Hang Seng breaks through 20,000 on property rebound

HONG Kong’s benchmark Hang Seng Index climbed above 20,000 yesterday for the first time since the collapse of Lehman Brothers Holdings Inc, as a rebound in property prices helped push the index up 75 per cent since March.

Developers such as Sun Hung Kai Properties Ltd, the world’s largest by market value, helped spur the advance. Aluminum Corp of China Ltd and Bank of China Ltd climbed as China became the first of the major economies to recover from the global recession.

Citic Pacific Ltd surged after the biggest currency derivative losses by any Chinese company prompted a government bailout.

For Lehman, ‘people have pretty much put it behind’ them, said Tat Auyeung, a fund manager at Apex Capital Management in Hong Kong, which oversees more than US$400 million. ‘If we start seeing earnings upgrades, that will push the market even higher. That’s fundamentally the most important driver.’

Rallying stocks in Hong Kong reflect speculation global efforts to repair credit markets and revive economic growth will boost profits. The Hang Seng slumped 64 per cent from its October 2007 record to its low this year in March. It fell as much as 43 per cent following Lehman’s failure on Sept 15. China’s pledge to spend four trillion yuan (S$843 billion) to spur growth helped drive the advance.

Hong Kong has allocated HK$87.6 billion (S$16.3 billion), or about 5.2 per cent of gross domestic product, to stimulus and relief spending since 2008. The city, battling its worst recession in a decade, probably returned to growth in the second quarter of this year as the declines in exports moderated, Financial Secretary John Tsang said on July 6.

The rally drove the average valuation of companies in the Hang Seng to 17.5 times estimated earnings as at yesterday, up from 10.6 at the beginning of this year. The gauge’s 14-day relative strength index, which measures how rapidly prices have risen or fallen in that period, closed at 68.5 on Thursday, just below the 70 threshold some traders use as a signal to sell.

‘This is a liquidity-driven market,’ said Ben Kwong, chief operating officer at brokerage KGI Asia Ltd in Hong Kong. ‘If liquidity continues to stay at this level, it still has a chance to go even higher. But still we may see some profit taking after 20,000. The market may want a breather.’

After breaking through the 20,000 level, the Hang Seng Index then fell as much as 0.5 per cent. It traded 0.3 per cent higher at 19,844.06 as of 10.56am local time. Sino Land Co, controlled by the family of billionaire Ng Teng Fong, and billionaire Cheng Yu-tung’s New World Development Co are the Hang Seng Index’s best performers in the rally since March through Thursday, as confidence in the city’s real-estate industry returned.

The value of residential units sold in June increased 26 per cent from the previous month to the highest value in a year.

Source: Business Times, 25 July 2009

HK office space prices likely to rebound: CBRE

34% jump in prices seen this year amid signs of economic recovery

(HONG KONG) Hong Kong city centre office prices, down by almost half since Lehman Brothers Holdings Inc’s collapse, may rise 34 per cent this year, as speculators bet on local economic recovery, CB Richard Ellis Group Inc (CBRE) said.

The average price of prime office units in the central business district may rise to as much as HK$13,000 (S$2,450) per square foot (psf) by year-end from HK$11,167 in May as rich individuals seek alternative investments to stocks and bank savings, Benedict Ma, an analyst at CBRE, said in an interview on Tuesday.

Low borrowing costs and bank-savings rates of almost zero are prompting investors to buy office space in Hong Kong, where rents are the world’s fourth-highest. The benchmark three-month interbank loan rate fell to a four-year low as liquidity surged after Hong Kong issued record amounts of the local currency to preserve its fixed exchange rate.

‘A lot of the activity in the strata office market is not fundamentally driven, it’s much more speculative as rents are still falling,’ Rhodri James, executive director of office services at CBRE, said on Tuesday. ‘The key thing is do we see the economy turning around in six to 12 months? This justifies why they are buying today.’

The strata market refers to units or floors, instead of whole buildings: there are four such prime office buildings in Central and neighbouring Admiralty, according to CBRE. Average prices fell as much as 49 per cent from their peak of HK$16,900 after Lehman collapsed in September, Mr Ma said.

There were four sales of prime office strata units exceeding HK$100 million in value between January and May, compared with 21 in the first half of 2008, Mr James said.

