Wednesday July 28, 3:53 PM
HK office rents up with high-end units in hot demand
By Tara Joseph

HONG KONG, July 28 (Reuters) - The 52nd floor entrance to UBS's Hong Kong office looks more like a spa than an investment bank, with a ceiling-to-floor waterfall trickling next to the elevator in a quiet, minimalist corridor. Spanning seven floors in the year-old IFC2, Hong Kong's tallest skyscraper, UBS's office -- a modern, central space -- is becoming an increasingly rare commodity as the city's economy roars back to life.

"There's no new supply coming. If you want 20,000 square feet, where do you go?" said Simon Smith, head of research at real estate brokerage FPDSavills.

Office rents in Hong Kong's Central district are rising sharply this year, with prime locations in hot demand as finance and trading houses seek new space amid the territory's increased trade and economic cooperation with China.

Many firms also took advantage of sweetened deals late last year and relocated to bigger, plusher offices when the property market was still mired in a six-year slump.

Rents in IFC now average HK$40 per square foot (US$5.12) per month, according to agents, up from the bargain price of HK$18 just over a year ago when the SARS virus crippled demand.

Banks such as UBS are looking for ample room to house large trading floors with an array of sophisticated technical equipment and large, luxurious conference rooms to woo clients.

Last year, Hong Kong's largest Central district landlord Hongkong Land , which houses high-end clients such as investment bank Morgan Stanley , had a vacancy rate of 16 percent. That rate is now below seven percent and agents say its properties look set to be fully occupied by year end.

SUPPLY CRUNCH

FPDSavills' Smith said a supply crunch looms for both retail and office space in Central.

With IFC2 now 90 percent leased, the only new space coming onto the market in Central is Swire Pacific's Pacific Place 3 and the AIG Tower being developed by Lai Sun Development Co. Ltd. , Singapore's CapitaLand Ltd. and giant insurer American International Group .

Hong Kong now ranks as the 24th most expensive place to rent office space in the world, up from 31st place six months ago, a recent survey by real estate firm CB Richard Ellis found.

The firm said average annual rents were US$48.39 per square foot a year, up from US$42.37 per square foot six months ago.

That's still cheap compared with central Tokyo, Asia's most expensive city for office space, where rents average US$116.23 per square foot per year.

But investment bank J.P. Morgan expects Central office rents to rise 40 percent this year and a further 20-25 percent in 2005 on strong demand. The bank is even more upbeat on the shares of property firms with a mix of office and retail space such as Wharf Holdings , Great Eagle Holdings Ltd. and Hang Lung Group .

Shares in office-focused property firms have far outperformed those of residential giants such as Sun Hung Kai Properties in the past few months.

"The office market looks good, but the retail market also looks good," said J.P. Morgan property analyst Douglas Sung.

For a related story on rising residential rents double click on story number .

3 pacific place is considered to be in Central?

I thought that wuz in Admiralty???

wow~ then more new skyscrapers will come soon~~

http://images.businessweek.com/common_images/bw_logo1.gif

AUGUST 9, 2004

INTERNATIONAL -- FINANCE

It's An Office Party In Hong Kong
Amid a strong recovery, commercial real estate rents and sales are rising fast

It's not much to look at. The cramped snack stand sells curried fish balls and squid skewers on a busy corner of Hong Kong's popular Mong Kok shopping district. But in June, ownership of the stand's 11.6 square meters changed hands for an eye-popping $4 million. That's $347,550 per square meter, the highest price ever paid for retail space in Hong Kong. Why? The stand's current rent of $15,400 a month could go up 25% next year as mainland tourists flood the area, according to Midland Realty Group, which brokered the sale.

The squid stand may be a special case, but its price is a sign that the dam has broken: Purchase prices and rents for commercial real estate in Hong Kong are on the way up after falling for seven years. With Hong Kong's economy showing signs of a robust recovery, prices for so-called grade-A office space throughout Hong Kong -- top quality and, usually, top location -- are up more than 70% from their SARS-induced lows of May, 2003. Corporate tenants are upgrading -- moving from outlying locations into the downtown financial district, known as Central -- and are confident enough in Hong Kong's future growth to pay lofty prices.

Rents look likely to follow suit. Jones Lang LaSalle, the international real estate broker, predicts Hong Kong office rents will rise 10% to 15% by yearend. Colliers International Property Consultants Inc. forecasts a jump of 20% in grade-A rents through July, 2005. Store rents are also rising as sales soar in ritzy shopping districts. The property rebound reflects broader economic growth. After years of stagnation and deflation, Hong Kong's gross domestic product surged 6.8% in the first quarter and is expected to tally at least 6% for the year. One important factor: the flow of Chinese tourists into Hong Kong since the mainland loosened travel rules.

The real estate revival has been a long time coming. Property prices and rents in Hong Kong peaked shortly after the former British colony was returned to Beijing's rule in July, 1997. The Asian financial crisis ravaged the region from late 1997 through 2000. SARS -- Severe Acute Respiratory Syndrome -- followed last year, devastating tourism. All told, property prices dropped two-thirds from 1997 to 2003.

DUSTING OFF OLD PLANS
One symbol of the turnaround is a Central office tower called Two International Finance Center. Two IFC and its partner, One IFC, together form Hong Kong's tallest, most prestigious office complex. But Two IFC's 140,000 sq. meters of office space exerted enormous downward pressure on rents when agents started marketing it last year. Today the first tower is almost fully rented, and Two IFC is filling fast. Among the tenants are banking giant UBS, which moved from Exchange Square, an older complex in Central, and Ernst & Young International, which is consolidating its offices around Hong Kong.

Now developers are dusting off plans that had been shelved for years. Swire Properties Ltd., a leading Hong Kong landlord and developer, has started clearing ground for a planned 144,000-sq.-meter office tower that had been on hold since 1997. Swire's 46,500-sq.-meter Three Pacific Place is expected to be finished later this year.

Is a new bubble swelling? Skeptics worry about the effect of rising interest rates and a cooling mainland economy. Analysts are confident, though, that high-end property prices will continue to rise at least through 2005. Others argue that any exuberance remains largely confined to the top of the sector, and won't develop into full-blown property mania. "At the secondhand and lower end, prices are not going up," says Kelvin Lau, regional economist at Standard Chartered Bank. Good growth, no crash: That's the hope. Nigel Smith, executive director for office services at real estate brokerage CB Richard Ellis, says: "Hong Kong is becoming more of a mature market with less volatility." Except, of course, when a location has a lock on the market for squid skewers.


By Simon Cartledge in Hong Kong

Copyright 2000-2004, by The McGraw-Hill Companies Inc. All rights reserved.

Now developers are dusting off plans that had been shelved for years. Swire Properties Ltd., a leading Hong Kong landlord and developer, has started clearing ground for a planned 144,000-sq.-meter office tower that had been on hold since 1997.

are they talking about the 280m tower in island east??? or another tower??

Hongkong Land books US$783m
Dennis Eng, HK Standard

A 15 per cent rise in the value of investment properties held by Hongkong Land in the first six months beefed up the accounts of the biggest commercial landlord in Central by US$810.1 million (HK$6.32 billion), resulting in an interim net profit of US$783 million.

The company's first-half results in 2003 were a loss of US$773 million, although, stripping out the property revaluations, the bottom line actually improved by about one-quarter to US$104 million. Hongkong Land follows International Financial Reporting Standards, which require property revaluations to be taken to the profit-loss account.

Chief executive Nicholas Sallnow-Smith pointed to a gradual recovery in the Hong Kong office market amid firming rents and the limited supply of Grade A office space in the Central area in the near term. According to market estimates, International Finance Centre (IFC) Two is about 90 per cent let while the only other comparable space available soon are Swire Properties' Pacific Place 3 and the AIG Tower, which is jointly developed by Lai Sun Development, Singapore's CapitaLand and insurance giant American International Group.

"We need properties like the AIG Tower and Pacific Place 3 to accommodate demand for office space but we don't want so much supply as to depress rents,'' Sallnow-Smith said.

Despite the improvement in the market, Hongkong Land's rental income dipped to US$144.6 million in the first half from US$154 million a year ago. Multi-year leases signed by tenants mean that higher rents in the market do not necessarily immediately benefit the company, Sallnow-Smith explained.

Property sales contributed revenue for the first time, generating US$22.4 million. Hongkong Land sold its residential property portfolio in the 1980s but has recently returned to the market as an active player. According to Sallnow-Smith, the company sold eight houses at its Stanley Court development in the first half. Another five houses remain unsold.

As the company only books such income when it passes the title deed to the buyer, Hongkong Land could not recognise revenue from sales of the first phase of Central Park in Beijing and Ivy on Belcher's in Hong Kong.

"We sold all of phase one of Central Park but, since it is not yet completed, we could not pass the title deed in 2003. With Ivy on Belcher's, almost 80 per cent of the units are pre-sold but we could not book any of the profits as we just got the occupancy permit in July and we can't hand the units over until August, so we'll book the profits in the second half,'' he said.

The four-phase Central Park joint venture development consists of 570 units in the first phase and about 370 units in the second. Sallnow-Smith said phase two profits will definitely be booked in 2005.

The company also has a site on Victoria Road, which will be ready for development by the end of next year. Hongkong Land has agreed to the basic terms with the Lands Department and is negotiating the premium payable, he said.

Growth next year is expected to come from the unveiling in the third quarter of 2005 of The Landmark Mandarin Oriental, a 114-room boutique hotel the company is developing in The Landmark retail and commercial property in Central.

The works will result in a net addition of about 120,000 square feet of space. The company also recently signed an agreement with Louis Vuitton to expand its flagship store at The Landmark to three levels from two.

4 August 2004 / 02:08 AM

haha once Hong Kong earthquake... all gone...

Tuesday August 10, 1:14 PM
Retail revival grips Hong Kong, making space scarce
By Tara Joseph

HONG KONG, Aug 10 (Reuters) - Lo Ka Shui, managing director of mid-tier Hong Kong developer Great Eagle Holdings Ltd., is feeling fortunate.

After a 15-year ordeal clearing a maze of densely populated city blocks in the Mongkok district, Great Eagle will open a HK$10.5 billion (US$1.35 billion) shopping mall this autumn in the thick of a Hong Kong retail revival.

"We're very lucky. It's good timing," said Lo, who trained as a cardiologist. "We will be almost 100 percent leased for sure."

A little over a year ago, Hong Kong malls were like ghost towns, devastated by the SARS outbreak. Now, shoppers are back in force and retailers are having a tough time finding space.

A local economic recovery has been boosted by the influx of tourists from mainland China, who visit largely to shop and dine. Overall, tourists account for about 40 percent of retail spending in Hong Kong, where there is no sales tax.

Many locals were stunned by reports that a Mongkok juice shop measuring just 125 square feet (11.6 sq metres) sold for HK$31.5 million ($4 million). Retail rents are up 20 percent this year.

"Some of the local players with a local customer base may be forced out of the market by players with a large international image," said Simon Smith, analyst at property brokers FPDSavills.

International retailers such as Richemont Group's Cartier recently opened new Hong Kong flagships featuring private viewing rooms and items from diamond necklaces to designer pens.

"We're worried. Some neighbourhood restaurants may have to close down because rents are going up by more than the price of food," said one small food store operator.

Big shopping centres such as Swire Pacific's Pacific Place and Festival Walk malls have waiting lists of prospective tenants, while Hongkong Land expects luxury handbags to fly off the shelves in 2005 and is in the midst of a US$210 million renovation of its Landmark mall.

Dickson Concepts (International) plans to open a Harvey Nichols department store in the same mall late next year.

"It's not only visitors and mainland turnover. Local market buying has also been an important factor," said Nicholas Sallnow-Smith, chief executive of Hongkong Land.

Hong Kongers, for whom shopping has long been a favoured pastime, are feeling more flush these days as the city climbs out of a six-year economic downturn.

Mainland tourist money is spent mainly on gold, cosmetics and electronics. The spending boom is expected to peak when more mainland tourists carry credits cards, which remain a rarity.

"Hong Kong is a fashion leader for a lot of mainland Chinese people," said Great Eagle's Lo.

Great Eagle's shares have jumped 60 percent so far in 2004 against a 1.2 percent drop in the benchmark Hang Seng Index . Swire Pacific has risen 10 percent, while Singapore-listed Hongkong Land has gained 13.5 percent.

GLEAMING NEW MALLS

Developers are rushing to catch up with the retail boom.

Great Eagle's 16-story Langham Place is only one of several gleaming new shopping centres in the city of seven million.

The ifc mall, owned by Henderson Land Development and Sun Hung Kai Properties , boasts 800,000 sq ft at the base of the city's tallest skyscraper and is almost fully leased after opening with just seven tenants in the depths of the SARS outbreak.

"Hong Kong people are inherently shopaholics," said Lawrence Wu, general manager of leasing for the mall.

Hysan Development Co. Ltd. has just finished a refurbishment of a high-end shopping plaza in Causeway Bay, an area which boasts the third highest retail rents in the world.

Estate agents say a shortage of prime retail space persists. The next big shopping centre under construction, the Union Square project to be built in West Kowloon by subway operator MTR Corp. Ltd. , is not due to open for another four years.

For brokers, the new retail frontier is cheaper residential areas attracting "big box"-style western chains.

Swedish home furnishings retailer IKEA, in partnership with the Dairy Farm Group , last week opened a new 85,000 sq ft outlet in Kowloon, its fourth in Hong Kong.

Brokers say British home improvement store B&Q, a unit of Kingfisher Plc. , is also in talks to lease space.

Smith of FPDSavills said he expects a further widening in the gap between rents in prime locations and less desirable areas, and that Hong Kong can absorb even more retail development. The city's outer suburbs have comparatively few shopping options.

"In some ways we are under-malled," Smith said.

Causeway Bay rents lead Asia
Eli Lau, Hong Kong Standard
28 October 2004 / 02:00 AM

Causeway Bay has again been ranked the most expensive retail location in Asia, with high rents sustained by the influx of mainland tourists and improved consumer confidence, according to a global survey.

Retail rents in Causeway Bay ranked third highest in the world, following New York's Fifth Avenue and Paris' Avenue des Champs Elysees, real estate consultant Cushman & Wake-field Healey & Baker said.

Leasing a shop in Causeway Bay costs an average US$569 (HK$4,438) per square foot a year, compared to US$950 psf at shops between 50th and 59th Streets in New York City's Fifth Avenue, which ranked No1, Cushman & Wakefield's 2004 annual survey said.

"Improvements in consumer confidence and strong recovery in the tourism industry have been the main drivers behind the sharp rental growth in Hong Kong since the Sars epidemic last year," the firm's Asia research director John Su said.

Retail rents in Causeway Bay have increased 54 per cent as visa requirements for mainland tourists have been relaxed, benefiting the retail sector.

The survey tracks retail rents in the world's top 229 shopping locations in 45 countries.

"Most countries in the region have experienced solid economic recovery over the past 12 months and many international retailers have reacted quickly to expand their presence in places like Hong Kong, Japan and Singapore," Su said.

Cushman & Wakefield's head of research David Hutchings expected healthy economic growth rates to bring confidence to retailers, but warned inflation would put further upward pressure on interest rates.

Luxury secondary market given lift
Eli Lau, Hong Kong Standard
November 1, 2004

The total value of upmarket property transactions in the secondary market will probably hit a six-month high to HK$5.3 billion, real estate agencies forecast.

Centaline Property Agency reported on Sunday that 244 luxury flats, priced at HK$7 million or above, were sold in September for HK$3.14 billion. That compares with 128 deals worth HK$2.09 billion in August.

Centaline research department senior manager Wong Leung-sing predicted luxury property transactions in the secondary market would lift further for the month - official figures have yet to be released - to 400 transactions with total value of HK$5.3 billion. That represents a 60 per cent and 70 per cent rise over September, respectively.

