Demand for homes seen withstanding govt efforts to cool property market

(HONG KONG) The Hong Kong government’s HK$10.9 billion (S$1.98 billion) sale of a residential site at a public auction beat estimates and showed that home demand is withstanding efforts to cool the market

Potential home purchasers should consider their ability to pay before taking out mortgages, Financial Secretary John Tsang said yesterday in the government’s latest effort to discourage a bubble forming.

‘Citizens should consider the affordability before buying houses,’ Mr Tsang told reporters.

Sun Hung Kai Properties Ltd, the world’s biggest developer by market value, on Tuesday won the one-and-a-half hour bidding for the Ho Man Tin district site that was estimated at HK$8.41 billion, according to the median of seven analysts surveyed by Bloomberg News.

At HK$12,540 per square foot, it is the highest price paid in a government auction in urban Hong Kong since the market peaked in 1997, said Centaline Property Agency Ltd.

Home prices have risen 41 per cent since the end of 2008, prompting the government to tighten downpayment requirements for luxury homes in October to curtail speculation after record low interest rates fuelled the surge. Mr Tsang on May 12 pledged to keep boosting land supply.

‘The above-expectations bidding price shows that the developers hold a positive outlook on urban sites for luxury homes, as currently it is obvious the supply for luxury homes is not sufficient,’ Wong Leung Sing, an associate director of research at Centaline, one of the city’s biggest real estate agencies, said by phone on Tuesday.

The Centa-City Index, a measure of Hong Kong’s home prices, last week fell 1.44 per cent, its biggest weekly drop in more than 18 months.

Hong Kong may add as many as 60,000 homes in three to four years, Mr Tsang has said.

The price ‘was not cheap but still reasonable’, Fiona Wan, a spokeswoman at Sun Hun Kai, said by phone after the auction. The company expects to invest HK$18 billion to develop the site ‘into a luxurious residential area’. The estimates ranged from HK$7.15 billion to HK$9.8 billion.

Home prices in Hong Kong rose the most among the world’s major markets in the fourth quarter, property adviser Knight Frank LLP said in April. Average prices climbed almost 28 per cent from a year earlier in the city, while in China they advanced 25 per cent, a global index compiled by the London-based broker showed. They rose 3.4 per cent in the UK and fell 3.1 per cent in the US, according to the April 21 survey.

Hong Kong luxury home prices may rise 20 per cent this year as the economy expands and supply remains limited, real estate broker CB Richard Ellis Group Inc said in January. Luxury homes in the city are defined as those costing at least HK$10 million or bigger than 1,000 square feet (93 square metres).

The price per square foot for Ho Man Tin, a record for a site to build apartments in the Kowloon area, highlights demand for luxury homes on the other side of Victoria Harbour from the Central business district. Financial institutions including Morgan Stanley and Credit Suisse Group AG have moved into International Commerce Centre in the West Kowloon district.

‘At this price, the unit price would be as high as HK$15,000 to HK$16,000 per square foot,’ said Adrian Ngan, an analyst of CCB International Securities Ltd. ‘I expect the gap between luxury and mass apartments would widen after this land sale.’

New apartments in the district, which include those at projects such as Cheung Kong (Holdings) Ltd’s Celestial Heights and New World Development Co’s Wylie Court, are selling for about HK$12,000 to HK$13,000 a square foot, according to Alnwick Chan, executive director at Knight Frank.

The family of billionaire Lee Shau Kee, who controls Henderson Land Development Co, on May 18 paid HK$1.82 billion for a 53,350-square-foot plot of land on the Peak in an auction of non-government land. On a per-square-foot price of HK$68,200, the land was the city’s most expensive in an auction, Jones Lang LaSalle Inc said after conducting the sale.

The average price of HK$12,540 psf paid for Ho Man Tin is the highest for an apartment site in a government auction since 1997, when Chinachem Group bought a parcel in Hong Kong Island’s Repulse Bay area for HK$16,256 psf. It is the first time the government has sold a site for more than HK$10 billion since March that year, when a group led by Sino Land Co paid HK$11.8 billion for a site in the Siu Sai Wan district in eastern Hong Kong Island.