Still, gains in office prices may leave investors ‘exposed’ if the economy and rents fail to recover in the next six to 12 months, Mr James said.

Job cuts by HSBC, Television Broadcasts Ltd and PCCW Ltd pushed Hong Kong’s unemployment rate to a three-year high of 5.3 per cent in May. The economy contracted 7.8 per cent in the first quarter from a year earlier as exports slid the most since 1954.

Some investors may expect real estate to rebound first. The Hang Seng Property Index, tracking six of the city’s largest developers, has gained 35 per cent this year, compared with the 24 per cent increase in the benchmark Hang Seng Index.

Billionaire Lee Shau- kee, Henderson Land Development Co chairman, sold a floor of office space at The Galleria on Queen’s Road Central for HK$18,000 psf earlier this month, 59 per cent more than another floor in the same building sold for in May, Sing Tao reported on June 11.

Bonnie Ngan, a Henderson spokeswoman, declined to comment on the report.

The value of office space is rising even as falling rents cut yields to 3.9 per cent from 5 per cent at the end of 2008, CBRE said. By comparison, a HK$150,000 deposit with HSBC Holdings plc, the bank with the most branches in Hong Kong, generates annual interest of 0.001 per cent, or HK$1.50.

Hong Kong’s lending benchmark three-month interbank offer rate, or Hibor, was at 0.334 per cent on Tuesday, down from 0.949 per cent at the beginning of the year.

‘People will have positive cash flow in buying grade A offices because the Hibor is very low,’ said Alvin Yip, head of investment for South China at UK-based real estate broker DTZ Holding plc said by phone yesterday.

Low rates and lack of investment alternatives mean overall office prices may rise as much as 15
per cent in the third quarter from the second even as rents are little changed, Peter Chan, director of commercial department at Centaline Property Agency Ltd, one of Hong Kong’s biggest realtors, said earlier this week.

Prime office rents in Hong Kong fell 19 per cent in the first five months of 2009 to average HK$42.76 a square foot per month and may drop a further 11 per cent this year as companies shelve expansion and hiring plans to cope with the recession, CBRE forecasts.

The office vacancy rate in Central rose to 4.8 per cent in April, from a recent low of 0.9 per cent in February 2008, even without new supply, said Simon Lo, Hong Kong-based director of research and advisory at Colliers International.

CBRE forecasts the rate will rise to 7 per cent on Hong Kong Island this year.

‘There’re no fundamentals to support price increases,’ Mr Lo said in an interview. ‘If you are brave enough and have plenty of cash, you may hold it for two years and expect to make some decent gains while forgetting about rental yields.’ – Bloomberg

Source: Business Times, 18 June 2009

And an Internet survey suggests prices may be stabilising – or even recovering.

May 1-26 home sales of 11,000 units were the highest since February 2008

(HONG KONG) Hong Kong real estate has shown early signs of regaining its status as hot property, with a new development getting a warm reception.

But, where some experts see recovery, others see just a speculative bubble.

Last week’s launch by Lake Silver, a new joint venture residential project between Sino Land and MTR Corp, drew tens of thousands of prospective homebuyers despite a summer downpour – a strong showing shortly after top lender HSBC slashed its savings rate to near-zero, boosting the attraction of the 4-5 per cent average annual rental yield for property investments.

Hong Kong home sales between May 1 and May 26 were close to 11,000 units, the highest since February 2008, and surprisingly strong for a traditionally slow month ahead of the school summer break.

The early signs of a potential rebound have lit a fire under major Hong Kong developer stocks.
Since early March, shares of sector leaders Cheung Kong (Holdings) and Sun Hung Kai Properties have jumped more than 70 per cent, while Sino Land has nearly tripled.

‘The recent strength in the property sector was an adjustment to the earlier over-pessimism,’ said Wong Leung-sing, director of research for Centaline Property Agency Ltd.

Like others, Mr Wong attributed the rebound in home sales to low interest rates and a volatile stock market which have driven investors to property in search of better returns.

But he said that the jury was still out on whether a recovery is really underway.

‘If June figures track the strong numbers in May, it’s quite safe to say a market recovery is on the way,’ he said.