"We have seen very strong buying sentiment in the second-hand luxury market in the last month [October], mainly driven by the release of several new residential projects such as Residence Bel-Air in Cyberport and Bon-Point in Mid-Levels," he said.

The estimated home sales would be a six-month high since April, with 426 luxury properties sold with total consideration of HK$6.23 billion.

Last week, Pacific Century Premium Developments, developer of the luxury Residence Bel-Air project, said it reaped more than HK$2 billion from sales in the past month. It predicts a new batch of detached houses, which it plans to release early next year, could sell for 20 per cent higher than current prices.

Centaline, the largest property agency in Hong Kong, made its forecast after two local developers Cheung Kong (Holdings) and Sun Hung Kai Properties (SHKP) fended off fierce bidding from rivals to net two residential sites for a record HK$14.12 billion in a land auction held on October 12.

Wong predicts overall monthly home sales for last month could rebound to 10,000 worth HK$30.3 billion, up 10 per cent and 25 per cent from September, respectively. "We expect property transactions will continue to climb in the fourth quarter amid bolstered sentiment among prospective homebuyers," he said.

Ricacorp Properties managing director Ivan Ho said a return of market confidence was seen after a price correction occurred in the second quarter.

"Oil price rises and interest rate hikes in the US and China are unlikely to trigger long-term impact on local property market," he said.

Meanwhile, Cheung Kong said on Sunday it fetched HK$136 million from weekend sales. The homes sold included 12 flats at Caribbean Coast in Tung Chung and 30 apartments at Pacifica, a joint venture with SHKP in Cheung Sha Wan. eli.lau@globalchina.com

South China Morning Post
November 17, 2004
Vacancy rates fall across city
Peggy Sito

Office vacancy rates have declined across Hong Kong, with multinational companies taking up large amounts of space as the economy improves.

The average vacancy rate fell to 8.3 per cent from 8.4 per cent in September, according to FPDSavills. The vacancy rate was the lowest in Wan Chai/Causeway Bay at about 6 per cent and the highest in Island East at 13 per cent.

The vacancy rate in Central fell to about 7per cent after Societe Generale and Philips Electronics Hong Kong took up more than 140,000 square feet of space at Three Pacific Place.

In Kowloon, Gap International has committed to taking about 75,000 sqft in Millennium City V in Kwun Tong, boosting occupancy rates in this new development to 85 per cent.

Insurance company AIA is taking about 65,000 sqft in Gateway Tower 6 in Tsim Sha Tsui.

The Kowloon market is expected to see new supply as Great Eagle Holdings begins leasing its 700,000 sqft of office space at Langham Place in Mongkok. Asking rents range from $ 10 per sqft to $ 20 per sqft.

In the sales market, 248 office transactions were recorded last month, up from 184 in September and 162 in August, according to Centaline Property Agency.

A total of 1,845 transactions worth $ 11.41 billion were recorded in the first 10 months of this year, against 1,206 transactions worth $ 5.73 billion for the whole of 2003.

If you want to imagine a major earthquake hitting Hong Kong, imagine one hitting New York.

Serious shortage of flats in 2007: experts
Raymond Wang, Hong Kong Standard
November 20, 2004

Hong Kong may face a serious shortage of new apartments in 2007, according to surveyors and real-estate agents, who have lowered their future supply estimates after seeing the government's first quarterly statistics on housing stocks.

As at September 30, the number of unsold units in completed projects in the private housing primary market was 15,000, while about 48,000 units were under construction and unsold, giving a total of 63,000 units that will be available in the next few years, the government said on Friday.

The government report is described as a snapshot rather than a forecast. Its estimate of the number of flats available or which are now being built is about 8 per cent higher than surveyors' forecasts of about 58,000 units.

Centaline Surveyors' managing director Victor Lai said that, based on the government data, about 31,500 units will come on stream each year in 2005 and 2006 - slightly more than the average annual take-up of 30,000.

He said about 3,000 unsold units are likely to be carried forward as supply in 2007.

Lai said that even if demand averages only 28,000 flats a year from 2005 to 2007, a shortfall of 25,000 will probably occur in 2007 - significantly more than his previous estimate of about 14,000.

Midland Realty chairman Freddie Wong said his company, Hong Kong's biggest publicly-traded property broker, has lowered its supply forecast in 2007 to 11,900 units from 14,600 because developers' land banks are running out.

Developers to flatten Hunghom Peninsula; Green groups attack plans for world's largest demolition of new buildings
Gary Cheung
30 November 2004
South China Morning Post

They've never been occupied and now they never will be. The fate of seven new blocks in a harbour-front Hunghom housing estate has been decided - they will be torn down for redevelopment into luxury flats that are likely to bring a windfall of nearly $6 billion for the developers.

New World Development and Sun Hung Kai Properties announced yesterday that Hunghom Peninsula would be demolished - using environmentally friendly methods that they claim will see up to 95 per cent of the 190,000 tonnes of construction debris recycled.

It will be the largest-ever demolition of new buildings in the world.

Green groups and educators criticised the decision to tear down the blocks, saying it sent the wrong message to Hong Kong's young that profits were more important than environmental protection.

The demolition, expected to take about 10 months, is likely to start next June. The redevelopment will then take another three years.

Stewart Leung Chi-kin, executive director of New World Development, said the redevelopment would bring huge social and economic benefits to Hong Kong.

Mr Leung said three options had been considered for the site - selling the flats as they are, extensive renovation or reconstruction.

"Redevelopment will help create more than 1,000 new job opportunities and raise government revenues from increased stamp duty," Mr Leung said.

He said it would be a "massive waste" if the site of the estate - built as a Home Ownership Scheme project to help meet government housing supply targets, left vacant to stabilise property prices, then sold to developers - was not used to its full potential.

"In correcting the mismatch in land resources, we demonstrate to our next generation that if a mistake is made, one should have the courage to put it right," he said.

Kwan Chuk-fai, spokesman for NWS Holdings, a subsidiary of New World Development, said: "It will be Hong Kong's biggest environmental project and a new learning process for our students."

Surveyors estimate the redeveloped flats could be sold at $8,000 to $9,000 per square foot, earning the developers a net profit of nearly $6 billion.

Company sources said flats would range from 900 to 1,000 sq ft, with penthouses about 2,000 sq ft.

Eric Tung Chi-ho, executive director of Sun Hung Kai Real Estate Agency, said hydraulic crushers, instead of jackhammers, would be used to reduce noise and dust from the demolition. Concrete would be crushed for reclamation, while other materials would be donated to charity or recycled.

Mr Tung said only a few thousand tonnes of construction debris would be dumped into landfills. In compensation for that waste, money would be donated for green purposes. A concern group would also be set up to monitor the project.

A spokeswoman for the Environment, Transport and Works Bureau said no waste management plan for the demolition had yet been received from the developers.

She said the bureau was concerned about the demolition plan, including its environmental impact and construction waste.

The government would consult the Advisory Council on the Environment on the demolition application, she said.

South China Morning Post
December 15, 2004
Office rents expected to surge 35pc
Foreign investors may move in as vacancy rates hit four-year low
Ernest Kong

Increasing office rents will lure more foreign investment into the sector, according to property consultant Jones Lang LaSalle.

Rents for Hong Kong grade A office space will jump by as much as 35 per cent next year due to the lowest vacancy rates seen since 2000, the company projects.

"An increase in rental yield will fuel foreign investment activities and push up office transactions," Jones Lang LaSalle managing director Fung Kin -keung said.

Mr Fung said the Central office vacancy rate - which dropped to 7.3 per cent in the fourth quarter from 8.6 per cent in the third - was nearing a "frictional" vacancy level associated with normal turnover.

The office vacancies rate stood at 6.8 per cent in 2000, the height of the technology bubble when demand for space was strong.

The consultant said office rents in Island East had edged up 6.2 per cent since September while vacancies stood at 13.6 per cent - the highest among major Hong Kong business districts.

"It will still take some time for rent in non-core office areas to pick up, but rents have already started to increase, albeit at a slower pace than in core areas," Mr Fung said.

Kenneth Tsang Ky-sung, Jones Lang LaSalle's Greater China market head of research, said high investor expectations and a drop in the supply of Central office space had boosted office sector investment over the past 11 months.

Office transactions came to $ 9.63 billion in the year to last month, compared with $ 1.72 billion for the whole of last year.

"The market will enter a window of short supply between 2005 and 2006, with new office supply concentrating in decentralised areas," Mr Tsang said.

Property consultant Colliers International said current effective rents for office space in Island East, which factors in incentives such as initial rent -free periods offered by landlords, were $ 12.69 per square foot per month, compared with $ 11.96 three months ago. Effective rents in Central have increased to $ 32.32 per square foot per month, from $ 27.54 in September.

Simon Lo Wing-fai, a director with Colliers International research department, estimated the current capital value of Central office space about $ 14,000 per square foot, up from $ 12,000 per square foot three months ago.

"We have seen increasing interest in the office sector from foreign investors in the past few months. While some of the more opportunistic funds are eyeing appreciation of capital value, most of them are considering both the potential increase in office rent and capital value," Mr Lo said.

Office market looks promising
Henry Chan
19 December 2004
South China Morning Post

Life might be better in the Hong Kong office market than the residential market next year.

Home prices are not likely to climb dramatically. Average income is forecast to rise only 2.8 per cent, rental yields are already less than blue-chip equity dividend yields, and rental income is insufficient to cover mortgage instalments. Mortgage rates are also poised to surge higher when the hot money leaves Hong Kong. Nevertheless, prevailing home prices should be sustainable if income stays firm and interest rates remain relatively low.

But the office market, especially among grade-A and B properties, looks better. The main reasons are the large differential between rents for grade-A and B offices in Central and other districts, and the lack of new supply in all office grades.

As recently as September, average rents of Central grade-A offices recorded by the Ratings and Valuation Department was $301 per square metre, while the figure was as low as $122 in Wan Chai and Causeway Bay, and $130 in North Point and Quarry Bay. The cheaper properties, which are just as good in terms of working environment, will be a powerful incentive for non-finance tenants to move away from Central.

Recent transactions reveal that rental yields are falling in the Central area. For example, yields on some grade-A office units at 9 Queen's Road Central are as low as 1.6 per cent, while a unit in ICBC Building is a more reasonable 4 per cent. Recent advertisements suggest that even some units at Lippo Centre can be purchased at a yield of only 3 per cent.

Actual yields after deducting management fees, rates and tax will be even lower. Property investment counters with grade-A and B office holdings outside Central will probably earn sharply higher rental income when existing leases are renewed next year.

All this brings me to an excellent company, but trading at rich valuation. The value of Hang Lung Properties (HLP) is relatively easy to evaluate compared to other residential property development companies as all of its properties for sale are completed. What catches the eye is the huge embedded profit from its available housing stock.

For the financial year ended June 2005, HLP is forecast to record sales of $8.29 billion and earn profit of $3.17 billion from four major residential projects.

According to my estimates, the company will close out this year with group sales of $10.7 billion, up 136 per cent year on year, and operating profit of $4.76 billion, up 66 per cent. Taking into account its minority interest in the Aqua Marine development, net profit should be $3.54 billion, up 71 per cent, or $0.965 per enlarged share.

Value of the property investment business standing alone from June 2007 onwards could be $8.6 per enlarged share. Keep in mind that office and shop rentals do fall when times are tough.

The company is planning to issue 370 million new shares at an offer price of $12, a level which appears very close to the company's present value.

The placement will bring in proceeds of $4.4 billion, which will boost its firepower to acquire more land. The company has said it intends to buy land in China, but given the possibility of a slowdown in the mainland residential property market, I believe that will probably not happen in the near term.

Taking into account present value of net profits of the coming three fiscal years, free cash distributable after setting off all current liabilities, and present value of property leasing business, I got a total present value of $13.7 per share, so the offer price of $12.15 is probably close to fair value.

Bear in mind that actual selling prices, sales volume and profit from sales could be lower than my estimates.

Value investors should take advantage of any considerable declines in the share price of HLP to acquire a stake in this excellent company.

Henry Chan is the deputy head of research at Quamnet. He does not own shares in HLP.

Ritz-Carlton to open world's highest hotel in Hong Kong
December 21, 2004

HONG KONG (AFP) - The United States based Ritz-Carlton hotel group is to open the world's tallest hotel, with a new 300-room state-of-the art property at the top of a new Hong Kong skyscraper, the company said.

The hotel will take up the top 13 floors of a 100-storey harbourside "megatower" to be opened in the Kowloon district in 2009, a statement from the company said Tuesday.

Ritz-Carlton also plans to open a new hotel in the Pudong area of China's Shanghai.

so Union Square 7 got Ritz-Carlton, and US6 got W Hotel so far.

The press release with more info from Sun Hung Kai Properties:

http://www.shkp.com.hk/en/scripts/news/news_press_detail.php?press_id=3156

The Ritz-Carlton Hotel Company Announces Plans for New Hotels in Hong Kong and Shanghai; At 1,574 Feet, Kowloon Site Will Be The World’s Tallest Hotel Building


21 December 2004

The Ritz-Carlton Hotel Company, L.L.C., of Chevy Chase, MD (USA) today announced plans to open a new 300-room hotel in Hong Kong in 2009 which will be a showcase of contemporary design as well as the highest hotel in the world. Additionally, a letter of intent has been signed to open a second Ritz-Carlton hotel in Shanghai on Century Boulevard in the heart of Pudong’s Lujiazui District.

Both hotels will be owned by Sun Hung Kai Properties Limited, one of the largest real estate companies in the world operating in Hong Kong and mainland China.

The 1,574-foot-tall Ritz-Carlton will soar above the city’s skyline and harbour, becoming a landmark structure from its strategic location above Kowloon Station on the Hong Kong Airport Railway line.

Since 1993, The Ritz-Carlton Hotel Company has operated one of the region’s most successful and award-winning properties, The Ritz-Carlton, Hong Kong in the Central District, under the direction of regional Vice President, and General Manager Mark Lettenbichler. The company will continue to operate this hotel.

The new hotel will occupy the upper 13 floors of a 100-storey plus tower designed by the renowned architectural firm of Kohn Pederson Fox Associates PC. The site will be the home of a major mixed-use development, including condominiums, office space, retail and serviced apartments.

Designed to make an impressive architectural statement, the new Ritz-Carlton in Kowloon will match its exterior quality with equally stunning interior appointments. Luxuriously-appointed rooms and suites will be spacious, featuring the latest in technological enhancements and the finest design elements. Windows will overlook Victoria Harbour with 360 degree panoramic views. In addition, the signature Ritz-Carlton Club level will provide an exceptional level of privacy and exclusive services for guests, including complimentary, round-the-clock food presentations and dedicated butler/concierge services.

Three fine-dining restaurants will be complemented by The Lobby Lounge and Bar. Meeting space totaling 1,200 square meters, including a grand ballroom of 640 square meters, will offer customers an array of choices from board meetings to social functions. Of special note will be an indoor swimming pool, complemented by an outdoor swimming pool, set high atop the hotel. A world class spa and wellness center will occupy the top floor, offering a unique vantage point for Ritz-Carlton guests.

“Asia continues to provide the best strategic growth opportunity for The Ritz-Carlton Hotel Company,” notes Simon F. Cooper, President and Chief Operating Officer. “We are proud to partner with Sun Hung Kai Properties in the development of this extraordinary new property. The location offers significant advantages because of planned development in the area, as well as access to vital transportation links. This hotel will offer both our corporate and leisure guests an address that is exclusive, as well as highly convenient.”