The Ho Man Tin plot has a total area of 16,151 sq m and building area of 869,000 sq ft. — Bloomberg

Source: Business Times, 10 Jun 2010

Developers expected to pay about HK$8.4b for site

(HONG KONG) Hong Kong developers may pay HK$8.41 billion (S$1.5 billion) for a residential site at a government auction today, as some analysts cut their estimates after two previous land sales missed forecasts and apartment prices fell in the last two weeks.

Estimates for the site in Ho Man Tin district ranged from HK$7.15 billion to HK$9.8 billion, based on seven analysts surveyed by Bloomberg News. Three of the analysts either cut their estimates over the last two weeks or waited longer than usual before publishing forecasts.

The Centa-City Index, a measure of Hong Kong’s home prices, last week fell 1.44 per cent, its biggest weekly drop in more than 18 months, in the wake of the government’s May 12 pledge to keep boosting land supply as it tries to cool the property market. Hong Kong may add as many as 60,000 homes in three to four years, Financial Secretary John Tsang said yesterday.

‘We expect developers to be quite cautious at this auction,’ said James Cheung, a director at the surveyor unit of Centaline Properties Ltd, one of the city’s largest real estate agencies. ‘On the other hand, this is a quality site and after sitting on the sideline at the last two auctions, some of the big players may be ready to move in again.’

Home prices in the city have risen 41 per cent since the end of 2008, spurring concern that housing is out of reach of ordinary residents. The Hang Seng Property Index, tracking six of Hong Kong’s biggest developers, fell 2.1 per cent today to extend this year’s decline to 14 per cent, underperforming the 11 per cent drop in the Hang Seng Index.

Midland Holdings Ltd, Hong Kong’s biggest publicly traded real estate agency, last week cut its estimate for tomorrow’s auction by about 10 per cent to HK$9.8 billion, according to Alvin Lam, an executive director at the company’s surveyor arm. The previous forecast was done in early April, he said.

The site on Kowloon peninsula will be the third piece of land auctioned by the government this fiscal year. It has a total area of 16,151 square metres (174,000 square feet) and building areas of 869,000 sq ft.

The developer who buys the site will likely build between seven and 14 blocks of apartments with 25 to 31 stories each, according to Alnwick Chan, executive director at property consultant Knight Frank LLP. The project will probably sell for about HK$15,000 per sq ft when it is completed, he said.

The first government auction of this fiscal year, conducted on May 11, fetched HK$3.42 billion for a site on Lantau Island, a third less than the median HK$4.75 billion estimate of three surveyors compiled by Bloomberg. Nan Fung Development Ltd, a privately held developer controlled by billionaire Chen Din Hwa, outbid only two other builders in the auction that analyst Adrian Ngan of CCB International Securities Ltd described as ‘a slam’ on the property market.

Two weeks later, a subsidiary of Henderson Land Development Co, controlled by billionaire Lee Shau-kee, bought a site in the city’s northern Fanling area for HK$1.33 billion, shy of the HK$1.37 billion median estimate of four surveyors.

On May 28, MTR Corp, the government-owned subway operator, said it was withdrawing the tender for a residential and commercial project atop one of its subway stations, without giving an explanation.

‘Mega-builders’ such as Sun Hung Kai Properties Ltd and Cheung Kong Holdings Ltd may have more interest in the Ho Man Tin site because of the high price it is expected to fetch, said Centaline’s Mr Cheung.

New apartments in the district, which include those at projects such as Cheung Kong’s Celestial Heights and New World Development Co’s Wylie Court, are currently selling for about HK$12,000 to HK$13,000 psf, according to Knight Frank’s Mr Chan.

The Lands Department is one of Hong Kong’s largest suppliers of unoccupied land for building. Developers trigger auctions from a list of available sites by promising to pay a minimum amount.

Today’s auction will be followed by another one on July 28 for a site on Mount Nicholson in the Peak district, according to the Lands Department website.

Henderson’s Mr Lee and his family on May 18 paid HK$1.82 billion for a 53,350 sq ft plot of land on the Peak in an auction of non-government land. On a psf price of HK$68,200, the land was the city’s most expensive in an auction, auctioneer Jones Lang LaSalle Inc said. — Bloomberg

Source: Business Times, 8 Jun 2010

It is second sale to fetch less than what surveyors had forecast

(HONG KONG) A building site in Hong Kong sold for HK$1.33 billion (S$240 million) yesterday, the second government auction this year that failed to meet surveyor forecasts as the city releases more land to ease concern about a property bubble.