Developers are playing it safe by pricing new projects well below their early 2008 peak, reflecting lower optimism on a rapid price recovery.

Home prices are back at their pre-Lehman collapse level, after sliding 15 per cent from their March 2008 peak.

Others suggested that it is still too early to call a recovery, and the recent run-up in property stocks could be too much too fast.

‘I won’t suggest investors chase after property stocks as the positive factors are pretty much reflected in the surge,’ said Patrick Yiu, a director with CASH Asset Management.

Sino Land, a proxy for the Hong Kong residential sector, now carries a net asset value (NAV) premium of close to 18 per cent, according to Citigroup research, making it among the most expensive stock in the sector.

Likewise, Sun Hung Kai carries a rich NAV premium close to 10 per cent.

Cheung Kong, at a NAV discount of 16 per cent, Hang Lung Properties and Kerry Properties, with their exposure to the Chinese property sector, are seen as safer bets.

Even after real estate price declines over the last year, Hong Kong properties still command significant premiums over major Chinese cities such as Beijing, Shanghai, Shenzhen and Guangzhou, according to Citigroup.

‘Comparatively, Chinese property is a better bet as it seems to have more room on the upside after a plunge in mainland property prices last year,’ said Mr Yiu.

With economic fundamentals still weak, heady property stock valuations suggest that the market may have run ahead of itself.

‘There are people who worry they will miss their chance to buy property if they don’t move now, but this is a short-term factor that will drive demand,’ said Nicholas Yeo, Hong Kong and China equities manager at Aberdeen Asset Management.

‘In the long term, there is uncertainty over the magnitude of an economic recovery – if we have one.’ – Reuters

Source: Business Times, 2 June 2009

HK to auction first home site in a year

But small size may not draw interest from bigger builders

(HONG KONG) Hong Kong’s government will auction a residential building site for the first time in almost a year today, in a test of developers’ expectations in Asia’s second-most expensive luxury housing market.

The site, of 306 square metres (3,300 square feet) in Sheung Shui in northern Hong Kong, may be too small to draw interest from bigger builders, said Buggle Lau, chief analyst at Midland Holdings Ltd, the city’s biggest publicly-traded property agency.

‘Developers are eager to replenish their land bank, but this site is pretty small,’ Mr Lau said yesterday, declining to identify which builders may be interested. Midland expects the land to sell for HK$39 million (S$7.4 million).

Prices of existing homes in Hong Kong rose 10.7 per cent between December 28 and April 26, according to figures from Centaline Property Agency Ltd, amid optimism that the world’s biggest economies are recovering from a recent slump on stimulus spending.

Hong Kong has the second-highest luxury home prices in Asia, with an average price of US$16,125 a square metre, after Tokyo with an average of US$17,998, according to the Global Property Guide website.

The government, one of Hong Kong’s biggest suppliers of unoccupied land, sells land under a system where developers trigger auctions from a list of available sites by promising to pay a minimum amount.

Today’s auction is the first of the fiscal year that started April 1 and the government’s first public sale of a building site for housing use since May 9, 2008, according to the Lands Department.
The winning bidder can build 1,407 square metres of floor space on the site, with a height limit of 20 metres, according to Midland.

Government land sales and premium revenue was likely HK$16.9 billion in the year through March 31, 2009, 73 per cent less than the previous 12 months, according to figures in the budget, released on Feb 25.

Income for the year through March 31, 2010, may be HK$16.5 billion, according to the budget. — Bloomberg

Source: Business Times, 5 May 2009

HK property slump to continue amid falling demand

HONG KONG : Hong Kong is expected to see a 68 per cent jump in the number of homes ready to be sold in 2009.

However, with developers already being forced to slash prices, this is likely to put more pressure on property sales.

The economic downturn has triggered a price war among property developers in Hong Kong as they seek to speed up sales and attract buyers.

According to some real estate agencies, prices of units in the primary market have fallen by about 20 per cent. But it seems there may be even more competition ahead.

Data from the Rating and Valuation Department showed that the number of homes available for sale this year could jump by as much as 68 per cent.

14,740 units are expected to be completed, compared to 8,780 in 2008. That is likely to put even more pressure on the market, amid falling demand for new homes.

But some questioned whether the increase in ready-to-sell homes meant that developers are expecting an upturn in the market.