Sun Hung Kai Properties’ Chairman & Chief Executive Walter Kwok said, “We are very pleased to have The Ritz-Carlton as the operator of this magnificent six-star hotel which will occupy the top floors of the 1,574-foot mega tower. This property forms an important link in the Kowloon Station development and will be the highest elevated hotel in the world. Our Kowloon Station development will offer residential, office and retail space along with the luxury hotel, all designed and built to the most exacting standards. We are confident that the world-famous Ritz-Carlton hospitality and service will make this one of the finest hotels on an international scale.”

The Ritz-Carlton Hotel Company, L.L.C. of Chevy Chase, MD, (USA) currently operates 58 hotels in North America, South America, Europe, Asia, the Middle East, Africa, Asia, Mexico and the Caribbean. It is the only service company to have twice earned the prestigious Malcolm Baldridge National Quality Award, which recognizes outstanding customer service. For more information, call toll free, 1-800-241-3333, contact a travel professional, or consult the web site at www.ritzcarlton.com.

(Issued by The Ritz-Carlton Hotel Company, L.L.C. of Chevy Chase, MD, USA)

Flats price rise tipped after rush
Eli Lau, Hong Kong Standard
January 10, 2005

Property players forecast stronger price rises after nearly 1,000 flats sold for above market rates at a new development in Kennedy Town.

More than 1,000 buyers who queued for hours stormed into The Merton on Sunday, the third day of strong buying at the project co-developed by New World Development and the Urban Renewal Authority.

Prices ranged between HK$6,000 and HK$7,000 per square foot - almost 30 percent above the residential price level in Western District, agents said. Units on higher floors fetched around HK$8,000 psf.

Market sources said Deborah Ho, daughter of Macau casino mogul Stanley Ho, spent HK$300 million on 72 flats at the development.

Total sales represented about 85 per cent of the 1,182 flats available.

Centaline Property Agency senior manager Wong Leung-sing believes the overwhelming response will set a new benchmark for Hong Kong Island.

"This sale is very positive to the secondary property market," Wong said. "Some flat owners have already raised their asking prices."

Agents said speculators were responsible for about 40 percent of the sales.

New World Development chairman Cheng Yu-tung is upbeat on the outlook for the property market on the outcome and forecasts a 10 per cent price rise this year for mid-priced properties.

It is estimated the developer has raised HK$3.8 billion to HK$4 billion from the sale. NWD had estimated it could fetch up to HK$4.5 billion for the entire development.

Agents expect the remaining flats to sell in the next week or two at prices 5-8 percent higher.

Speaking after the group's annual Fun Day on Sunday, Cheng said the property market would remain healthy in 2005.

"I believe property prices will increase by 10 percent this year, mainly on mid-value flats," he said.

"Prices of luxury properties have been pretty good."

Cheng does not anticipate a sharp jump in prices for low-cost homes, particularly in the New Territories where land supply is plentiful.

"If prices surge too fast, members of the public may not be able to afford it," he said.

Despite the strong sales at the Kennedy Town project, Cheng said the developer would not speed up the release of new projects.

The sales schedule also depends on the progress of the government's approval of pre-sale consent, he added. Cheng refused to comment on whether the controversial West Kowloon cultural hub project should be tendered on a single-developer basis.

Meanwhile, leading developer Cheung Kong (Holdings) said it received more than 1,500 registrations for the latest batch of Caribbean Coast flats in Tung Chung at the weekend.

HK office rents fifth highest in the world
26 January 2005
South China Morning Post

Hong Kong has risen 12 places to No5 in a ranking of the world's most expensive places for office space, according to London-based real-estate group Cushman & Wakefield Healey & Baker.

This was the result of rents surging 109 per cent in local currency terms last year, said the group, which added that rents were the biggest part of occupancy costs.

Michael Thompson, Cushman & Wakefield's chief executive in Asia Pacific, said: "Banks and other financial institutions have been particularly active in the Hong Kong market, taking the opportunity of historically low rents to upgrade to better-quality office space.

"But we must remember that Hong Kong is traditionally a volatile market, and rents are still 42 per cent below their 1997 peak."

Mr Thompson expected rents would continue to rise this year.

London's West End topped the list.

Peggy Sito

Speculators eye suburban units
Peggy Sito
02 March 2005
South China Morning Post

Speculative buying is on the rise in Hong Kong's suburbs as investors snap up units in Tin Shui Wai and Tuen Mun.

Property agents said the number of short- and long-term investors in the secondary market started climbing a few months ago when banks began offering 95 per cent mortgages for second-hand flats.

Midland Realty executive director Victor Cheung Kam-shing said speculators' initial targets were properties in urban areas valued at under $3 million but the focus had shifted in the past two weeks to properties in the New Territories, where values lagged behind those in urban areas.

Centaline Mortgage Brokerage associate director Alex Tang Yee-man said suburban flats cost less at $1 million to $2 million.

"Many people can afford this," he said. "With the provision of 95 per cent mortgages, you need a down payment of just $50,000 for a $1 million flat. That easily draws confirmors, or speculators."

Confirmors are buyers who resell their properties before they sign the formal sale and purchase agreement.

"Even if property prices fall 15 per cent before the completion of the deal, you've only lost a very small amount of money," Mr Tang said.

An investor recently bought eight apartments in Kingswood Villas in Tin Shui Wai for $12 million, according to Centaline Property Agency.

The agency said 220 transactions were completed at Kingswood Villas last month compared with 92 in January.

Mr Cheung said buying interest was also seen in Tuen Mun as secondary market activity picked up strength.

Twice as many sites for developers amid boom
Danny Chung, Eli Lau and Raymond Wang, Hong Kong Standard
March 5, 2005

With the property market booming, the government will make twice as much land available to developers in the new fiscal year as it did this year.

The new application list for the April 2005-March 2006 period will contain 35 sites, versus this year's list of 17. Though only six of the 17 were sold, it was enough to net the government almost HK$20 billion, which will probably allow it to end the year with a budgetary surplus after four years of deficits.

Under the application list system, any developer can trigger an auction for a site by making a bid that matches the government's minimum price.

"In view of the good auction results and market demand, more land is included and greater choice in terms of size, location and variety of sites is provided in the 2005-06 application list," Director of Lands Patrick Lau said Friday. He also announced changes to the system that would shorten the land sales process.

The 35 sites, including 11 rolled over from this year, represent a total area of 26.85 hectares. Twenty-nine are earmarked for residential use and six for commercial use. The government estimates the 29 residential sites with a total area of 22.1 hectares could provide about 11,000 flats starting in 2008.

Among the commercial lots, market watchers said all eyes would be on the Central Market site, near the heart of the prime business district, though it will be next February before developers are allowed to trigger an auction.

Lau said four of the commercial sites, including Central Market, were suitable for hotel development.

Ronald Cheung, a surveyor at Midland Realty (Holdings), said the Central Market site would probably fetch more than HK$5 billion.

He predicted the Borrett Road site in the Mid-Levels would be the most sought-after residential location, selling for about HK$7.12 billion.

If all 35 sites on the list were sold, he said, the government would pocket as much as HK$61.7 billion.

Lau said the government would speed up the land sale process by reducing the time elapsed from the submission of a successful initial bid to the holding of an auction, to seven weeks from 10. The period of public notice would be cut to two weeks from three.

Each month, the government will provide figures on the number of successful bids. Lau said this year, developer bids had fallen as much as 30 percent short of government minimum prices in some cases.

Surveyor Jade Lam of Hong Kong Property said the new application list would encourage more small to mid-size developers to bid for land.

"The property market will see healthy growth with competition from all developers of all sizes," Lam said.

Surveyor Charles Chan said the number of residential lots on the new list fell short of market expectations, indicating the government's intention to keep the housing market stable.

Projects worth US$5b to get under way this year
Hong Kong Standard Staff reporter
March 9, 2005

Work will begin this year on US$5 billion (HK$39 billion) worth of construction projects in Hong Kong, BCI Asia Construction Information estimates.

That compares with US$40 billion of projects in the mainland, US$11 billion in Malaysia, US$9 billion in Indonesia, US$7 billion in Thailand, US$5 billion in Vietnam, US$4 billion in the Philippines and US$2 billion in Singapore.

After compiling data on projects under design or that broke ground between October 2003 and September 2004, BCI ranked the territory's architectural firms based on the value of their developments under way and announced the top 10 firms at an awards ceremony Tuesday.

They are: Aedas, CYS Associates (HK), Dennis Lau & Ng Chun Man Architects & Engineers (HK), Hsin Yieh Architects (International), Leigh & Orange, P&T Architects and Engineers, Rocco Design, Ronald Lu & Partners (HK), Wong & Ouyang (HK), and Wong Tung & Partners.

Aedas, Wong & Ouyang and Rocco Design also received other awards for specific projects.

$1b plan to revamp Shamshuipo site
Elaine Wu
12 March 2005
South China Morning Post

The Urban Renewal Authority has proposed demolishing 17 old buildings in a rundown area of Shamshuipo in a $1.1 billion project that would create 390 flats.

Most of the buildings were built in the 1950s and include shops and restaurants on the ground level with walk-up residential buildings. The area is home to many new migrants from the mainland, with some flats housing up to seven families.

Nearly 300 households, with about 800 residents, would be forced to move. But authority executives did not expect much objection from the public because the area needed redevelopment.

Eddie So Shuen-yee, the authority's general manager of external relations, said: "From our past experience from projects in Shamshuipo and similar old districts, our offer of development has always been a popular decision {hellip} with the owners and the tenants. I hope this won't be an exception."

The 36,000 sq ft site - on Lai Chi Kok Road, Kweilin Street and Yee Kuk Street - is the authority's seventh redevelopment project in Shamshuipo.

Authority executives said the area was chosen because of the age of the buildings and the need to revitalise the community.

Mr So said it would have been difficult for private companies to acquire enough ownership on the site to redevelop it.

Hui Siu-hung, who owns a 1,100 sq ft flat in Yee Kuk Street, said a private developer had offered $3.3 million six years ago for his flat, which he bought for $500,000 in 1990. But because his neighbours did not want to sell, the developer abandoned its attempt.

Mr Hui welcomed the move to redevelop the area because of the poor condition of the buildings. He often saw fragments falling from the ceiling and water dripping from pipes. There was no management in his building and his family had to sweep the staircase themselves.

Ms Lau, a cleaner from Dongguan, moved into a room in a seven-bedroom flat with her husband and daughter after they arrived in Hong Kong in 1997, paying $1,700 a month and sharing the bathroom and kitchen with other families.

She stayed on alone after her family got a public housing flat in Yau Tong because it was closer to work.

"I like it here because people here are less complicated. Most of them are from the mainland."

The authority will have to get approval from the Town Planning Board and Executive Council on the proposed plan before starting to acquire ownership of the land.

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Hong Kong's Wharf earnings rise on property rebound

HONG KONG, March 15 (Reuters) - Hong Kong conglomerate Wharf Holdings posted a 24 percent rise in annual earnings on Tuesday thanks to a property market revival that is pushing up rents at its retail and office properties.

The firm, which also has port and communications businesses, notched up a net profit of HK$3.77 billion ($483.4 million) in 2004, beating analyst expectations.

The consensus estimate was for a net profit of HK$3.63 billion, according to a poll of 21 analysts by Reuters Estimates.

The firm made a net profit of HK$3.04 billion in 2003.

Wharf said in a statement that steady growth in retail rents and a recovery in hotel operations from a slump in 2003 helped push turnover up 6 percent to HK11.953 billion.

The net profit was boosted by a HK$550 million one-off gain from the increased value of its property. But the company's telecoms unit also wrote down HK$298 million for network assets impairment.

Nearly two-fifths of Wharf's gross asset value comes from retail properties, which are expected to bring in higher rental incomes in the coming two years as two- or three-year leases signed during a property market slump are renegotiated.

With Hong Kong property values up a third last year and seen rising another fifth this year, some analysts are predicting Wharf will raise rents in its buildings by a quarter this year.

The company said its property investment business brought in HK$4.645 billion in revenue last year, up 9 percent on 2003.

Earlier this month, Wharf's pay television and internet unit i-Cable posted a 29 percent rise in net profit to $HK284.34 million.

Analysts are split on their recommendations on Wharf shares, with many saying their price of $HK25.35 already reflects predicted rent rises this year.

Citgroup analyst Anil Daswani has a "sell" recommendation on the stock, saying doubts have emerged over planned development projects in the busy harbourside Tsim Sha Tsui district, which could dampen sentiment on an area where Wharf has many of its buildings.

But Lehman Brothers analyst Anthony Wu has an "overweight" recommendation, arguing that the area is becoming a much sought-after address for businesses.

He says fair value for the stock would be a 15 percent discount to his forecast 2005 NAV of HK$42.99 per share.

The stock, down 1.36 percent at Tuesday's market close, before the results were announced, and is now trading at a 41 discount to that forecast.

Metro Town luxury yours for $40m; Cheung Kong's hefty price aims to bolster buying sentiment
Sandy Li and Ernest Kong
16 March 2005
South China Morning Post

A 3,000 square foot penthouse in Tseung Kwan O is being pitched for sale at $13,000 per square foot, far higher than a similar luxury flat at the 24-year-old Tregunter Tower One in Mid-Levels.

Cheung Kong (Holdings) is asking $13,000 per square foot, or more than $40 million per unit, for four penthouses at Metro Town above Tiu Keng Leng MTR station, but property agents said developers often stirred up the market by releasing units with "ultra hefty" price tags.

"They do not aim to sell the unit at the target price, but it will help them to ask for more aggressive prices at standard units," one agent said.

Vincent Chan Kwan-hing, an executive director at Midland Realty (Holdings), said it was a marketing gimmick to attract attention. "The price is outrageous," he said.

Meanwhile, Kerry Properties is releasing two 3,052 sqft luxury flats at Tregunter Tower One for $23 million and $24.8 million. The prices represent $7,536 and $8,125 per square foot.

Units in neighbouring Dynasty Court have been sold for $11,000 to $12,000 per square foot.

Semy Ng Mai-shan, an assistant marketing manager at Kerry Real Estate Agency, said prices for the four-bedroom units at Tregunter Tower were in line with secondary market prices.

"We received about five offers even before they went on official sale," Ms Ng said.

She said eight other units at Tregunter Tower One would go on sale this year once their leasing agreements expired.

Cheung Kong sales manager William Kwok said of the four penthouses at Metro Town: "We won't sell them at less than $10,000 per square foot."

This compares with the average price of $4,500 per square foot for Central Heights, a project near Tseung Kwan O MTR station launched earlier this month.

Metro Town, a joint development with MTR Corp, has 3,700 flats measuring between 600 sqft and 1,900 sqft.

Another developer using the high-price strategy is Wharf (Holdings), which is offering a 2,715 sqft duplex unit at Sorrento, near Kowloon station, for tender in the hope of getting $20,000 per square foot.

Pacific Century Premium Developments, the property arm of PCCW, is reportedly looking for the same amount for a 6,603 sqft duplex at Bel-Air Residence.

Hong Kong Developers Boost Profit
Property-Market Rebound Lifts Income at Henderson
Lower Costs Aid Sino Land
18 March 2005
The Asian Wall Street Journal

HONG KONG -- Two of Hong Kong's largest developers reported big increases in fiscal first-half earnings as the rebound in the city's property market since the second half of 2003 continues.

Henderson Land Development Co. posted a 22% rise in net income for the six months ended Dec. 31 to HK$1.3 billion (US$166.7 million) from HK$1.06 billion a year earlier.

The blue-chip developer has slowed sales at its developments while failing to replenish its land bank. However, higher home prices helped it to offset a 62% decline in its property development revenue to HK$569 million from HK$1.48 billion.

Sino Land Co. said its first-half net income more than doubled to HK$1.41 billion from HK$607.1 million.

A 38% fall in its finance costs to HK$69.1 million from HK$111 million a year earlier helped support its earnings.

Hong Kong's property heavyweights have been reporting upbeat earnings so far this year due to strong residential prices, which have climbed about 40% since the second half of 2003.