The government auctioned an 8,900 square metre site in the Fanling area of the New Territories in northern Hong Kong that was forecast to fetch HK$1.32 billion to HK$1.45 billion, with HK$1.37 billion the median price, according to estimates of four surveyors compiled by Bloomberg.

Hong Kong’s home prices have jumped 41 per cent since the end of 2008, spurring concerns that affordable housing is out of reach of ordinary residents. Hong Kong’s government on May 12 pledged to keep boosting land supply as it tries to cool the property market, a day after its first auction of the fiscal year fetched almost a third less than surveyors’ estimates.

‘There could be more government policies coming as it shows determination to bring down prices,’ said Alnwick Chan, executive director at property consultant Knight Frank LLP before the auction.

Developers must build a minimum gross floor area of 34,290 square metres on the Fanling site.

Fanling doesn’t offer sea views and is near an industrial estate, unlike the previous auction in Tung Chung, said James Cheung, director of Centaline Surveyors, a unit of one of the city’s biggest property agencies. He estimated that Fanling would sell for HK$1.32 billion, 16 per cent lower than his original estimate of HK$1.57 billion prior to the Tung Chung sale.

The first auction of this fiscal year, conducted on May 11, fetched HK$3.42 billion, a third less than the median HK$4.75 billion estimate of three surveyors.

Nan Fung Development Ltd, a privately held developer controlled by billionaire Chen Din Hwa, outbid only two other builders in the auction that analyst Adrian Ngan of CCB International Securities Ltd described as ‘a slam’ on the property market.

Developers can build a maximum of 131,000 square metres of private residences on the site in Tung Chung on Lantau Island.

Developers are more likely to build homes with two or three bedrooms on the site, said Alvin Lam, executive director of Midland Surveyors Ltd. Prices of homes in the area are selling at an average of HK$3,500 a square foot, he said.

Yesterday’s auction was triggered after the government received a minimum guaranteed bid of HK$1.05 billion, it said on April 16. The Hong Kong government sells land through auctions only after developers promise to pay a minimum amount, part of an undisclosed reserve price.

Hong Kong is auctioning a site in Ho Man Tin in Kowloon on June 8 and Mount Nicholson on the Peak on July 28. MTR Corp, the government-owned subway operator, will finish taking bids for a separate site in Kowloon today.

Martin Lee, the youngest son of real estate tycoon Lee Shau-kee, paid a record price for land on the Peak, the city’s most expensive residential area, on May 18.

Mr Lee, vice-chairman of Henderson Land Development Co that is controlled by his father, paid HK$1.82 billion for a 53,350 square foot plot of land on the Peak in an auction of non-government land. On a per-square-foot price of HK$68,200, the land was the city’s most expensive in an auction, auctioneer Jones Lang LaSalle Inc said. — Bloomberg

Source: Business Times, 25 May 2010

Worsening air pollution driving finance professionals to S’pore

When financial analyst Terry Dunne looks at Hong Kong’s smoggy skies these days, he thinks of his toddler son – and of packing up and moving his family to another city.

Worsening air pollution is cited as the main push factor for hundreds of expatriate bankers, stock analysts and other finance professionals leaving Hong Kong each year for ‘cleaner’ and not just greener pastures elsewhere.

Experts find this outflow of expatriate expertise a worrying trend that could threaten Hong Kong’s status as a regional financial centre in the long term.

Noting that many of the expatriates move on to new jobs in Singapore, the experts express concern that Hong Kong’s loss would be Singapore’s gain.

Mr Ben Tyrell, whose company Relocasia handles about 2,000 expatriate moves annually, said the number of expatriates who left Hong Kong citing its air pollution has risen sharply in the past 10 years – from 20 per cent a decade ago to 60 per cent, or 1,200.

‘Pollution is among the top three reasons,’ said Mr Tyrell, adding that better career prospects and personal reasons are the other two.

He notes that in pollution-triggered cases, the deciding factor for expatriates is often the health of their children.

‘Singapore is attracting senior expatriate families because it is cleaner and provides a better living environment,’ said Mr Tyrell.

Last month alone, his company packed off 50 expatriates who cited air pollution as a factor.

Entire financial firms are also pulling out of Hong Kong, said Mr Tyrell.

