amenities fully ready, including the hotels and also the PopCorn shopping mall is also very successful. Coupled with the recent government adjustment to extend the selling period of those upgraders, actually, for the past two weeks, we have attracted a big number of upgraders. The result have proved that this project, even for a long completion date, it is still well-received, and we are very confident on the remaining sales of the project.
Okay.
Eugene, I saw your hand was up. You want to ask a quick question?
Thank you. Eugene Cheung from UBS. I remember earlier management talked about concerns on construction costs.
Yes.
Can the management comment any updates on what you think of the latest trends and what is the company strategy going forward to mitigate the increase? Thank you.
I think one good thing about us is we have our own construction company, and that really help a lot in terms of construction cost. So basically, we are reviewing the construction, and maybe more prefabrication or much simple designs. In the long run, I think the construction cost cannot afford to go up like what we have seen in the last four years, especially this year. I think for my last 35 years in the industry, I haven't seen the situation in construction industry so shortage of every kind of construction people or even professional. You are talking about architecture, designers, project management, hotels, even the restaurants. We are starting to see a very serious problem to go on. I'm not hiding the fact that we are still finding way to control.
I think our future projects, like the one we got in Tseung Kwan O, we are developing some new ideas to reduce construction costs, right, Mike?
Yeah. I think I could supplement that.
Yeah.
Mr. Kwok's idea of having the in-house contractor. That we can optimize the construction approach from the upstream, what I mean from the design stage.
In fact, during this design stage, 70% or 80% of the construction is ascertained. If you can use smart ideas, good ideas, or try to optimize relatively straightforward and can be more buildable, so to speak.
Then the cost control will be more effective, rather than just you dump a design, go out for tender, and just let the market react. The one thing we have to face is that the construction output is going to increase in the next few years. There's no doubt about it.
It's going to be about HKD 200 billion per annum. If you notice, just today, the government statistics department published the construction output is almost HKD 50 billion per quarter. So that if you multiply it by four, it will be approximately HKD 200 billion. Coupled with the neighboring city, I'm sure you know that Macau is actually building a lot of casinos and hotels, and that will somehow aggregate the shortage issue, covering from labor to the supervision and professional designers, so on and so forth.
You are right. Our number one problems with developers are not land, are construction cost, how to control it.
But we are pretty sure that with our in-house vertically integrated setup, we are exercising effective cost control for every cent or dollar we spend is well spent and carefully, wisely spent.
Before we close, I like to make a point that there have been a lot of questions asked about our development for sale. I would say at this moment, for our group, in addition to development for sale, we have a very strong investment property portfolio. China plus Hong Kong plus Singapore, our gross rental income is HKD 18 billion. It is going up. For example, like the Xujiahui project we are building, the Shanghai ICC in Shanghai, we are going to complete another office tower, and there are several other very good shopping malls we are building in the first-tier, Hong Kong and first-tier cities.
The old town.
I think there's a tendency for someone to be more known as a developer for sale, but I think we have a very strong investment property portfolio now. And given what is said about construction costs, you can see costs are going up.
Yeah.
Therefore, I think the organic rental growth, we feel very confident, yeah. On top of that, we also have more new projects being completed. Therefore, even when there is a lot of uncertainty outside, I think we're confident that our rental portfolio would continue to grow over time, yeah. Thank you.
Thank you. That was our last question, and our analyst briefing is coming to an end. Ladies and gentlemen, despite the late night schedule.
On Friday.
Thank you for all the support.
Have a good weekend.
Sincerely, thank you very much. Refreshments are outside.