“I cannot comment, because the estimated figures present a view that we look at the completion at the end of last year. Most of the projects have commenced a few years ago. So I am not sure, and I don’t think there’s an exact tally with the economic upturn or downturn,” said Tang Ping-Kwong, Acting Deputy Commissioner, Rating and Valuation Department.

For office space, the data showed a fall in demand. Office completions are expected to plunge to 140,000 square metres in 2009 – a 59 per cent drop on-year. This comes after two years of an abundant supply of private office space.

Office prices also lost momentum in the second half of the year. In the last quarter of 2008, Grade A office prices dropped 9 per cent, compared to a year ago.

However, despite the gloomy outlook for the property market, the government has said it will not cut prices for land sales.

One of the government’s main sources of income, land revenue, has fallen way below expectations. Officials said it missed the target for the current financial year by 63 per cent, and the slump is expected to continue.

Source: Channel News Asia, 5 Mar 2009

HK developer ups luxury home prices

After selling 150 units in 10 days, they plan a 5% raise

(HONG KONG) Sun Hung Kai Properties Ltd, Hong Kong’s biggest developer by market value, is raising prices for a new luxury residential project by 5 per cent after selling 150 units in 10 days.

‘The response has been so good, we are raising the prices gradually,’ Victor Lui, executive director of Sun Hung Kai Real Estate Agency, said in a phone interview yesterday.

The builder, which released 200 apartments at its Kowloon project in the first launch, sold the 150 units for HK$14,000 to HK$20,000 a square foot, generating HK$3.5 billion (S$689.2 million) revenue, Mr Lui said. It’s now selling three-bedroom units at the project, called The Cullinan, for HK$14,700 to HK$21,000 a square foot, based on Bloomberg calculations using his figures.

The sale may indicate investment in Hong Kong’s luxury homes is picking up, Centaline Property Agency Ltd, one of the city’s biggest real-estate agencies, said. Prices of luxury homes, defined as those worth at least HK$10 million, fell 19.2 per cent in the fourth quarter from a year earlier, CB Richard Ellis Group Inc said last week.

‘There’s a bunch of cash-rich people out there who prefer holding real assets such as property, gold as they become more wary of other financial investments,’ said Wong Leung-sing, an associate director at Centaline. ‘Under the current environment, The Cullinan sale has exceeded expectations and it’d be a harbinger of an increasingly active investment luxury market.’

Sun Hung Kai’s shares rose as much as 4.2 per cent on the news, the most since Feb 9. They traded 0.8 per cent higher at HK$60.65 at 3.05pm Hong Kong time, while the Hang Seng Property Index, which tracks the shares of six developers, advanced 2.7 per cent.

The number of units sold and the revenue generated were earlier reported by the South China Morning Post.

Prices fetched at The Cullinan may entice Hang Lung Properties Ltd, Hong Kong’s fourth-biggest developer by value, to sell units at its nearby Harbourside project, analyst Manfred Ho said. Shares of Hang Lung rose as much as 6.9 per cent yesterday, snapping a nine-day losing streak. They traded 4.7 per cent higher at HK$14.30.

Hang Lung has ‘quite a big number of unsold units at The Harbourside, so if The Cullinan is selling well, definitely they will be one of the direct beneficiaries’, said Mr Ho, a Hong Kong-based analyst at BOC International Group.

Hang Lung has about 2,000 homes unsold at its Harbourside and Long Beach developments in Hong Kong, as it held back apartment sales last year after prices fell as much as 25 per cent from last year’s peak.

Sun Hung Kai may start selling the second batch of units next week, Mr Lui said, adding that the developer will decide on the number after wrapping up the first launch. Buyers in the first launch included investors from China, he said.

Sun Hung Kai is also in the final stages of negotiating the sale of four penthouse units, Mr Lui said. One of them, a 4,000 square-foot duplex, is priced at HK$50,000 a square foot while the other three smaller ones at more than HK$30,000, he said.

Standing at 270 metres, The Cullinan will be Hong Kong’s tallest residential project and includes 825 units.

Still, some analysts said prices for The Cullinan are not enough to lift the entire Hong Kong property market, which is weighed down by a recession and rising unemployment.