And such anecdotes, said political analyst Michael DeGolyer, are just ‘the tip of the iceberg’.

About one in five people in the city of seven million is considering leaving because of its air pollution, according to his 2008 report on air pollution, Hong Kong’s Silent Epidemic, and this group consists mostly of high-income earners, professionals and managers.

‘Worsening pollution tends to drive out those with young children, those with higher education and more marketable skills, and the older but more experienced employees,’ said Professor DeGolyer, director of the Hong Kong Transition Project at Baptist University.

Last month, the city’s leading authority on air quality, Mr Anthony Hedley, was forced to leave Hong Kong for health reasons.

The 69-year-old Briton, who created the Hedley Environmental Index, had campaigned for radical measures to fight the city’s pollution for two decades.

Prof DeGolyer said he believed that Hong Kong’s pollution woes, if left unchecked, could undermine its leading position as a financial hub to China as well as the region.

An Environment Bureau spokesman did not comment, but the Hong Kong government said it has adopted a multi-pronged strategy to cut emissions. It attaches great importance to improving air quality, ‘both for our citizens’ health and for our city’s competitiveness’, said a spokesman.

Dr Raymond So Wai Man of the finance department at the Chinese University of Hong Kong notes that for those who want to leave Hong Kong but wish to continue working in the region, Singapore will be an obvious choice.

‘Hong Kong will be affected especially if financial talent goes to Singapore, another financial hub,’ he said, adding that major international fund managers are increasingly using Singapore as their base.

‘Then Singapore will become the ‘brain’, the part that brings in revenue, and Hong Kong will be just the ‘limbs’, handling front-line deals.’

Hong Kong also faces increasing competition from Shanghai, which is shaping up as China’s financial centre.

‘When that time comes, the ‘brain’ will be in Singapore, and the operational front lines and financial deals will go to Shanghai. Hong Kong will be left with nothing,’ said Dr So.

But Mr Richard Vuylsteke, the president of the American Chamber of Commerce in Hong Kong, is more optimistic. He said: ‘People leave, but they can be replaced. I haven’t seen any significant downsizing in the financial sector. It is not an issue.’

Dr So pointed out, however, that many of the replacements may not have as much experience.

Financial headhunter Ryan Marshall noted that people who come to work in Hong Kong these days are younger – mostly in their 20s or 30s – and are unlikely to stay beyond two years.

For Mr Dunne, a 40-year-old Canadian from Vancouver, what is most important is his young son’s health and well-being.

He remembers the day dust from a sandstorm originating in northern China caused the city’s air pollution to hit a record high.

It was March 22, the same day his 21-month-old son Augustus ran a high fever and developed breathing difficulties.

‘He got really sick. He had a high fever of 41 deg C, his chest was congested and he had difficulty breathing,’ he recalled.

Augustus got better, but continues to be susceptible to coughs and colds. He had been hospitalised twice in the past six months.

Mr Dunne, who also has a five-year-old daughter, says he has been thinking about returning to Canada or moving his family to another city like Singapore.

‘I have friends in Singapore. The air is clean and the sky is so clear, you can see much farther,’ he said.

‘Here in Central, you can’t even see what’s across the harbour.’

Source: Straits Times, 16 May 2010

(HONG KONG) Hong Kong said yesterday that its efforts to cool the property market in the crowded former British colony showed signs of working after its latest land sale met a lacklustre response.

A site for non-industrial use near the city’s international airport went under the hammer for HK$3.42 billion (S$607 million) on Tuesday, far below a HK$4.63 billion average forecast of analysts polled by Dow Jones Newswires.

The 282,017-square foot plot was sold to unlisted developer Nan Fung Group, one of only two bidders, after the auctioneer threatened to cancel the sale if the government’s reserve price was not met.

In recent months, government officials have taken a high-profile stance in reining in soaring residential property prices after they jumped nearly 30 per cent last year.

Financial Secretary John Tsang said that the lukewarm result was a sign that the market was starting to stabilise, after luxury flat prices recently climbed to the boom levels of 1997, driven by deep-pocketed mainland buyers.

‘The result of the auction has reflected the market situation. We have always hoped the property market will develop in a stable manner,’ he told reporters.

He pledged to continue to increase land supply in the coming months, repeating a promise that he made in his February budget speech aimed at preventing a bubble.