Sun Hung Kai Properties Ltd. surpassed expectations earlier this month when it said it nearly doubled half-year earnings.

Like their peers, Henderson Land and Sino Land raised their dividend payouts.

Henderson Land raised its first-half dividend to 40 Hong Kong cents a share from 35 Hong Kong cents. Sino Land increased its interim payout to 8.5 Hong Kong cents a share from five Hong Kong cents.

Henderson Land said it was confident housing prices would continue to rise, adding that it was interested in buying land through government auctions in the coming year.

Many analysts think soaring land prices will squeeze the profits of Hong Kong developers, despite a property market boom.

"It's anticipated that demand for local residential properties will continue to increase and residential property prices will record satisfactory increases," Henderson Land said in a statement.

Henderson Land said sales attributable to the group at its prime office and retail project in the Central business area had reached HK$4.8 billion by the end of 2004.

Rents should also start rising at the project, to reflect Hong Kong property values that jumped by a third last year and are seen rising another 20% in 2005.

UBS analyst Paul Louie, who has a "buy" recommendation on Henderson Land shares, said the stock is trading at an "undemanding" 25% discount to current net-asset value, compared with an average 15% discount in the past.

Prior to the earnings reports, Henderson Land's shares closed down 10 Hong Kong cents at HK$35 each, while Sino Land's shares closed steady at HK$7.20.

Analysis - Hong Kong Property Review Q4 2004
03 February 2005
Asia Pulse

EXECUTIVE SUMMARY

Steady economic growth and a positive outlook helped drive the demand for real estate over the final quarter of the year. The office take-up continued to focus on Central, resulting in vacancy falling below 10%. Residential sales activity picked up after a lull over the summer months. Prices for prime residential projects pushed through previous benchmarks. Retail remained hot property as a result of rising tourist and domestic spending.

GRADE A OFFICES

Demand and Take-up

Around 380,000 square feet of grade A office space was taken up over the final quarter of the year. This was slightly more than the amount of office space absorbed in the third quarter.

Around 60% of the take-up was recorded in Central. This reflects the fact that leasing demand continued to largely focus on offices in the area.

Supply and Development

Overall vacancies fell to an average 9.6%, compared to 12.5% at the end of last year. Vacancy rates in Central averaged 9.0%, the lowest out of the main office districts. No new grade A office developments were completed over the final 3 months of the year. However, recently completed developments such as Langham Place in Mongkok and Millennium City 5 in Kwun Tong are competing with traditional office districts for new tenants. Both buildings total over 1 million square feet gross combined. Rental Profile Grade A office rents averaged HK$21 per square foot per month. Office rents increased 7% over the quarter and are currently 41% higher than compared to the end of 2003. Rental growth in Central continued to outpace the other districts due to continued steady demand. Core Central rents increased 12% over the quarter to average HK$34 per square foot per month.

Investment market

Sales activity remained robust over the past three months, both for strata-title units as well as whole block assets. Pacific Century Premium Developments entered a provisional sale and purchase agreement with a property fund managed by Prudential Financial for PCCW Tower in Taikoo Place, Quarry Bay. The fund offered HK$2.8 billion for the 620,000 square foot office tower. Prices continued to rise over the quarter and averaged HK$8,100 per square foot in Core Central. Rental yields remained low at 3% to 4%. Outlook Activity so far has largely focused on Central.

Take-up this year is roughly equivalent to the entire floor area of Two IFC. With the exception of the AIG Tower, which will be completed next year, vacancies in the Central district predominantly consist of older secondary space.

Knight Frank Research expects activity to increase outside of Central next year as occupiers look to other districts for available space. This will be particularly true in Kowloon, with the addition of new developments in decentralized areas.

We forecast both rents and prices to rise another 30% in 2005 on the back of steady take-up amidst limited new supply.

PRIME RETAIL

Demand & Take-Up

Growth in tourist arrivals and spending, coupled with improving domestic demand, have contributed to the rebound in the local retail industry. Retail space, both street front and in shopping centers, remained hot property.

Latest figures indicate 620 commercial transactions in September, up 45% from the previous month and the most activity since March earlier this year.

Rents & Prices

Retail rents held steady over the quarter to average HK$169 per square foot per month. However, rising demand for commercial space amidst the rebounding retail industry has helped push rents up almost 50% since the middle of the year.

Prices have risen by around 53% over the second half of the year to average HK$32,300 per square foot. Prices grew the fastest in Mongkok, averaging 16% higher over the quarter.

Outlook

Knight Frank Research expects demand for retail space to remain strong in 2005, on predictions of continued growth in tourism, as well as domestic demand.

This will be particularly true in hot shopping districts such as Central, Causeway Bay, Tsimshatsui and Mongkok.

The recent opening of Langham Place in Mongkok will draw more local and foreign tourists to the area. Knight Frank Research forecasts prices to rise another 30% next year, while rents will increase by a more modest 15%.

Title: Hong Kong Quarterly - Quarter 4 2004
Source: Knight Frank Research
Website: http://www.knightfrank.com

Mid-Levels fights twin-towers 'plot'
Developer is accused of threatening to build 63-storey tower as a stick to force approval for a different design
Raymond Ma
20 March 2005
South China Morning Post

Residents in Mid-Levels have accused Swire Properties of trying to blackmail them with plans to build a luxury residential development that will block the views from hundreds of flats.

They are also furious that the Buildings Department granted approval for Swire to construct a 63-storey "toothpick" tower without first seeking consent from the community.

Residents say they are now being forced to choose between having their views obstructed by the toothpick tower or by a wall-like 54-storey building that Swire is lobbying to put up in its place.

They are concerned that construction of either design will cause a slew of problems, including more traffic congestion, reduced hygiene standards as a result of so many apartments being packed closely together, and the blocking of light to flats on low floors.

But the most vocal criticism has come from the 650 tenants of Robinson Place, situated just behind the site of the proposed tower. They feel betrayed by the big developer because they say they were persuaded by the same company in 1994 to move into Robinson Place with the promise that their harbour views would never be blocked.

"It was a calculated move and this is blackmail. They are saying that they had better be allowed to build what they want, otherwise you are going to have a very weird-looking building blocking your view," said legislator Kwok Ka-ki, who also serves the area's district council.

Winnie Chan, a resident representing the Robinson Place tenants, said: "Before we moved here, we residents were told by Swire sales staff that they owned the land directly in front of our building and we would be guaranteed a sea view."

A Swire Properties spokeswoman has denied all accusations. She confirmed that the company had one approved plan to build a 63-storey tower but added that no final decision had been made on whether it would proceed if other plans were not approved.

Swire has denied all knowledge of any sales pledges, and countered that residents should have expected the skyline to change as the city grows.

The spokeswoman said the company only intended to "develop the site to its full potential".

Swire has been seeking government approval to lift planning restrictions so it can build the 54-storey tower, but its attempts have failed because of opposition from people living in the area.

According to officials, Swire successfully applied to the Buildings Department in November 2003 to construct a 63-storey block of flats on the site.

The realisation of either design would be an ironic reversal for the tenants of Robinson Place, Mid-Levels residents said. One of the tallest buildings in the area, 47-storey Robinson Place, has blocked the views and sunlight of many surrounding flats since it was built.

Towering rents push costs sky high
Office landlords to continue raising prices but Hong Kong's competitiveness is not expected to suffer
Sandy Li and Foster Wong
23 March 2005
South China Morning Post

Hong Kong is poised to become one of the world's five most expensive places to open an office as landlords raise rents while new supply falls.

Landlords say rents will continue to rise in line with demand.

However, developers and consultants believe rising office rents will not hurt Hong Kong's competitiveness.

Last week, Financial Secretary Henry Tang Ying-yen expressed concern over business enterprises' operating costs in the city, while companies such as Mannings, the largest pharmacy chain, warned that soaring rents in the office and retail sectors would certainly jeopardise its competitiveness.

Rents for grade-A offices in Central have increased 91 per cent, while retail rents in some prime locations have virtually doubled, according to consultants.

DTZ Debenham Tie Leung said Hong Kong's occupancy costs [which include office rents, management fees and government rates] had increased dramatically. In turn, Hong Kong rose 12 places to become the ninth most expensive city in the world in December.

"Hong Kong is in the same situation as the top five most expensive cities [which include] London, Tokyo and Paris, where tight supply coupled with a sharp rebound in business activities have pushed up rents," said DTZ research director Alva To Yu-hung.

He expected Hong Kong's ranking to enter the top five this year in view of increasing rents, which were outpacing those of many other countries.

But Mr To said operating costs were not a key concern for companies moving to Hong Kong.

"Political stability, a well-established banking system, an open and fair legal system and low tax are top criteria for a city's competitiveness while operating costs [are further down the list]," he said.

Adrian Lee Ching-ming, assistant director of Great Eagle Holdings, which owns the retail-hotel-office development Langham Place in Mongkok, said rent was not a major consideration for multinational companies.

"Hong Kong will maintain its competitiveness as long as companies can make profits here," he said.

Mr Lee said rental expenses normally accounted for 10 per cent to 15 per cent of the operating cost of a multinational corporation.

He said that office rents still had not returned to the level of 2002.

He said as business activities remained brisk in London - the world's most expensive city ranked by DTZ Debenham Tie Leung - where rents were US$171 per sqft a year compared with Hong Kong's US$66.60 per sqft a year.

"Does that mean nobody is doing business in London? The answer is no," he said.

Mr Lee said that with supply of new office space expected to dwindle in the next few years, rents would probably continue to increase for the next 18 months.

Raymond Chow, executive director of commercial property at Hongkong Land, the largest landlord in Central with 4.6 million sqft of commercial space, shared Mr Lee's view. "I think sometimes the issue is being twisted. It's a level playing field out there. A landlord can only take what the market dictates," Mr Chow said.

"It is certainly not the case that a landlord can raise rent to whatever level it wants and a tenant will accept it.

"This all goes back to the fundamental equation of demand and supply."

Henderson Land Development vice-chairman Colin Lam Ko-yin said the recent rise in rents in the office leasing market still lagged behind market performance.

He said that 10 years ago some offices in Central were being rented at $60 per sqft a month, wheras rents at Two IFC, Hong Kong's tallest building, only increased to $50 per sqft from $20 last year.

Henderson Land is a co-developer of IFC.

"It is not expensive at all for a world-class office building. A city can charge higher rents as salaries improve," Mr Lam said.

"If companies want lower rents they should move to Africa."

According to the government, the number of regional headquarters and regional offices in Hong Kong reached all-time highs last year.

There were 1,098 companies that were regional headquarters last year, up 14 per cent from 966 companies in 2003.

There were a total of 2,511 companies with regional offices here last year, up 12 per cent compared with 2,241 companies in 2003.

IFC Mall boosts Central's appeal as commercial hub
Hongkong Land sees rival complex as 'complementary partner'
Foster Wong
23 March 2005
South China Morning Post

By offering shopping, fine dining, live music performances and an art exhibition, the IFC Mall has become a hot spot for entertainment in Hong Kong's business district since it opened two years ago.

The mall, developed by a consortium led by Sun Hung Kai Properties (SHKP) and Henderson Land Development, is still expanding aggressively by bringing more first-time retailers to Hong Kong this year.

It expects the soon-to-open Four Seasons Hotel, part of the IFC complex, will help it achieve full occupancy of its retail space by the middle of this year, up from 98 per cent at present.

But will this fast-paced growth threaten other major landlords of retail space in Central?

Hongkong Land, the biggest landlord in Central and owner of a large chuck of retail space, said its retail property business was not feeling the pressure from its rival.

It said its prime buildings in Central were still homes for high-end luxury brands.

"We still house all very high-end luxury brands' flagship and main stores in Hong Kong. This is a testament to the strong demand for our retail properties," Hongkong Land executive director of commercial property Raymond Chow said, citing the refurbishment of its Central portfolio, especially Giorgio Armani's largest flagship store outside Milan and Bvlgari's first Asian flagship store, as examples.

Occupancy of Hongkong Land's retail space remained high at 98.2 per cent at the end of last year as a result of increasing tourist arrivals, particularly from the mainland, and revived consumer spending.

Average rent was about $100 per sqft last year.

In a move to beef up its leading position, Hongkong Land will boost its retail space to 573,000 sqft this year and 622,000 sqft next year. This compares with 473,000 sqft as at the end of last year.

Hongkong Land is undertaking a US$210 million upgrade of its retail space in The Landmark complex, where it will introduce Asia's first Harvey Nichols store in the third quarter and add a small luxury hotel in Edinburgh Tower, to be managed by Mandarin Oriental, later this year.

A new office and retail scheme in the tower bordering Queen's Road and Ice House Street will be finished in the fourth quarter of next year.

Although Hongkong Land is gearing up to fend off rising competition, Mr Chow said the emergence of new shopping malls such as IFC was not necessarily a bad thing because it would help build critical mass to enhance the appeal of Central as a shopping district.

"[The IFC] is not so much a competitor but more a complementing partner now. It will bring more shoppers from other districts to Central," he said, adding that Central had always been an area where luxury retailers established a presence in Hong Kong.

SHKP executive director Mike Wong Chik-wing echoed Mr Chow's view. "The key is to have a bigger pie so that we all can have a bigger slice of the market."

Analysts said landlords did not sense that competition was intensifying at this stage as retail sales were growing and the economy was picking up.

An analyst said: "I think the duo [SHKP and Hongkong Land] co-exist just fine in Central. Retailers are recording increasing sales thanks to the upswing in consumer confidence and brisker tourism outlook.

"Such strong market demand should buoy retail property space for the duo."

Forecast $42b in luxury sales highest since 1997
Eli Lau, Hong Kong Standard
April 28, 2005

At least 2,400 luxury apartments will be sold for HK$42 billion this quarter - the highest level since the property market peaked in 1997 - with developers expected to offer more than 900 new homes for sale over the next two months, according to property agents Ricacorp.

That rosy forecast comes despite a slump in sales of luxury properties in the first quarter. In the first three months of this year, 1,694 luxury apartments costing HK$7 million or more were sold, down 20 percent from the 2,128 units that found buyers in the last quarter of 2004. The total value dropped 23 percent to HK$26.4 billion from HK$34.2 billion in the final three months of last year. Almost a third - 31 percent - of the units sold in the first quarter were new.

Ricacorp executive director Willy Liu attributed the sales decline to a shortage of new upscale homes coming to market rather than a fall in demand.

``We expect the market focus will return to the luxury sector in the second quarter, since nine new home projects with a total of 922 units will probably be launched for sale,'' Liu said.

The firm predicted Cheung Kong (Holdings) will launch its 276-unit The Legend project in Tai Hang over the next two months.

Sino Land is expected to put its wholly owned The Royal Oaks in Sheung Shui on the market, along with the 222-unit Mount Beacon which it co-developed with Chinese Estates Holdings and Manhattan.

Shimao China Holdings is likely to sell two 6,000 sqft houses at 21A-21B Severn Road, The Peak.

Liu predicted buyers will be found for at least 70 percent of the new apartments.

``The luxury market has been heating up already, with an 8 percent price rise this month,'' he said. ``We expect to see 10 percent growth for the whole quarter.''

The firm predicts luxury prices will rise 25 percent to 30 percent this year.

Buying sentiment was given a boost by the recent, and highly publicized, sales of some 900 flats at The Arch development at Kowloon Station, which was jointly developed by Sun Hung Kai Properties and MTR Corp. It was followed by New World Development, Chow Tai Fook Enterprises and Singapore's Wee Investments which sold more than 500 units of The Grandiose, Tseung Kwan O, this week.

James Fung, Midland Holdings sales manager for Tseung Kwan O district, said the robust pace of new home transactions was helping drive sales in the secondary market as well.

