Hong Kong’s major property developers are shifting investment in mainland China from residential projects to commercial assets, including hospitality, as weak home sales and fewer attractive investment opportunities prompt them to focus on existing properties, recurring income and debt reduction.

“In recent years, after we recycled the capital from our projects, we haven’t really found many good opportunities on the mainland,” Stephen Ng, chairman and managing director of Wharf Holdings, said at its interim results press conference in August.

Wharf’s experience reflects a broader change in how Hong Kong developers are approaching assets in the world’s second-largest economy.

Once an important growth market for Hong Kong’s major developers, mainland China offers opportunities to expand beyond their home market through residential projects and established local connections.

But as China’s housing downturn deepens and attractive land deals become harder to find, the contribution of mainland sales has fallen sharply.

Mainland China’s contribution to property sales revenue has plunged at Hong Kong’s four major developers in their latest results, with the share falling to just 2 per cent at CK Asset Holdings and 4 per cent at Henderson Land, from 52 per cent and 25 per cent a year earlier, respectively. Sun Hung Kai Properties’ share dropped to 19 per cent from 24 per cent, while New World Development’s fell to 53 per cent from 82 per cent.

All four major developers have stopped acquiring residential development land through public tenders since 2023, while their existing mainland land banks have shrunk. The retreat has been building since China’s property debt crisis erupted in 2021.

The shift did not mean Hong Kong developers have left mainland China’s housing market altogether; most still held residential projects acquired before 2022, mainly in stronger-tier cities, said Rebecca Tang, director of Asia-Pacific corporate ratings at Fitch Ratings.

Henderson Land’s attributable mainland development land bank fell from 35.7 million square feet at the end of 2021 to 7.5 million square feet at the end of 2025. But the prolonged downturn has changed their appetite for new projects. “Most of them do not plan to acquire new residential projects in the near- to medium-term,” she said.

For Kerry Properties, mainland contracted sales plunged 88 per cent in the first half to HK$1.3 billion, with management attributing the decline to projects in second- and third-tier cities taking longer than expected to sell.

The group remained selective, however, paying about 2.7 billion yuan (US$404.6 million) in July for a commercial site in Shanghai’s Pudong district, citing its location, surrounding population and retail catchment.

Developers are increasingly looking to shopping malls, hotels and mixed-use developments to generate rental and operating income.

“Mainland commercial [and] hospitality investments will bring about long-term stable recurring income versus one-off income from residential or Hong Kong acquisitions,” Tang said.

Hong Kong developers also have an advantage in luxury retail properties because of their high-quality assets and established tenant networks, she added.

Hang Lung Properties opened a 105-room hotel under Hilton’s Curio Collection in September at its Centre 66 development in Wuxi, Jiangsu province. The complex also includes a shopping centre, offices and flats.

“There is no direct correlation between the residential property and hospitality trends,” said Herman Chui, Hang Lung’s senior director of office, hotel and residence.

“Growth in domestic and inbound tourism on the Chinese mainland, alongside demand for experience-based travel, gives us confidence in our hospitality business.”The economics of commercial development remain challenging because of development expenses and the time it takes to generate returns; investment properties typically delivered annual returns of only low to mid-single digits relative to the capital invested, said Jeff Zhang, an equity analyst at Morningstar.

Hang Lung’s asset-light projects, which involve less upfront capital because the company takes on a smaller share of the investment burden, could deliver higher returns, Zhang said.

Partnerships with state-owned enterprises also help manage risk. While Hang Lung’s partnerships in Shanghai and Wuxi may be required by local governments, Zhang noted, such arrangements remain relevant as a way to reduce risk.

Hongkong Land has opened the second phase of its $8 billion Westbund Central mixed-use development in Shanghai.

Lan Kwai Fong Group plans to act as an asset manager for a mixed-use project near Shenzhen’s cruise port, with China Merchants Shekou and Shenzhen YaTong Holding Group.

The shift is also changing how developers manage their capital. Rather than relying solely on selling homes to fund new projects, companies are selling commercial properties, reducing debt and exploring ways to release capital from completed assets.

“We view New World Development’s C-REIT application as an ongoing capital recycling mechanism, but it’s unclear if other Hong Kong developers will follow suit,” Zhang said.

New World has also sold commercial properties in Shanghai and Hangzhou, while developers are exploring other ways to replenish liquidity.

Allan Zeman, chairman of Lan Kwai Fong Group, said falling property prices had prompted mainland consumers to save more and travel less, although he saw opportunities in cities attracting talent through artificial intelligence and other emerging industries to boost consumption sentiment.

“It takes longer, but we’re seeing daylight,” Zeman said in an interview with the SCMP in mid October.