‘We will have land sales in June and July. The sales will keep coming.’

Analysts said that developers stayed on the sidelines at Tuesday’s auction due to uncertainty about the full impact of the government’s cooling measures.

‘The impact can be especially strong on the small and medium residential flats, in light of the calls for the government to resume the construction of’ subsidised housing, Charles Chan, managing director and valuation specialist at Savills in Hong Kong, told AFP.

Macquarie said that the poor response would weaken sentiment in the residential market in the near term, but predicted more active bidding at future sales because of a general land shortage and the greater attractiveness of the sites in question.

‘Developers will likely remain active to replenish land but they might be more picky in light of more choices available,’ it said in a report.

Apart from increasing land supply, the government has also raised the stamp duty for luxury flats to try to curb speculation and pledged to avoid excessive mortgage lending. — AFP

Source: Business Times, 13 May 2010

HK Island’s biggest commercial landlord to sell 13.8% stake

(HONG KONG) Swire Properties Ltd, landlord to Time Warner Inc and Societe Generale in Hong Kong, seeks to raise as much as HK$20.8 billion (S$3.7 billion) in what would be the city’s largest initial public offering since 2007.

Swire Properties aims to sell 910 million new shares, equivalent to a 13.79 per cent stake, at between HK$20.75 and HK$22.90 each, Martin Cubbon, executive director of parent Swire Pacific Ltd, said in London during a video conference with reporters in Hong Kong on yesterday.

The stock is to be priced May 7 and start trading May 14, he said.

Swire Properties, the biggest commercial landlord in eastern Hong Kong island, is raising money as office rents in the city may increase this year as companies start to rehire amid a more optimistic economic outlook.

Prime office rents on Hong Kong Island, which fell 19.6 per cent last year, may rise 4 per cent in 2010, according to real estate broker CB Richard Ellis Group Inc.

‘Swire Properties is capital constrained,’ said Mr Cubbon, who is also Swire Properties chief executive officer.

‘We have relatively modest gearing and absolute borrowings but we are constrained by our interest coverage ratios, which the rating agencies look at.’

Swire Pacific will have a controlling stake of 86.21 per cent after the IPO, according to the company prospectus.

Of the HK$19.3 billion the company would raise assuming a mid-point price of HK$21.83, approximately 70 per cent will be used to repay debt and 11 per cent to fund ongoing projects in Hong Kong and China.

The remaining 19 per cent would be kept for future property developments, according to the company prospectus.

‘We will seek to minimise the cost of having a lot of cash up front without being able to deploy all that cash immediately,’ said Mr Cubbon.

Charles Bremridge, finance director of Swire Properties, said that after the IPO the company’s debt-to-equity ratio would be reduced from 30 per cent to 13 per cent.

Swire Properties owns the Pacific Place shopping and office complex in Admiralty, where Deloitte & Touche LLP and Societe Generale are tenants.

In eastern Hong Kong Island, Swire’s buildings include the 5.99 million square foot TaiKoo Place and house companies such as Time Warner and JPMorgan Chase & Co.

The company enjoyed average retail occupancy rates of 98 per cent and residential occupancy rates of 92 per cent in the past three years.

The total valuation of properties was HK$183.8 million on March 31, Mr Cubbon said.

At the top end of the range, Swire Properties’ IPO would be the largest in Hong Kong since the November 2007 share sale of China Railway Group Ltd’s HK$22.1 billion Hong Kong first-time share sale, according to data compiled by Bloomberg.

Created as a trading company in London in 1816, Swire Pacific owns 42 per cent of Cathay Pacific Airways Ltd, Hong Kong’s biggest carrier, and also bottles Coca-Cola in China and supplies offshore oil rigs.

Swire Properties’ will be the second real estate IPO in Hong Kong this year since investors turned cool toward Chinese developers after 30 of them raised US$15.7 billion in first-time share sales in the city since 1999, according to Bloomberg data.

China SCE Property Holdings Ltd raised HK$1.56 billion in a Hong Kong IPO in February.

Property IPOs in Hong Kong fetched a combined US$8.6 billion in 2007. Sunac China Holdings Ltd and Excellence Real Estate Group, two Chinese developers, last year delayed Hong Kong IPOs that sought as much as HK$10 billion between them, according to Bloomberg data. — Bloomberg

Source: Business Times, 4 May 2010

CEO raises Marina Bay Sands forecast, investment to be recouped in 5 years

Las Vegas Sands Corp chairman Sheldon Adelson said that the planned sale of the casino operator’s Macau malls and apartments may raise as much as US$12 billion and recoup their construction costs.