Buyers at The Grandiose, he said, were putting their existing properties on the market with a markup of 10 percent.

Industry ponders exorbitant price paid for penthouse
Players say other projects offer far better value for money
Ernest Kong
27 April 2005
South China Morning Post

Property sector players are wondering why the unidentified buyer of a penthouse in The Arch paid so much - $168 million - for the unit.

With a unit price of $31,300 per sqft the duplex - among four of its kind in the 1,054-unit The Arch on reclaimed land in West Kowloon - is more expensive per sqft than any property sold on The Peak and in Island South.

Even assuming that the air in Victoria Harbour was pollution-free, the transaction price was still too high, a managing director of a European property fund said.

"For that price, I can buy one or two houses on Island South," he said, adding that houses had more upside in capital appreciation because supply was relatively scarce.

Earlier this month, Manhattan Realty sold a 5,825 sqft house at 42 Island Road for $145 million, or about $25,000 per sqft while New World Development recently relaunched two houses at 33 Island Road at similar unit prices.

Wharf, encouraged by the transaction price of The Arch penthouse, recently launched its 48-unit project at 1 Plantation Road and set a target price of about $30,000 per sqft.

The fund manager, who manages an extensive real estate portfolio in Asia-Pacific, said: "If you are looking for rental return it is easier to invest in the office market [if you have $168 million]. Some grade-B offices in non-core areas, such as Wan Chai, are generating about 6 per cent yields.

"Investors could also invest in strata-title grade-A offices for a quick transaction but lower rental yield."

Property consultants said this compared with an estimated yield of less than 2 per cent per year for the record-breaking penthouse sold in The Arch.

Property consultants said the estimation was based on a maximum rent of about $50 per sqft.

One consultant said: "Most properties on The Peak are renting for less than $60 per sqft."

Some apartment projects in traditional luxury districts are also generating better rents than possible in The Arch.

Jimmy Fong, a director of residential development and investment at property consultant Savills, said flats in Grosvenor Place, at 117 Repulse Bay Road, had panoramic views of Repulse Bay and were achieving rental returns of 3 per cent to 3.5 per cent.

Three units there, each of about 2,800 sqft, were leased for about $120,000 to $140,000 per month each recently while a fully furnished show flat in the project was sold for $56 million this month, Mr Fong said.

A 4,247 sqft penthouse in the single-tower project was still vacant. The owner recently turned down an offer of about $25,000 per sqft to buy the property.

Property Consultants said it was also safer to diversify and use the $168 million, enough to snap up more than 20 units in Taikoo Shing, to buy smaller apartments and get more value for money.

Veteran property investor Chan Ching-pak said the price of The Arch penthouse was completely unrealistic.

"The project is adjacent to Jordan and is definitely no match for prestigious locations such as Island South and The Peak.

"I can see transactions for nearby project The HarbourSide slowing significantly because the asking price [for standard units] is $14,000 to $15,000 per sqft," Mr Chan said.

It seems that the buyer fits well the image projected by the developer. He is a cash-rich businessman who is obsessed with a view from Kowloon, who needs frequent access to Chek Lap Kok airport and frequently travels to the mainland by rail.

Flat seekers in holiday frenzy
Estate agents swamped as mainland tourists leap aboard the property bandwagon
Ernest Kong
3 May 2005
South China Morning Post

The sunny holiday mood swept across Hong Kong yesterday as busloads of flat seekers, many of them mainland visitors, descended in frenzied pursuit of a piece of the bubbling property market.

Worried that prices may soon soar out of reach in a climate of rising interest rates, thousands of aspiring homeowners swamped property agents, who said inquiries were up by more than 50 per cent compared with a normal weekend.

More than 110 new units were sold over the three-day holiday, according to agents and developers. Leading the sales were Sun Hung Kai Properties' Chelsea Court in Tsuen Wan and Henderson Land Development's Metro Harbour View in Tai Kok Tsui, each selling about 30 units.

Agents are attributing part of the surge in inquiries to stories of overnight windfalls from reselling flats in new projects and interest generated by the record-breaking $168 million paid for a penthouse in West Kowloon's 52-storey Arch development.

Real estate agent Hong Kong Property said it had been surprised by a 50 per cent surge in the number of flat seekers in their branches during the weekend.

"[Quarry Bay] branches have even seen a 70 per cent jump in flat seekers, and we estimate about 40 per cent of them are mainlanders," said Rylie Ip Ming-fai, a Hong Kong Property district manager.

Centaline Property Agency was quick to tap mainlander demand for properties by organising free tours to two new projects: Chelsea Court and Chinese Estates Holdings' Miami Crescent in Sheung Shui.

"Most of the [participants] come from Guangzhou and Shenzhen," said Louis Chan Wing-kit, a director at Centaline.

Riding on the bullish luxury residential sector driven by the Arch penthouse's $31,300 per square foot record, HKR International has sold 23 of the 41 houses in its Lantau Island project, Le Bleu, for $500 million since its launch last month.

The most expensive house by unit price in the project so far was sold for $27 million at the weekend at $11,650 per square foot - as expensive as some similar low-density projects in traditional luxury areas such as Kowloon Tong.

HKR development and marketing manager Violet Lam Hung said the sales were much better than expected.

"We've suspended the sales as we are optimistic towards the property market with the opening of the Disney park in September," said Ms Lam.

She added that the developer might relaunch the project after the opening of Disneyland.

According to Midland Realty and the Land Registry, secondary transactions jumped last month to 12,200, the highest turnover since July 1997, after the handover. This compared with a turnover of about 7,750 recorded in March.

Property transactions are generally recorded by the Land Registry after two to four weeks.

Buggle Lau Ka-fai, the chief analyst at Midland Realty, expects the number of registrations to drop this month as the property market consolidates.

"I believe there will still be more than 10,000 transactions for all properties," said Mr Lau, adding that more than 14,800 transactions were recorded last month according to Land Registry figures.

Meanwhile, Midland Realty was also busy over the weekend, organising a tour to a residential property project in Macau for about 200 flat seekers from Hong Kong and the mainland.

Launch of Four Seasons heightens rivalry at top
Luxury hotels and serviced apartments compete for the same professional clients
Foster Wong
4 May 2005
South China Morning Post

The opening of Four Seasons Place is likely to intensify competition among operators of luxury serviced apartments and hotels, according to industry players.

The upmarket serviced apartment complex, due to open in Central's International Finance Centre (IFC) in September, will start leasing this week and its developers, Sun Hung Kai Properties (SHKP) and Henderson Land Development, expect all of its 519 suites to be occupied in 12 months.

"Demand for serviced suites in Hong Kong has been rising steadily, with more multinationals setting up their bases in Hong Kong to tap into China," said Iris Chiu Ching-shi, managing director of Signature Homes, a luxury residential leasing arm of SHKP.

"The rising number of expatriates has boosted the need for these apartments. They see it as hassle-free accommodation."

She said Four Seasons would target professional singles and couples from foreign corporations - a segment also sought after by other serviced apartment and hotel operators.

Four Seasons Place, adjacent to the 396-room Four Seasons Hotel, is situated in a prime location above the airport railway station in Central and is just a 10-minute walk to Lan Kwai Fong. Units range from studios to one-bedroom, two-bedroom and three-bedroom units from 547 sq ft to 1,873 sq ft. There are also two duplex units of 2,800 and 3,600 sq ft. About 60 per cent of the units will have a panoramic sea view and the rest will have a view of The Peak.

Asking prices at Four Seasons Place are relatively competitive, between $50 and $60 per sqft, compared with the market average of $40 to $70 per sq ft, according to Henderson's deputy general manager of marketing Patrick Sit Pak-wing.

Tenancies range from one month to 12 months. Mr Sit said the apartments would secure some corporate client deals from both SHKP and Henderson.

Four Seasons is about to launch a major marketing campaign to grab market share. But existing operator Shama Group said it was not concerned about the growing competition as there was sufficient demand to fuel the market's growth.

"The Four Seasons is a lovely development and I hope it does well; but it's different to Shama. To us it feels more like a hotel than a home," said Shama chief executive Elaine Young.

"Some of our tenants stay for two years because it really does become their home. I imagine that the Four Seasons will get shorter leases because of this point."

Nonetheless, Ms Young said Shama was happy to see high-end operators coming in and helping to maintain standards and quality.

Stephen Chu, deputy general manager of leasing with Harbour Plaza Hotels and Resorts, a unit of blue chip Cheung Kong (Holdings), agreed, saying the emergence of new players such as Four Seasons would put Hong Kong in a higher league.

However, he expected Four Seasons Place to take some market share from luxury hotels.

"The Four Seasons Place will compete head to head with the upcoming Landmark boutique hotel as well as other luxury hotels such as the Grand Hyatt," Mr Chu said.

"There will be some market erosion for weekly stays or longer-term packages."

CB Richard Ellis director of residential services Jane Garnett said luxury serviced suites could replace luxury hotels in certain aspects such as long-stay business travellers.

The Four Seasons is one of two new luxury hotels opening in Central. The 113-room Landmark Mandarin Oriental Hotel is due to open this summer.

However, a spokesman for Swire Properties, which runs the Parkside and The Atrium serviced suites at Pacific Place, said serviced apartments and hotels had co-existed happily in Hong Kong, citing the fact that its Parkside and The Atrium shared the same building as the Conrad and JW Marriott Hotels respectively.

"Hotels and serviced apartments are offering two different types of products and are therefore not in competition with each other," the spokesman said.

Arthur Kiong, The Peninsula's vice-president of sales and marketing in Asia, also said both luxury serviced apartments and hotels could co-exist well.

He said: "Due to an increase in demand for hotel accommodation, hotels are now looking to dispense with discounted rates for long-staying guests.

"If clients are staying more than just a few nights, serviced apartments are an ideal solution."

Occupancy rate for luxury hotels in Hong Kong stood above 85 per cent in April and the average room rate had surged 15 per cent year on year, according to Mr Kiong.

New identity for industrial Tsuen Wan
Classy office and residential projects are gradually changing the face of the district
Ng Kang-chung
4 May 2005
South China Morning Post

Tsuen Wan, an old industrial district in New Territories West, is being transformed into a residential and commercial hub.

The area will soon feature mega malls, towering office buildings and classy residential projects.

According to the Rating and Valuation Department, about 2,500 private residential flats were completed in Tsuen Wan last year, accounting for about 21 per cent of the total number of new flats completed throughout the New Territories in that period.

The number of flats to be completed this year should jump to 4,300.

At the end of last year, Tsuen Wan had stock of about 845,000 sq ft of office space, 725,487 sq ft of which was grade A. Another 288,000 sq ft of office space will be created in the district this year.

According to the Rating and Valuation Department, Tsuen Wan will be the only source of private office supply in the New Territories this year.

Midland Surveyors director Ronald Cheung Yat-fai said: "There will be many interesting developments in Tsuen Wan in the next few years."

Major projects include Chelsea Court, developed by Sun Hung Kai Properties, consisting of 1,624 serviced apartments of 500 sqft to 1,400 sqft.

Close to West Rail Tsuen Wan Station is a Sino Land-Urban Renewal Authority (URA) development - Tsuen Wan Town Centre, the shopping and residential complex will have 1,920 flats in five towers. Sino and URA are also building a project on a 77,824 sqft site on Yeung Uk Road that should yield more than 500 flats.

Further inland, on mid-hill, is low-density residential development Cairnhill, a joint project of Cheung Kong and Sino Group. The project will yield 770 units.

Near the waterfront on Yeung Uk Road will be Indi Home - a serviced apartments project by Chinese Estates Holdings that should be completed by the end of the year. The 56-storey tower will feature upmarket residential units.

In the commercial sector, Chinachem Group's Nina Tower is under construction. The 80-storey project will comprise offices and a hotel offering 1,000 rooms. Next door is the company's 40-storey, 640-room hotel block L'Hotel Nina Tower One, which will be launched in September.

Property consultants said developers had a positive outlook for Tsuen Wan because of its proximity to Disneyland and the bridge to Macau and Zhuhai.

"Tsuen Wan is becoming a retailing and residential hub serving the western New Territories and will be comparable to Sha Tin in the eastern New Territories or Mongkok in Kowloon," Mr Cheung said.

The Disneyland theme park is expected to open in September, while the Hong Kong-Zhuhai-Macau bridge, with its starting point on Lantau Island, near to Tsuen Wan, will cut travelling time from Tsuen Wan to Macau to about 30 minutes when it is completed in 2010.

Tsuen Wan was first developed as an industrial area. But with the decline of manufacturing industry in Hong Kong, today most of the industrial buildings have been either knocked down to make way for residential developments or converted into other commercial uses.

Tsuen Wan now has a population of about 290,000 and this will increase as residential developments are completed.

However, not all industry players are optimistic about the district's future.

SK Pang Surveyors managing director Pang Shiu-kee said: "The supply boom we see today [in Tsuen Wan] is mainly a result of delayed redevelopment projects over the past 10 years. Many of the flats should have been completed long ago."

He said the Tsuen Wan Seven Street redevelopment, or Tsuen Wan Town Centre, had been delayed for some time.

Toco Planning Consultants managing director Ted Chan Tat-choi said: "Tsuen Wan was zoned as an industrial district. It is difficult to change the town planning now when everything has been well-developed. More importantly, we do not see any clear government planning objective for Tsuen Wan. Whether [government] wants it to remain an industrial area or to change into a residential or commercial district {hellip} I am not sure. This is not healthy for the development of a district."

While Tsuen Wan has a way to go to become a business hub, agents said retail rents had surged because investors had a positive outlook

Centaline Property Agency regional sales director Cares Wong Kam-fung said: "The commercial rents in downtown Tsuen Wan have gone up by between 10 per cent and 20 per cent."

She said that a shop space of about 800 sqft on Tai Pa Street, a quieter part of Tsuen Wan, was recently sold for $11.4 million. The space was previously sold in 1996 for $7.94 million.

Ricacorp Properties Tsuen Wan district sales director Ringo Choi said: "The feel-good effect has also helped push up flat prices in the district. Prices of secondary [market] flats in the district have jumped about 10 per cent since the beginning of the year. I would not be surprised to see a rise of another 15 per cent in the months to come."

Secondary market flats are selling for about $3,000 to $3,500 per sqft, while the average price of new flats is $4,500 to $5,000 per sqft, according to agents.

Businessmen buy in Hong Kong
Sandy Li
04 May 2005
South China Morning Post

A growing number of Hong Kong businessmen who moved their bases to the mainland in the past decade are channelling money back into the city's property market as the Chinese government steps up measures to cool house prices, according to estate agents.

Some businessmen had bought four or five apartments at once in recent weeks as the trend had become more pronounced, agents said.

Midland Realty director Jeffrey Ng Chong-yip said many of the businessmen had been in the mainland accumulating wealth for a number of years. They had decided to buy into Hong Kong to capitalise on the city's upward trend.

According to Hong Kong Property, in one instance a manufacturer who had a business in China had bought a 628 sq ft unit in Central Park at Olympic Station for $3.25 million.

Bank of East Asia chief economist Paul Tang Sai-on said that with the mainland government's determination to cool house prices, businessmen who had invested in the real estate market there now preferred to buy in Hong Kong where prices were still enjoying an upswing.

However, Core Pacific Yamaichi International research director Alex Tang Yee-yuk disagreed. "It is an illogical move for them to buy Hong Kong properties ahead of a currency appreciation," he said. "If mainlanders believe the yuan will appreciate in future, they should hold back their purchases as all Hong Kong products will be cheaper then,"

Peak margins sought through demolition
Peggy Sito
5 May 2005
South China Morning Post

Sun Hung Kai Properties (SHKP) may demolish and rebuild a set of 20-year-old luxury houses on the Peak, marking a growing willingness by developers to tear down relatively new high-end properties in traditional upmarket districts to boost returns.