‘Hong Kong’s economy is really dependent on the financial sector, which is volatile, and trade, where we don’t see any sign of improvement,’ Cusson Leung, an analyst at Credit Suisse Group AG, said yesterday.

Hong Kong’s economy slid into a recession in the third quarter, its first since 2003, as the global slowdown hurt domestic spending and demand for exports.

Unemployment rose to 4.6 per cent in the three months ended Jan 31, the highest rate since September 2006, the government said on Feb 17.

Home prices on the Peak, Hong Kong’s most-expensive residential area, slumped 30.5 per cent in the fourth quarter of 2008 from a year earlier, the steepest decline since the Asian financial crisis in 1998, CB Richard Ellis said last week. The average price was HK$16,678 a square foot, it said.

Hong Kong’s record price for a luxury home was for a house in Sun Hung Kai’s Severn 8 project on the Peak that sold in the first half of last year for almost HK$56,000 a square foot. — Bloomberg

Source: Business Times – 24 Feb 2009

HK’s Peak residential prices at decade low

(HONG KONG) Property prices on The Peak, most expensive residential area on the Hong Kong Island, experienced the biggest drop since the Asian financial crisis 10 years ago, according to local media yesterday.

The prices slumped 41.4 per cent in the final three months of last year compared with the previous quarter. The fall was the biggest on record in Hong Kong’s luxury real estate market, underscoring the seriousness of the global economic slump, the South China Morning Post reported.

In the final three months of 1997, prices on The Peak fell only 16 per cent, property consultant CB Richard Ellis said, though it cautioned that a slump in sales meant one big transaction could skew its figures.

‘Prices on The Peak have increased most rapidly over the past few years and that’s why they dropped the most once the market entered a down cycle,’ said Margaret Ng, a senior director at the firm.

Ms Ng said prices on The Peak rose 27 per cent between the last quarter of 2007 and the second quarter of last year, to an average of about HK$327,373 (S$64,555) per square metre.

‘The economic outlook is still uncertain. The effect of the economic rescue packages may be seen in the second half of this year. We have to wait and see,’ she said.

Simon Lo Wing-fai, a director at property consultant Colliers International, said fewer than 10 homes priced at HK$15 million or more had been sold citywide each week since the onset of the global financial crisis. He said that 30 to 40 luxury homes were being sold every week before the start of the crisis.

Average luxury residential prices fell to about HK$118,611 per square meter in December, returning to September 2007 levels, he said, expecting that prices will drop 15 to 20 per cent this year.

Adrian Ngan Wai-hung, an executive director of research at CCB International Securities, believes property prices will drop a further 5 to 10 per cent in the short term but that they will stabilise in the second and third quarters of the year. — Xinhua

Source: Business Times – 19 Feb 2009

HK office rents may fall 26%: Colliers

(HONG KONG) Hong Kong prime office rents may fall a further 26 per cent this year as the global financial crisis prompts banks and investment companies to control spending, according to property agency Colliers International.

‘The prime office market is predicted to experience a further downward adjustment due to the consolidation of the financial markets and the global economic outlook,’ Colliers said in a report yesterday. Office rents fell 13.4 per cent in the fourth quarter from the previous three months, the company said.

Banks including HSBC Holdings Plc and Standard Chartered Plc have cut jobs in Hong Kong as the economy entered its first recession since 2003. HSBC said in November that it had trimmed 500 jobs in Asia, 90 per cent in Hong Kong. Standard Chartered in December said it would cut 200 local positions.

The report, covering 26 places in the Asia Pacific, showed office rents in the region declined 4 per cent on average in the fourth quarter from the previous three months. The report was emailed and posted on Colliers’s Web site.

‘Individual centres with a tenant profile highly geared toward the financial sector have experienced steeper rental corrections in the order of over 10 percent quarter-on-quarter,’ Colliers said.
Hong Kong’s last recession was triggered by the severe acute respiratory syndrome epidemic in 2003.

A survey by property agency DTZ last month showed that Moscow commanded the world’s most expensive office rents last year, of US$255.60 per square foot a year on average. In second place was the West End of London, at US$186.20, and Hong Kong ranked third at US$185.20 a square foot. — Bloomberg

Source: Business Times – 12 Feb 2009