‘It will be like US$12 billion if we add up all the apartments and all the retail in Macau,’ including those in buildings still under construction, Mr Adelson, the founder and chief executive officer of Las Vegas Sands, said in an interview in Singapore on Tuesday. The company may start selling the Macau assets within 21/2 years, he said.

Sands, which Adelson describes as ‘an Asian company with a presence in Las Vegas and the US’, gets 73 per cent of its revenue from Macau, the world’s largest gambling market. He was in Singapore on Tuesday to open the first phase of Marina Bay Sands, and raised his earnings forecast for the resort, saying that the US$5.5 billion invested in it will be recouped in five years.

Sands’ casino resort on Tuesday opened 963 of its 2,560 hotel rooms, the casino, the meeting and convention facilities, parts of its shopping mall and some restaurants. A grand opening party will be held on June 23 when the second phase is unveiled, including a sky park, additional shops and more restaurants.

Asia will contribute 85 per cent of revenue once the Singapore casino ‘ramps up’, said Mr Adelson. Last year’s sales totalled US$4.56 billion, with 27 per cent coming from Las Vegas, where the company is based.

Macau assets that Sands may sell include the Four Seasons apartments and shopping areas in the Venetian Macau casino resort and in the Four Seasons hotel, Mr Adelson said. The plan also includes selling condominiums at the St Regis, where construction is resuming.

‘That is our fundamental business model – we get our money back from the sale of non-core business assets,’ he said.

Still, Jonathan Galaviz, an independent strategist who follows travel and leisure in Asia, said that apartments and malls in Macau may be a tough sell to investors, given that the city isn’t a proven place for housing investment, and that a huge asset bubble may be developing in Asian real estate.

‘Second-home buyers in Asia tend to have an affinity for beach and costal destinations, so Macau’s proposition will need to be unique in order to compete,’ Mr Galaviz said in an e-mail. As for malls, ‘the average length of stay for Macau’s average tourist – around one night – doesn’t yet lend itself to a strong and dynamic retail opportunity’.

Sands fell US$1.51, or 5.8 per cent, to close at US$24.69 on the New York Stock Exchange composite trading on Tuesday. The stock has gained 65 per cent this year.

Mr Adelson, who is Sands’ controlling shareholder, said in December that selling the retail areas at the Four Seasons and the Venetian would raise enough money to pay Sands’ debt. The company has US$12.2 billion of bonds and loans due from next year to 2015, according to data compiled by Bloomberg.

The billionaire, who previously said that the Singapore project would add more than US$1 billion in annual earnings before interest, tax, depreciation and amortisation, didn’t provide a new figure apart from saying that he was raising his forecast. The return period compares with four years for the Macau project, which cost about half as much to build, Mr Adelson said.

The Marina Bay Sands in Singapore will be a ‘grand slam home run’, Mr Adelson said. ‘Asian people just love to gamble.’

Singapore aims to lure 17 million visitors and triple annual tourism revenue to S$30 billion (US$22 billion) by 2015, helped by two casino resorts, Marina Bay Sands and Genting Bhd’s Resorts World Sentosa.

The Marina Bay Sands casino, which makes up about 3 per cent of the 15,000 sq m resort, has about 600 table games and more than 1,500 slot machines.

Asia has room for five to 10 cities like Las Vegas, Mr Adelson said. The most likely countries to approve casinos in the region are Japan and Taiwan, he said. — Bloomberg

Source: Business Times, 29 Apr 2010

HK office rents may rise this year amid more optimistic economic outlook

Swire Properties, landlord to Time Warner Inc and Societe Generale in Hong Kong, plans to raise as much as HK$20.8 billion (S$3.7 billion) in an initial public offering, said four people with knowledge of the plan.

The unit of Swire Pacific plans to sell 910 million new shares, or a 13.79 per cent stake, at HK$20.75 to HK$22.90 each, according to the sources.

Dutch pension fund manager APG Groep NV plans to buy Swire Properties shares worth US$200 million, two of the people said yesterday.