A company spokeswoman said the developer might destroy eight houses at 37 Severn Road on the Peak and replace them with eight modern luxury homes.

Each of the houses is leased at present. The company has reportedly asked its tenants to move out, making way for the redevelopment of the new set of luxury houses.

"The value of the property will be enhanced even though the gross floor area of a project has not been significantly increased," said George Sze Man-yan, a senior sales manager at Ricacorp Properties. "With better living conditions and upgraded facilities, rents for newly built houses are at least 60 per cent higher than for aged houses."

Mr Sze said developers and landlords were also replacing big mansions with smaller luxury houses to boost property values.

Last year, SHK bought a house at 50 Island Road, next to the house owned by Tung Chee-hwa, for $428 million. It plans to redevelop the 53,000 square foot site into eight townhouses.

"Luxury prices have surged," Mr Sze said. "Splitting a mansion into smaller houses makes sense because, at the end the day, the landlords will get much higher gross revenues."

He cited the 10-house development at 33 Island Road on the Peak as an example. New World Development demolished two mansions at the site and built 10 smaller houses in their place with a selling price of about $150 million each.

"It is easier to reap $1.5 billion by selling 10 houses than by selling two big mansions," said Mr Sze.

Colliers International research head Simon Lo said prices of luxury houses in traditional prestige areas such as Island South and the Peak had surged due to limited supply.

According to Colliers, 33 houses will be completed on the Peak this year but that number will fall to 10 next year and eight in 2007.

May 4, 2005
Government Press Release
Property sales consideration up 44%

April saw 16,280 sale and purchase agreements for all types of building units for registration, up 59% over March and 43.1% over a year earlier, the Land Registry says.

The total consideration was $47.9 billion, up 44% over March and 44.2% over a year earlier.

Using a 12-month moving average, the number of agreements represented a rise of 4.1% over March and 13.8% over a year earlier.

Among the agreements, 14,124 were for residential units. This represented a rise of 62.9% over March and 57% over a year earlier.

The total consideration of these agreements was $38.7 billion, up 44.9% over March and 44.7% over a year earlier.

Graceful in retreat, developer moves on
SHKP's Raymond Kwok is not hung up on Hunghom Peninsula as there are other ways to make money
Simon Pritchard
9 May 2005
South China Morning Post

IF YOU WERE looking for Hong Kong's unacceptable face of capitalism, circa 2005, looming large on your horizon would be a rapacious property developer whose market power was matched only by his desire for more. Such a creature would display blithe disregard for the environment and exert malign influence over public policy.

Circumstances have changed for the small group of local developers which grew rich building new towns from the late 1960s during a period of magical inflation that seemingly allowed everyone to get richer together. They may be making money again but the population remains deeply suspicious of their motives.

Raymond Kwok Ping-luen is perhaps the most public face of Hong Kong's biggest and richest property developer, Sun Hung Kai Properties (SHKP), a firm that sculpted much of the urban landscape. It is also a firm which in December found itself cast in the unfamiliar role of public enemy in the case of the disappearing Hunghom Peninsula tower blocks.

Unfortunately, the youngest of the three Kwok brothers does not lend himself to simple caricatures. Our meeting was arranged ostensibly to discuss the firm's corporate governance track record which recently resulted in SHKP being awarded the "best managed" firm in Hong Kong by a prestigious regional finance magazine.

The company remains a darling of institutional fund managers who value its profit track record and high degree of transparency. Where other firms have frantically diversified and dived headlong into mainland ventures, SHKP has maintained a relatively focused strategy and honed a factory approach to building giant homogeneous estates.

On this day, the marketing machine for the firm's much-hyped Arch project is being rolled out and SHKP's vice-chairman is in super salesman mode, arguing that a new breed of nouveau riche China traders will happily pay Peak prices for West Kowloon concrete boxes.

"If it's a commodity, we have to price according to commodity pricing. But we believe we have created something quite unique that is not available elsewhere," he waxes.

From the vantage point of the firm's Wan Chai headquarters, West Kowloon may have been shrouded in a polluted fog, but it is a view that Mr Kwok seems to prefer to the directly facing Hunghom Peninsula.

SHKP was a latecomer to this project, buying into the subsidised housing scheme after the original developers had settled a long-running dispute with the government.

When it was announced that the never-inhabited project would be demolished in favour of luxury housing, it initially seemed to represent an iconic victory for big developers which had lobbied hard for subsidised private-sector housing schemes to be scrapped.

What SHKP and its partner New World Development had not reckoned upon - or at least underestimated - was the organised fury that would galvanise civic and environmental groups who pointed to gross waste but also a crony deal that they believed handed the firms billions of dollars in windfall profits. The dispute laid bare starkly different perceptions of rights and precedents as to how land is carved up in Hong Kong.

Mr Kwok may not quite be at the stage of laughing about the incident but he appears philosophical.

"We believe in give and take. We didn't want to be tied down arguing for the next two years. Instead, we just want to get on with things. As businessmen we are not as dogmatic as the politicians, not black and white."

That does not, however, seem to a stretch to an admission of being wrong: "We still believe we have the legal right to develop the site," he said.

Backing down from the planned demolition, the firms cited the maintenance of social harmony as their motivation, but the prospect of being caught up in a bigger political fight not of their choosing also seemed to play a role.

"There was so much controversy, so much attack against developers, against the government, that we realised there are other ways to make money. As a corporate developer, we don't always want to be the centre of attack. Politicians wanted to pick on this project to attack Tung [former chief executive Tung Chee-hwa]," said Mr Kwok.

Still, he claims not to have soured on Hong Kong as an investment prospect even if the social compact between the business sector and the population has changed radically.

"I always believe for society to develop there has to be mutual trust and respect. That's how the community advances. For family, company and city you have to give people the benefit of the doubt rather than always claiming ulterior motives or competing agendas.

"Even if I make a contract with you and you always question my ulterior motive, we cannot advance as partners."

Mindful of a rising tide of resentment towards developers, the suggestion that a small gang of firms increasingly dominate the property market is quickly rejected as pre-prepared charts to prove the point are quickly produced.

"We hear some peers say 'this is a business dominated by a big two', but this is a misunderstanding that we have market power ... our market share [since the 1990s] has been quite stable at 20 per cent."

Small developers have made much noise over their exclusion from the West Kowloon project, but also over the government's handling of land sales through the application list system, which triggers an auction only when a minimum price is hit.

The criticism is that the system encourages government valuers to set excessively high minimum prices, lest they look foolish at a public auction when far higher prices are paid. The system also tends to reinforce the belief that a government fiscally dependent on land sales has formally reverted to a high land price policy.

Mr Kwok sees little wrong with the present system but reckons officials should back off further. "They should go back to the pre-1997 time. The system works fine. In any auction, some crazy guys are going to pay much more. There will always be some unique user or overly aggressive developer ... the government should just set process and platform.

"Fairness and transparency are guaranteed by the auction process, not where you set the reserve price. It's the wrong focus."

Looking forward, he declined to offer thoughts on the most appropriate candidate for Hong Kong's vacant chief executive position, asking his public relations handler with a palpable sense of unease, "What's the politically correct answer?"

None was forthcoming, but in the event that Acting Chief Executive Donald Tsang Yam-kuen assumes the role, expectations are high that he will move quickly to ditch the controversial single developer plan for the West Kowloon Cultural District.

Asked if the single-developer approach remained valid, a hesitant Mr Kwok replied "I think so", before offering a somewhat stilted tribute to the giant canopy concept.

This most down to earth of Hong Kong tycoons seems to be going through something of a mid-life realignment, being keen to point out how much time he is spending reading, travelling and looking for ideas to spice up the firm's property portfolio.

"I tend to empower a lot people to do the execution. I'm not a good executor. I'm a good person to do the macro thinking and the strategy," he said.

A particular focus is the firm's commercial portfolio, which Mr Kwok admits lags the residential arm in terms of branding and reputation.

"We are looking at what others are doing to develop landmark properties, such as Mori and Roppongi Hills. It's just very stimulating to look at successful projects worldwide. Last Saturday, I went to visit Shenzhen and look at China Resources' new mall. It's just stimulating to see good projects. When I see them, I want to learn and replicate the success."

The travelling spirit is increasingly taking the firm to China where, unusually for a Hong Kong developer, SHKP has minimised its exposure.

Land clearance is taking place for a huge flagship project in Shanghai and Mr Kwok says he expects to announce other project developments in Beijing and the Guangzhou area.

Sensitive to suggestions of being late to the party, especially in contrast to rival Cheung Kong's tearaway mainland expansion, Mr Kwok puts his enthusiasm down to the fact that China - rather than Sun Hung Kai Properties - has "changed."

"The auction process and tender process in major cities like Shanghai are much more transparent.

"There is no more cronyism such that you get a site because you know somebody. I'm comfortable with China now."

Entry-level flats set for Sheung Shui
Ernest Kong
11 May 2005
South China Morning Post

Henderson Land Development and SEA Holdings are jointly developing a project in Sheung Shui, in the New Territories, which is targeted at entry-level homebuyers.

The move towards more realistically priced units comes after the launch of a wave of luxury developments in the district.

The project, Royal Green, will be priced in line with older properties in Sheung Shui.

While Henderson Land has not unveiled prices yet, property agents said the cheapest units would sell for about $3,000 per sqft. The smallest flat, at 500 sqft, would sell for about $1.5 million.

According to Centaline Property Agency, a high-floor, 544 sqft unit in 11-year-old Sheung Shui Centre sold for $1.43 million, or $2,625 per sqft, this month while some larger units with nice views in Sheung Shui Centre were selling for more than $3,000 per sqft.

The three-tower Royal Green project is the second residential development launched in Sheung Shui this year. The first project, Sun Hung Kai Properties' low-density Noble Hill, sold for $3,800 per sqft to $5,700 per sqft, compared with $3,000 to $3,500 per sqft for flats in neighbouring Woodland Crest, an eight-year-old project also built by SHKP.

Henderson Land Development general manager Tony Tse Wai-chuen said a 1,400 sqft penthouse at Royal Green would sell for about $8,800 per sqft, compared with an average price of $8,500 per sqft for Sino Land's latest housing project in the district - Royal Oak. Three homes at Royal Oak have been sold since its launch last year.

Agents estimated the average price of the project's standard units would be lower than Noble Hill because it was higher density. Standard units would sell for about $3,300 to $3,500 per sqft, while some high-floor units with good views could sell for more than $4,000 per sqft. Standard units are 500 to 930 sqft, and there are 28 double units between 1,100 to 1,300 sqft each.

Jacob Wong, an assistant district manager at Centaline Property Agency in Sheung Shui, said: "The 42-storey Royal Green project is the highest in the district. Some upper-floor units could have a very nice view of a golf course nearby while some west-facing units can have a view of Shenzhen."

Hong Kong Office Market - Q1 2005
21 April 2005
DTZ Quarterly Property Market Overview in North Asia
DTZ Debenham Tie Leung Limited

Hong Kong Economy and Overall Market Performance

The U.S. GDP growth in Q4 2004 slowed to 3.8% from 4.0% (revised) in Q3 2004, mainly due to decelerations in Private Consumption Expenditure (PCE) and exports of goods.

In line with our forecasts, since 21 March 2005, banks in Hong Kong have raised the prime interest rate twice by a total of 0.5 percentage point to 5.5% as of 6 April 2005. In order to catch up the pace of rate hike in the US, Hong Kong interest rate is expected to rise by at least another one-percentage point this year.

In Q4 2004, real GDP growth in Hong Kong was 7.1%. Analysed by major components, Private Consumption Expenditure (PCE) increased 5.7%, Government Consumption Expenditure (GCE) decreased 1.8% while total exports recorded a strong growth of 12.6%.

For the whole year of 2004, real GDP growth in Hong Kong was 8.1%, with PCE and GCE registering respective growth of 6.7% and 0.5%. Total exports also saw a strong growth of 15.3% in 2004. The SAR government forecasts GDP to grow by 4.5%-5.5% for the whole year of 2005, with CPI forecast to increase by 1.5%.

The unemployment rate fell to a 3-year low of 6.1% in February 2005, with salary increases largely seen in the "FIRE" sectors (finance, insurance, real estate and professional business service).

The office leasing market did not cool down in spite of seasonal influences in Q1 2005. In view of the limited availability and rising rents, more anchor tenants have accelerated their pace of either completing lease renewal or relocation with expansion.

Take-up by District

Grade A office space in core districts remained sought after by large financial institutions, particularly those in the banking and insurance sectors. Central, with a high concentration of financial service companies, continued to enjoy high take-up and rents in premium office buildings.

Despite the fact that rents in Central have risen significantly over the past quarter, activity remained high and the market saw a number of cases of relocation with upgrading and expansion. Some examples included Deloitte's relocation to a 148,000 sq.ft. (lettable) space at One Pacific Place from Wing On Centre, Bank of Tokyo-Mitsubishi's commitment of 100,000 sq.ft. (lettable) at AIG Tower and Royal Bank of Scotland's relocation to the same building (60,000 sq.ft. lettable space) from Times Square.

Thanks to a strong performance in the financial market, an increasing number of financial institutions took up extra space following headcount expansion. Two IFC, for example, saw the relocation of New Bridge Capital to a 17,000 sq.ft. space (lettable) from One IFC (6,000 sq.ft. lettable), whilst UBS took up an extra space of 30,000 sq.ft. (lettable).

Other key transactions in Central included the lease of 40,000 sq.ft. (lettable) and 17,600 sq.ft. (lettable) space at Citibank Plaza to HSBC and Barclays respectively, while DBS and Equity Trust each committed 25,000 sq.ft. (lettable) at The Center.

Despite seasonal effects, overall grade A office take-up continued the upward momentum and reach 944,425 sq.ft. (gross) in Q1 2005. Besides Central, all other districts also registered positive take-up, indicating a more healthy development of the market.

The overall take-up for Hong Kong Island was 855,954 sq.ft. (gross) in Q1 2005.

Take-up in Central soared by 115% to 534,781 sq.ft. in Q1 2005 from the previous quarter; if compared with the same period in 2004, the increase was 24%.

Island East also enjoyed considerable growth with take up reaching 268,883 sq.ft. (gross), 1.2 times that of the previous quarter and an increase of 280,016 sq.ft. (gross) compared with the same period last year.

The take-up in Island East was in fact the highest quarterly figure registered since 2000, and was contributed to by three major leasing transactions, including HSBC's commitment of 77,000 sq.ft. (lettable) at Cityplaza One, and the lettings of 47,000 sq.ft. (lettable) and 42,000 sq.ft. (lettable) at Devon House to Philip Morris and Tesco respectively.

On the other hand, Wanchai/Causeway Bay and Tsimshatsui were more susceptible to seasonal influences, with take-up in those districts falling by 85% and 63% to 30,243 sq.ft. and 88,471 sq.ft. from Q4 2004 respectively. On a year-on-year comparison, a mild decline of 6% was noted for both districts.

Rents

In terms of rent, all major districts on Hong Kong Island registered positive growth, with Central enjoying the biggest boost due to diminishing availability amid an improving economy. In Q1 2005, average monthly effective rents in Central rose by 15% to HK$38 per sq.ft. (net) from HK$33 per sq.ft. in Q4 2004.

Meanwhile, rents in Wanchai/Causeway Bay also rose by 10% to HK$23 per sq.ft.

Rents in Island East also saw better-than-market expectations, with average effective rents there increasing by 7% to HK$15-16 per sq.ft. (net) from HK$14 per sq.ft. (net) in the previous quarter.

On Kowloon side, rents in Tsimshatsui rose by 6% to HK$19 per sq.ft. (net).

Demand

In Central, 8/F (13,721 sq.ft. gross) at 9 Queen's Road Central was sold for approximately HK$151 million, representing a unit rate of HK$11,000 per sq.ft. (gross). In terms of unit rate, this whole floor transaction is the first to break the HK$10,000 per sq.ft. (gross) benchmark since 1998.