The sale comes as office rents in Hong Kong may rise this year as companies start to rehire amid a more optimistic economic outlook.

Prime office rents on Hong Kong Island, which fell 19.6 per cent last year, may rise 4 per cent in 2010, according to real estate broker CB Richard Ellis Group Inc.

‘Swire is attractive because it’s an established and well-known company already with a good and well-known track record in Hong Kong and China,’ said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong.

‘Swire’s Hong Kong portfolio is seen as a well-diversified portfolio – in terms of property type and tenant – and their developments in China are following a tried and tested formula which will appeal to long-term institutions.’

Swire Properties, the biggest commercial landlord in eastern Hong Kong island, owns Pacific Place shopping and office complex in Admiralty, where Deloitte & Touche LLP and Societe Generale are tenants.

In eastern Hong Kong island, Swire’s buildings include the 5.99 million square foot TaiKoo Place and house companies such as Time Warner and JPMorgan Chase & Co.

Hongkong Land Holdings, one of the biggest office landlords in the city’s financial hub, said last month it expects high-occupancy levels and ’steady rentals’ this year.

At the top end of the range, Swire Properties’ IPO would be the largest in Hong Kong since the November 2007 share sale of China Railway Group’s HK$22.1 billion first-time share sale, according to data compiled by Bloomberg.

‘This is a quality issue,’ said Marco Mak, an analyst based in Hong Kong with Taifook Securities Group. ‘There have been very few new real estate IPOs by Hong Kong developers, so institutional investors should be interested in it as a core holding.’

The indicative price range represents a discount of between 8.3 per cent and 16.1 per cent to the estimated net asset value at the end of 2010, three of the people said. Goldman Sachs Group, HSBC Holdings and Morgan Stanley are arranging the IPO.

The price range values Swire Properties at 31.4 times to 34.6 times this year’s earnings estimated by the same banks, said two of the people.

Hongkong Land, owner of the Landmark and Exchange Square complexes, trades at about 16 times this year’s earnings per share in Singapore, according to Bloomberg data.

APG managed pension assets of about 240 billion euros (S$437 billion) as at Dec 31, according to its website. Swire Properties picked the Dutch fund manager as an investor because of its understanding of the property market, the two people said.

Created as a trading company in London in 1816, Swire Pacific owns 42 per cent of Cathay Pacific Airways, Hong Kong’s biggest carrier, and also bottles Coca-Cola in China and supplies offshore oil rigs.

‘What will set it apart from the Hong Kong developers is that it will be a pure property play,’ said Mainfirst’s Mr Sullivan. ‘The others like Sun Hung Kai, Cheung Kong, Henderson all operate other businesses and hence have an element of a holding company discount. Swire is looking to unlock some of that.’

Hong Kong IPOs raised HK$31.1 billion so far this year, 13-fold more than the same period last year when the global credit crunch sapped investor demand for new stocks, according to Bloomberg data.

Swire Properties’ will be the second real estate IPO in Hong Kong this year, after investors turned cool towards Chinese developers after 30 of them raised US$15.7 billion in first-time share sales in the city since 1999, according to Bloomberg data. China SCE Property Holdings raised HK$1.56 billion in a Hong Kong IPO in February.

Property IPOs in Hong Kong fetched a combined US$8.6 billion in 2007.

Sunac China Holdings and Excellence Real Estate Group, two Chinese developers, last year delayed Hong Kong IPOs that sought as much as HK$10 billion between them, according to Bloomberg data.

Swire Properties’ IPO is to be priced on May 7 and the stock will start trading around May 14, said three of the people. — Bloomberg

Source: Business Times, 27 Apr 2010

Stronger yuan will make HK homes more attractive to mainland Chinese

China’s steps to cool record property price gains and allow the yuan to appreciate may stymie Hong Kong’s efforts to contain surging home values in a city with its own currency pegged to the US dollar.

A stronger yuan would make Hong Kong’s homes more affordable to mainland Chinese, who have helped drive a 38 per cent jump in prices since end-2008, and fuel further increases, seven out of nine analysts surveyed by Bloomberg News said. A revaluation may also encourage locals to buy property to hedge against inflation, they said.

China may allow the yuan to appreciate as it tries to avert the bursting of asset bubbles after stimulating an economic recovery last year with record new loans. The government is stepping up measures to rein in the real estate market with curbs on third-home purchases and increased downpayment requirements after a record increase in home prices in March.