Recording a high level of activity initiated by speculators and investors, the outstanding performance of the sales market was reflected in high transaction prices. Key strata-title transactions included the sale of Admiralty Centre (20,318 sq.ft. gross), Shun Tak Centre (25,835 sq.ft. (gross) and Great Eagle Centre (15,577 sq.ft. gross) for unit rates of HK$6,167, HK$6,193 and HK$6,805, respectively, all on per sq.ft. basis.

On 22 February 2005, a commercial land with a maximum GFA of 609,027 sq.ft. in Kowloon Bay was sold for an accommodation value (A.V.) of HK$2,988 per sq.ft. by public auction. Since the development is expected for completion by 2010, the high A.V. attained reflected the developer's optimistic outlook for the office market, supporting prices to edge higher.

Swire Properties also decided to take a 20% stake in PCCW Tower (620,148 sq.ft. gross), a grade A office building on Island East, which was sold to an overseas real estate investment fund for HK$2.808 billion earlier, with a unit rate of HK$4,528 per sq.ft. (gross). The move reflected the developer's strategic plan to strengthen its office portfolio within the same district and its optimistic outlook for long-term office rental returns.

Prices and Yields

In Q1 2005, average grade A office prices saw a considerable growth of 14% from the previous quarter.

In Q1 2005, average grade A office initial yields remained at 2.5% to 3.5% for the fifth consecutive quarter.

Initial yields for grade B offices in prime shopping locations with high retail values were between 3.5% and 4.5% in Q1 2005.

Vacancy

Boosted by improvement in market fundamentals and corporate sentiment, the increased office demand has effectively sent vacancy rate of Hong Kong Island down to 8.8% in Q1 2005 from 10.3% in Q4 2004.

In Wanchai/Causeway Bay, vacancy rate dropped slightly from 8.0% in Q4 2004 to 7.8% in Q1 2005.

Island East saw the largest quarterly drop of 3 percentage points, with vacancy rate edging down to 11.8% in Q1 2005 from 14.8% in Q4 2004.

The aggregate vacancy on Hong Kong Island was down 1.5 percentage points to 8.8% in Q1 2005 from 10.3% in Q4 2004.

Tsimshatsui's vacancy dropped slightly by 0.9 percentage point to 7.4% in Q1 2005 from 8.3% in Q4 2004.

Supply

There was no new grade A office supply in Q1 2005.

Three Pacific Place (632,000 sq.ft. gross) in Admiralty and Langham Place (710,000 sq.ft. gross), both completed in 2004, achieved a commitment rate of 50% to date. For Millennium City Phase 5 (710,000 sq.ft. gross), over 90% of space has been leased out.

This year, core areas on Hong Kong Island will only see the completion of one new grade A office building, AIG Tower (410,000 sq.ft. gross) in Central. The property has a commitment rate of over 70%, with most of the office space secured by AIG group along with two other anchor tenants, Bank of Tokyo-Mitsubishi and Royal Bank of Scotland.

Market Outlook

The booming economy and financial market is expected to boost demand for business space expansion for the rest of 2005, extending the upward momentum in the first quarter albeit continuing rising grade A office rents, especially in core districts.

Thanks to sustained economic growth with promising business prospects, occupier demand in grade A offices will remain largely driven by anchor tenants in the "FIRE" sectors.

Central's vacancy rate will continue to decline in view of robust demand and low availability of grade A office space.

As vacancy rates of top-end grade A office buildings such as Two IFC in Central, PCCW Tower and 1063 King's Road on Island East are well below their district averages, at less than 5% , we expect vacancies among these top-end buildings to edge lower in the near future as the limited large floor plates will be quickly absorbed by the rising demand.

The cases of relocation to Island East for upgrading and expansion by corporates reinforces our belief that the district will be increasingly popular among tenants in 2005.

In light of the declining availability in Central and the widening rental gap between Central and Island East, more anchor tenants are expected to take up space in Island East, pushing vacancy rate down there.

In view of the high occupancy rates at premium grade A office buildings, (for example Two IFC has an occupancy rate of over 98%), landlords have raised monthly asking rents to HK$70 per sq.ft. (lettable) in Q1 2005, close to the level during the dot-com boom in 2000. We believe the current high asking rents will be translated to high transaction rents in the remainder of 2005. While top-end grade A office space will enjoy more significant rental growth, we maintain our forecast that average grade-A office rents to rise by 30% for the whole 2005.

This report is intended as a general guide only. While utmost care has been taken in its preparation and we believe the contents are accurate as at print time, the report does not represent any investment advice. DTZ Debenham Tie Leung Limited or persons involved in the preparation of this report do not give any warranty as to the content or accept any contractual, tortious or other forms of liability for any consequences, loss or damage which may arise resulting from any person acting on or using the statements, information or opinions contained in this report.

Wharf sees opportunity to sell at Peak - Developer hopes to profit from interest in luxury properties
Foster Wong
19 May 2005
South China Morning Post

If you are thinking about jumping on the luxury residential bandwagon by buying a flat at the Arch in West Kowloon, look around before you leap.

Wharf (Holdings) said yesterday it was selling homes in two of its luxury properties on the Peak for up to 50 per cent less - in terms of unit price - than the penthouse sold for a record at the Sun Hung Kai Properties (SHKP) development across the harbour.

The company has put up for sale 11 town houses, ranging from 2,945 to 3,250 square feet in size, at Strawberry Hill on Plunkett's Road at an average of $20,000 per square foot, or $60 million each.

In less than two weeks, it will also begin selling the first batch of 12 flats - between 1,700 sqft and 2,250 sqft in size - at No1 Plantation Road for an average of $25,000 per square foot. Wharf has 48 flats at the site.

Agents said such pricing was competitive compared with the unit price of $31,300 per square foot, or a record of $168 million, paid for the 5,353 sqft penthouse at the Arch.

SHKP had sold smaller, 3,500 sqft units for about $25,000 per square foot, they said.

Wharf said it expected to fetch $600 million from the 12 flats on Plantation Road and $660 million from the houses at Strawberry Hill.

"At $20,000 to $25,000 per square foot, it's not excessive pricing. It will be difficult to find houses on the Peak at that price," said Gareth Williams, a property investment director with Wheelock Properties (Hong Kong), a Wharf sister company that handles the sales.

"We are not in a desperate rush to sell but if the Arch can sell at that sort of high level, we expect our penthouses on Plantation Road to generate similar interest."

The sale of its Peak property was part of Wharf's plan to unload non-core investment holdings to improve returns, Mr William said.

He noted: "The 2.5 per cent yield we get from these properties is not very high at present, it is the right time to sell."

The 11 Strawberry Hill houses represent the last batch from 48 that were completed in the 1970s while No1 Plantation Road is a three-year-old development.

Analysts estimated Wharf could book at least $1.5 billion in pretax profit this year from sales at the two properties.

Meanwhile, Wharf has sold its 8,300 sq ft three-storey shopping centre in Nelson Court on Waterloo Road to an investor for $41 million, according to Mr Williams. The price translates to about $5,000 per square foot.

The centre generates a yield of about 3.6 per cent.

Wharf shares slipped 0.19 per cent to close at $25.25 yesterday.

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20 developers interested in Western site
Raymond Wang, Hong Kong Standard
May 28, 2005

Twenty developers, including Hong Kong's biggest, expressed interest in developing a HK$2 billion, 1,000-unit housing and commercial complex in Western in the Urban Renewal Authority's biggest tender project this year.

The project, on a 38,000 square foot site at First and Second Streets in Sai Ying Pun, will boast a gross floor area of about 425,000 sq ft. In addition to flats and commercial space, it will include an 11,800 sq ft home for the elderly and about 7,500 sq ft of landscaped open space.

Cheung Kong (Holdings), Sun Hung Kai Properties, Henderson Land Development, Sino Land, HKR International, K Wah International, Nan Fung Development and Chinese Estates are among those interested in developing the site.

A review panel will reduce the contenders down to a shortlist and the authority will then invite detailed tenders, said the URA.

Separately, the government is expected to set a HK$4 billion land premium on Kowloon-Canton Railway Corp's Wu Kai Sha station residential project in Sha Tin within a week, market sources said. The tender, the KCRC's first this year, will close June 10.

In January, 17 local developers responded to the KCRC's call for expressions of interest in the project.

Besides real estate heavyweights, five small and medium-sized developers indicated interest in the Wu Kai Sha venture, probably because the land premium does not have to be paid all at once.

Instead, payments will be spread over three years, with the first due in mid-2005, the second in mid-2006 and the third in mid-2007.

Construction is expected to begin later this year and continue in three phases on a 3.4-hectare site with a potential gross floor area of 1.86 million sq ft. The first phase is slated for completion in 2008. The entire project will comprise 2,528 flats.

KCRC estimated the project will require a total investment of as much as HK$7 billion.

Developers that expressed interest include Cheung Kong (Holdings), Sun Hung Kai Properties, Henderson Land Development, Wheelock Properties, Citic Pacific, Hang Lung Properties, Kerry Properties and Sino Land.

Cosco sells Sheung Wan office space for $1.4b
Proceeds from sale of eight floors will be used for expansion and to reduce debt
Peggy Sito
31 May 2005
South China Morning Post

Cosco International Holdings has sold eight office floors at its flagship Cosco Tower in Sheung Wan to its parent firm for $1.4 billion.

The company said it would use the proceeds from the sale for expansion of its shipping operations and to reduce debt.

The sale, which totals 172,660 square feet, includes the 39th, 40th, 42nd and 47th to 51st floors in the 52-storey building.

Cosco International bought the eight floors from parent company Cosco Hong Kong for $1.66 billion in April 1998.

The latest transaction value translates into an average price of $8,120 per square foot, which property consultants said was in line with market prices.

Chartersince Surveyors associate director Desmond Poon Chi-ming said an entire office floor on the upper levels of Shun Tak Centre, also in Sheung Wan, recently sold for $7,900 per square foot.

"The price is reasonable, taking into account the latest transaction records," Mr Poon said.

However, agents said it was not easy to find contiguous floors available in prestige buildings in the area, and that Cosco Hong Kong would have been hard pressed to acquire the property had the owner not been a connected firm.

Liu Guoyuan, the president of Cosco Hong Kong and a vice-chairman of Cosco International, said the sale would bring in a considerable amount of cash, which would be used to finance the development of core business operations.

"This will pave the way for acquiring more quality and potential assets in ship trading and supply services," Mr Liu said.

The sale would also lower Cosco International's debt ratio to about 40 per cent from 56 per cent now, he said.

After the completion of the transaction, Cosco International will lease back some office space in the building at a monthly rate of $25 per square foot for an initial term of three years, with an option to renew for a further three years.

The transaction is one of the latest bulk sales of office space this year.

Early this month, it was reported that Morgan Stanley sold Vicwood Plaza in Sheung Wan for $2.5 billion.

June 2, 2005
May property transactions up 64.2%
Government Press Release

The total number of sale and purchase agreements for all types of building units in May surged 64.2% over a year earlier to 14,853, with the total consideration at $54.1 billion, up 116%.

The Land Registry said the number of agreements in May went down 8.8% from April, but the total consideration rose 13%.

Using a 12-month moving average, the number of agreements in May represented an increase of 4.7% over April and 15% over a year earlier.

Among the 14,853 sale and purchase agreements, 12,463 were for residential units, down 11.8% from April but up 68.9% over a year earlier. The total consideration of these agreements was $45.8 billion, up 18.5% over April and 130.6% over a year earlier.

The 'sweet spot' party's over
It's back to reality for soaring money and property markets as the rise in interest rates takes its toll
The 'sweet spot' party's over in HK
4 June 2005
South China Morning Post

As the last bauhinia petals in Hong Kong fluttered to the ground at the beginning of the month, many wondered if the bloom had also faded for the property and equity markets.

Data released on Thursday showing a drop in property transaction volumes last month and a dearth of interest in the largest initial public share offering of the year were only the latest signs that Hong Kong had meandered off the sweet spot that it occupied for much of the second half of last year.

Back then, Hong Kong was flush with liquidity as foreign capital clamoured for shares in China offerings. Dollar-rich speculators landed at Chek Lap Kok and Lowu to scour the city for still-cheap flats, certain that prices could go nowhere but up.

Meanwhile, armed with a somewhat puzzling belief that a revaluation of the yuan would somehow rub off on the Hong Kong dollar, foreign exchange traders began buying the currency with gusto.

The unprecedented capital inflows kept short-term interest rates at a record low - and at a deep discount to their counterparts in the United States - keeping the cost of money low.

Because the Hong Kong dollar is pegged to the greenback, local assets appeared ever-cheaper to the outside world as the US dollar plummeted.

But as temperature rose through the spring, so too did interest rates.

Last month, when the Hong Kong Monetary Authority tinkered with the peg and the mainland ruled out an immediate revaluation of the yuan, liquidity rushed out of Hong Kong and interbank rates raced upwards to almost match those in the US.

The benchmark three-month rate stands at 3.35 per cent, compared with 2.57 per cent before the peg adjustment on May 18 and 0.34 per cent at the beginning of this year.

Banks responded to the latest surge by raising their prime lending rates by 50 basis points to 5.75 or 6 per cent, depending on their starting point, which instantly pushed up mortgage rates by the same amount. Property owners with 20-year mortgages paying $8,000 a month at the beginning of the year are now coughing up $8,600.

Meanwhile, the US dollar has rebounded as the French and Dutch rejection of the European constitution stoked fears that the policy initiatives for the sluggish continental economy would remain disjointed and ineffective. Hong Kong dollar assets look pricier and riskier.

"Much of what has been driving the Hong Kong market no longer applies," said Adrian Mowat, a regional strategist for Asia Pacific at JP Morgan.

And as long as the US Federal Reserve continued to raise rates, Hong Kong rates would now have to follow, analysts said. This could mean another increase of 50 basis points in local lending rates this year, assuming the US federal funds rate moves to 4.25 per cent as expected.

"Hong Kong is likely to experience one of the largest moves in interest rates of any economy around the world. That challenges the outlook for the property market, particularly when luxury yields are very low," Mr Mowat said.

In short, the cheap-money party is over. The fact that higher rates deter property purchases was underscored by monthly transaction data this week showing that 8.76 per cent fewer properties changed hands last month than in April, when they had surged by 59 per cent over March. The number of residential units changing hands fell 11.76 per cent to 12,463.

Fewer transactions, analysts say, will ultimately lead to lower prices. In a report published this week, Merrill Lynch projected that housing prices would slump between 20 and 25 per cent by the end of next year.

The mood is only marginally more festive on the equity markets. Mainland coal producer China Shenhua Energy's issue, expected to yield up to $28.3 billion, met muted enthusiasm from retail investors on its Thursday launch, in stark contrast to the deluge of subscriptions received for initial offerings from China Power International Development, China Netcom Group Corp and Air China late last year, and Dynasty Fine Wines Group and I.T in the first quarter.

One retail broker said it had received a meagre $13 million worth of orders for Shenhua shares in two days. Another noted that most of the interest had been in the form of cash orders for one or two board lots, rather than the large-scale subscriptions using 90 per cent margin financing that typifies the bullish buying of speculators.

The lacklustre response for Shenhua may stem in part from fears that coal prices have peaked. Bank of Communications' US$2 billion offer, which will open for retail subscription on June 13, might be a better test of retail sentiment, brokers said.

But the Hong Kong equity market has been slack for much of this year as the capital outflows and rising interest rates put off investors. At yesterday's close the Hang Seng Index was down 2.89 per cent for the year.

Still, some analysts say the gloom is unwarranted. After all, the economy expanded 6 per cent year on year in the first quarter, as strong domestic demand offset a slowdown in exports.