‘China can’t care so much about Hong Kong, because it has problems cooling down its own property market,’ said Francis Lui, an economics professor at the Hong Kong University of Science and Technology. ‘Hong Kong can’t control China, it has no monetary policy and the only tool is to increase land supply, but it will take around four years to build.’

China will allow the yuan to appreciate by June 30 to curb inflation, a survey of analysts showed last week. Options prices suggest that Hong Kong’s central bank would maintain its 26-year-old peg to the greenback.

Ruled as a special administrative region of China, Hong Kong is the mainland’s trade and financial hub with its own legal and currency systems. With the peg to the US currency, Hong Kong has kept its base rate at a record low of 0.5 per cent since December 2008, resulting in 20-year-low home loan costs.

Low interest rates, coupled with an inflow of Chinese buying, led Hong Kong’s home values to rise 29 per cent last year, according to Centaline Property Agency Ltd, one of the city’s biggest realtors. Luxury residences climbed 45 per cent, according to London-based property broker Savills Plc.

About 19 per cent of buyers of luxury properties – those that cost at least HK$10 million (S$1.77 million) each or are bigger than 1,000 square feet – last year were from mainland China, Centaline said.

The price jump has sparked a public outcry over housing costs and increased pressure on Hong Kong’s government to raise land supply. Financial Secretary John Tsang said yesterday that the government was ‘highly concerned’ about gains in home prices and would speed up land auctions to make more property available.

The city may also raise the stamp duty on homes sold for less than HK$20 million and warned that low mortgage rates won’t continue forever. The government in February said that the stamp duty on homes selling for more than HK$20 million would be increased to 4.25 per cent from 3.75 per cent as of April 1.

It raised downpayments on luxury homes to 40 per cent from 30 per cent in October, limited coverage on some loans and clamped down on marketing techniques.

The city’s home prices rose the most among the world’s major housing markets last year, London- based property adviser Knight Frank LLP said in January, climbing 33 per cent on average.

The International Monetary Fund and investor Jim Rogers warned of a possible bubble in Hong Kong. Mr Tsang said that the government wants to reduce the risk of a ‘property bubble’ and keep housing affordable when he delivered his Budget speech on Feb 24.

‘Mainland Chinese buying is the most important factor driving up Hong Kong luxury home prices,’ said Louis Chan, managing director of residential properties at Centaline. A stronger yuan would ‘be positive for luxury properties, as they like to buy those that cost between HK$20 million and HK$30 million’, Mr Chan said.

He likened the rich mainlanders to wealthy Hong Kong residents buying properties in London. ‘These people have deep pockets; the Chinese buy Hong Kong homes to invest, and they like the freedom here where turnover is quick and there are no government constraints on property transactions.’

Source: Business Times, 22 Apr 2010

Hong Kong’s government is ‘highly concerned’ about gains in home prices and will accelerate a series of auctions to make more property available, Financial Secretary John Tsang told lawmakers yesterday.

Mr Tsang said the city may also raise the stamp duty on homes sold for less than HK$20 million (S$3.5 million) and warned that 20-year-low mortgage rates won’t continue forever. The government in February said the stamp duty on homes selling for more than HK$20 million would be increased to 4.25 per cent from 3.75 per cent as of April 1.

‘I urge residents or investors to carefully assess the impact of climbing interest rates on mortgage payments when they consider buying apartments,’ Mr Tsang said.

Buying by mainland Chinese and low borrowing costs drove a 29 per cent surge in Hong Kong home prices last year, prompting the government to raise downpayments on luxury homes in October and increase taxes on those purchases this month. Mr Tsang pledged to reduce the risk of a property market bubble and keep housing affordable for low-income families.

‘I understand the worries of residents about rapidly rising home prices, and I agree that we need to reduce the bubble risk in the property market to avoid any impact on the financial system’s stability and the recovery in the real economy,’ Mr Tsang said.

Two residential sites, one in Kowloon and the other on Hong Kong Island, will be auctioned off in June and July, bringing to four the total number of sites the government is selling in the coming three months, Mr Tsang said.

Low interest rates won’t be sustained for long as governments around the world wind back stimulus measures, he said.

Source: Business Times, 22 Apr 2010