Unemployment is at a 41-month low of 5.9 per cent, the AC Nielsen consumer confidence index rose to a 16-year high in April and the surge in property prices have reduced the share of residential mortgage loans in negative equity to just 5 per cent from 31 per cent two years ago, according to an upbeat report by Lehman Brothers.

The US investment bank also argued that, thanks to rising inflation, Hong Kong's real monetary conditions were "still very loose and about to get looser".

"For the short term, interest rates will continue to have a dampening effect on the market and risk appetite has clearly been dented by a whole series of domestic and global events, but I don't think it is fatal at all," said Spencer White, a regional strategist with Merrill Lynch.

"We have some steam taken out - which is actually a healthy thing."

Indeed, the fear that property prices may get out of hand if monetary conditions are to remain loose seems to have been a trigger for the recent changes to the Hong Kong dollar peg, which is meant to deter yuan speculators from using the Hong Kong dollar and to bring local interest rates back in line with those in the US.

In September 2003, when the speculative inflows started in earnest, US interest rates were at a 45-year low of 1 per cent.

Huge capital inflows left local monetary conditions very easy, but according to HKMA chief executive Joseph Yam Chi-kwong, this was "quite helpful for Hong Kong", which was still mired in deflation and had only just recovered from Sars.

The conditions were different this year with the return of inflation, rallying property prices and a decline in the jobless rate, Mr Yam said.

Central office rents double
Danny Chung and Eli Lau, Hong Kong Standard
June 7, 2005

Grade A office rent in Central has doubled over the past year as companies seek to expand amid the city's solid economic growth, but new supply has been slow.

In its latest survey for May 2005, property consultant Knight Frank found that monthly rents in Central are averaging HK$51 per square foot, about twice as much as the same month a year ago. By comparison, rents in Island East were HK$16, about 68 percent lower.

"Continued take-up of office space on the back of positive economic conditions has resulted in both a drop in vacancy and a surge in prime office rents," Knight Frank executive director Mark Bernard said, adding that vacancies are expected to fall as financial institutions continue to expand in Central.

Hong Kong's economy rose 6 percent in the first quarter after an 8.1 percent growth last year, prompting firms to expand. However, Central will only see new office supply from the completion of AIG Tower this year.

"If they are banks, they can't get away from Central," Alan Lok, senior director of office services at property consultant CB Richard Ellis, said.

For example, the Royal Bank of Scotland has moved back from Causeway Bay to Central, he said.

CB Richard Ellis' statistics showed that office rents overall increased 13 percent in the first quarter of 2005 with a 30 percent increase expected for the whole year.

Its associate director Simon Wong said his firm recorded an average of HK$40 psf in monthly rents for top-end office spaces in Central.

"Some commercial towers, which are situated closely to MTR stations, are even leased at higher rents," he noted. "Lack of market supply has substantially pushed up the leasing prices of grade A offices."

But Wong said the latest rental prices of Central offices were still 30 to 40 percent below the level at the height of the high-tech boom in 2001.

Bernard said properties near Central such as the Three Pacific Place will remain popular, adding that Microsoft is expected to relocate there from Cyberport.

In May, office rents at Wan Chai and Causeway Bay were averaging HK$23 psf a month, having risen 68 percent over the year, while at fringe Central it was HK$33 with a similar increase of 63 percent, Knight Frank said.

Rents of offices on the Island East increased by 36 percent over the year while in Tsim Sha Tsui, the increase was 66 percent to HK$27 psf, it said.

"If [tenants] are not a financial company and if they do not have a great need to be in Central ... we are seeing a trend that they will slowly move away from Central," Lok said.

PwC has towering ambition for Landmark
Foster Wong
9 June 2005
South China Morning Post

PricewaterhouseCoopers (PwC) may rent every floor of Hongkong Land's new office tower in Central, undeterred by what could be among the highest rents in the city.

The accounting giant has been in talks to take all 120,000 square feet of office space, along with naming rights for the Landmark East tower, according to a source.

Hongkong Land, Central's biggest landlord, is expected to finish the building at the end of next year.

PwC, the largest of the global Big Four accounting firms, has three Hong Kong offices - all in Central - covering about 250,000 sqft.

Two of the offices are in Hongkong Land buildings, Prince's Building and Edinburgh Tower, while the other is in Cheung Kong Center.

The firm planned to move two of the offices to Landmark East, the source said.

However, no deal has been finalised as the companies have yet to agree on rentals.

Hongkong Land has been asking prospective tenants for $70 per square foot, a level already achieved at Two IFC.

PwC pays about $40 per square foot. Hongkong Land's average rental income in Central last year was $32 per square foot.

Hongkong Land and PwC declined to comment on the talks yesterday.

The surge in office rental rates shows no signs of abating. Average effective rents in Central rose 15 per cent for the first quarter, compared with the previous quarter, to $38 per square foot, while rents in Wan Chai and Causeway Bay grew 10 per cent to $23 per square foot, according to DTZ Debenham Tie Leung, which forecasts rents in Central to rally at least 30 per cent this year.

"Central has been leading Hong Kong's office rents," said Desmond Poon Chi-ming, an associate director of Chartersince Surveyors.

"Growing financial market activities have generated solid demand for office space, while the tight supply is sending rents higher and higher."

Riding on the boom in financial market activities, PwC is seeking to upgrade its office space.

Last month, Ernst & Young moved into 180,000 sqft in Two IFC from Central's Hutchison House, while Deloitte Touche Tohmatsu will move into 148,000 sqft in Pacific Place 1, from Wing On Centre in Sheung Wan, by June next year.

The Landmark East tower is part of Hongkong Land's US$210 million redevelopment scheme of the Landmark complex.

The project will convert part of Edinburgh Tower into a luxury boutique hotel, to be managed by Mandarin Oriental Hotel Group.

Builders aim high at luxury end
Foster Wong
14 June 2005
South China Morning Post

Competition among developers in the luxury residential market is likely to heat up this summer with two major new projects hitting the market.

Sino Land is expected to launch pre-sales of its Mount Beacon, in Kowloon Tong, by early next month. Cheung Kong (Holdings) will release its the Legend in Tai Hang by the end of this month, according to property agents.

Both developers are still waiting for pre-sale consent from the government but have kicked off soft-marketing campaigns to whet market appetite.

Mid-tier developer Sino Land says it will sell Mount Beacon flats at prices similar to those found at comparable residential properties on the Peak.

Home prices at the Peak range from $15,000 to $25,000 per square foot, according to recent transaction records filed with the Land Registry, while average price for homes in Kowloon Tong are about $9,000 to $10,000 per square foot.

Mark Hahn Ka-fai, general manager of sales and marketing with Sino Land, dismissed suggestions that the pricing strategy was overly aggressive, saying: "We are confident about prospects for the project since there has been a lack of new supply in Kowloon Tong."

Mount Beacon, a joint venture project of Sino Land, Chinese Estates Holdings and Manhattan Garment, offers 197 apartments and 22 town houses. Sizes are expected to range from 1,100 sq ft to 4,000 sq ft.

Mr Hahn said the project would feature a 100,000 sq ft Monaco lifestyle club, complete with spa and a 260ft "lagoon".

"Mount Beacon is likely to compete head to head with the Legend," said Victor Yeung See-wai, Centaline Property Agency's district manager for Kowloon Tong.

Located on the former Tiger Balm Gardens site in Tai Hang, the Legend comprises 376 flats ranging from 1,500 to 2,400 sq ft. Sales manager Francis Wong said it planned to ask for $10,000 to $26,000 per square foot.

Separately, Wharf (Holdings) said it had sold two homes at No1 Plantation Road on the Peak for a total of about $90 million, or an average of $22,568 per square foot. Three other units had been reserved for $135 million.

June 17, 2005
Q1 construction output hits $23.1b
Government Press Release

Total gross value of construction work performed by main contractors in the first quarter rose 0.1% in nominal terms from a year earlier to $23.1 billion, with a 42.3%-surge in the gross value for commercial building projects.

According to the preliminary results of the Quarterly Survey of Construction Output by the Census & Statistics Department, the total gross value of construction work performed by main contractors after discounting price changes grew 1.2% in real terms.

Analysed by work type, the gross value of construction work performed at private sector sites totalled $6.7 billion, down 3.3% in nominal terms and 2.3% in real terms. The decrease was mainly due to completion of work at some large residential building sites.

Public sites down

The gross value of construction performed at public sector sites fell 8.7% in nominal terms to $6.9 billion, and 6% in real terms.

For works at locations other than construction sites, the gross value amounted to $9.5 billion, up 10.6% in nominal terms and 10.9% in real terms.

Works at locations other than construction sites includes minor new construction activities and renovation work at erected buildings and structures, and electrical and mechanical fitting work at locations other than construction sites.

Residential projects largest share

Analysed by end-use category, residential building projects accounted for the largest share, with a gross value amounting to $4.8 billion, down 13.2% in nominal terms.

This was followed by transport projects, with a gross value totalling $2.9 billion, down 4.5% in nominal terms.

Commercial building projects represented the third largest category of construction site work, with a gross value of $2.4 billion, up 42.3% in nominal terms over a year earlier.

On a seasonally adjusted basis, the gross value of construction work performed by main contractors decreased 0.7% in nominal terms and increased 0.7% in real terms when compared with last year's fourth quarter.

All the signs point to a sharp correction in property market
21 June 2005
South China Morning Post

At last week's meeting of the Pacific Basin Economic Council, former Hongkong and Shanghai Banking Corp chairman David Eldon worried over Hong Kong's future. At the end of last month, American magazine BusinessWeek came out with a cover story proclaiming "Hong Kong: It's back!".

Judging by BusinessWeek's past record, said Mr Eldon, that was a sure-fire signal a downturn was just around the corner.

It is beginning to looks as if Mr Eldon was right and that BusinessWeek has once again lived up to its unwitting reputation of being a late-cycle prophet - at least as far as Hong Kong's property market goes.

With other banks expected to follow Bank of China, which over the weekend raised its effective mortgage rate by another 0.25 percentage point, analysts are forecasting a shake-out that will drive speculators from the market.

The result, according to Merrill Lynch property analyst Clifford Lam, is likely to be a correction that drives residential property prices down by as much as 25 per cent over the next year or so.

Not everyone is so bearish, but even those with more moderate views believe prices at the luxury end of the market are likely to dip by 10 per cent or more over the coming months as speculative buyers are sent packing.

The signs are already there. In a desperate attempt to bump up sales, Cheung Kong (Holdings) is asking buyers in its newest development for an initial deposit of just 5 per cent. As many as 400 flats out of 1,057 in Sun Hung Kai Properties' Arch in West Kowloon, launched in April, are already for sale on the secondary market as buyers try to resell their properties for a fast buck rather than shoulder higher interest rates.

With secondary market transaction volumes down by 12 per cent last month, after an earlier round of mortgage rate increases, prices of flats in some developments are already softening.

If mortgage rate rises do blow a little froth off luxury property prices, it can only be healthy for the market as a whole. Top-end price rises have far outstripped average increases recently.

Since the market bottomed out in mid-2003, average residential prices have risen by about 70 per cent. Luxury flats, however, have doubled in price, reflecting the disproportionate number of purchasers buying property in hope of capital gains rather than to live in.

If they are not already, those buyers will soon begin to feel the pain of higher rates. According to Morgan Stanley, the rise in luxury prices has depressed top-end rental yields to a record low of 2 per cent. With mortgage rates expected to rise by up to a percentage point before the end of the year, the squeeze is set to tighten.

That is by no means all bad news. The easy availability of cheap money has allowed speculators to crowd more cautious genuine buyers out of the market. According to Mr Lam, the affordability of residential property has fallen sharply over the past couple of years, with average flat prices shooting up to 12 times average annual household income today from about 6.5 times in early 2003. Only plentiful liquidity has kept the market afloat.

Now that liquidity is drying up, Mr Lam compares the situation to that in 1994, when a 2.5-percentage-point rise in interest rates drove prices down by 20 per cent. A similar magnitude decline is needed today, he believes, to bring rental yields back into positive territory and to restore prices to levels owner-occupiers can afford.

Langham Place offices may reap $7b
Raymond Wang, Hong Kong Standard
July 2, 2005

Great Eagle Holdings plans to start selling offices at its Langham Place complex in August, which analysts estimate will reap up to HK$7 billion to cut the Hong Kong-listed hotel and property investor's debts by almost half.

The company obtained sales consent last week for the office property in Mong Kok's tallest commercial building and plans to launch the sale next month, a Great Eagle source said.

To achieve the best price, the 59-story office tower will be sold on a strata title basis, or floor by floor.

However, the price, which will be based on prevailing market levels in Kowloon of nearly HK$9,000 per square foot, has yet to be finalized, the source said.

Great Eagle managing director Lo Ka-shui had said earlier that the firm's gearing ratio could be further reduced to as low as 50 percent from the current 60 percent if it decided to sell the office space at Langham Place. Lo was not available for comment Friday.

Great Eagle borrowed heavily to build Langham Place, a mixed co-developed project with the Urban Renewal Authority featuring a five-star hotel, high-end shopping mall and Grade A offices. The complex was the company's largest single investment.

Great Eagle had spent HK$10.3 billion as of June 30 last year on the construction of the 1.8 million sqft complex, which was fully open last year. As of December 31, its net outstanding debt was HK$14.66 billion, an increase of HK$904 million from a year earlier. Analysts estimate the company will be able to fetch an average price of at least HK$9,000-10,000 psf and reduce debt by 47.7 percent to about HK$7.66 billion by selling the 700,000 sqft office tower.

Langham Place is expected to sell at better prices than similar Grade A offices in Kowloon since it is newer, with seaviews and a well-connected location, analysts said.

Shrinking supply of new office space and reviving demand are also expected to continue to put upward pressure on Grade A office rents and prices, they added.

Real estate consultant CB Richard Ellis expects Grade A office rents and capital values to show increases of 35 percent and 35-40 percent, respectively, this year. Grade A office rents and capital values jumped 13.6 percent and 21.5 percent, respectively, in the first quarter.

Great Eagle's Lo has said demand for Grade A offices will increase dramatically as supply is forecast to reach a record low from 2006 to 2009, and there will be no new supply in Sheung Wan, Central, Wan Chai or Causeway Bay from 2007 to 2009.

Still, the recovery of the Hong Kong office market has yet to favor Great Eagle, which reported a 6 percent fall in 2004 earnings to HK$312 million due to rent cuts during the economic downturn in previous years. However, the company expected a modest recovery in its Hong Kong rental income this year as new leasing appeared to have gained momentum in 2005 and rental reversions had turned positive.

July 5, 2005
Government Press Release
Building unit sales up 23.7%

Sale and purchase agreements for all types of building units in the first half of 2005 rose 23.7% on the second half of 2004, the Land Registry says, to 73,812. They were up 15.7% on the first half of 2004.

The total amount of consideration involved was $233.4 billion, up 33.8% on the second half of 2004 and 31.6% on the first.

About 86,000 assignments for building units were lodged for registration, up 31.8% on the second half of 2004 and 23.1% on the first half.

The total consideration amounted to $225.26 billion, up 46.1% on the second half of 2004 and 48.7% on the first.

Public searches of land records totalled almost 2.23 million, up 15% on the second half of 2004 and 28.9% on the first.

Small retailers hit as shop rents soar
Danny Chung and Neel Garlapati, Hong Kong Standard
July 6, 2005

Hong Kong's shop rents surged as much as 13 percent in the first half of the year, as landlords took advantage of the economic rebound and soaring tourist numbers to boost their returns, according to property agents Jones Lang LaSalle.

The biggest gains were in street-front shops, up 13 percent, followed by 10 percent gains in prime shopping centers and 4.6 percent increases in less-prime areas.

The rent increases have forced some shopowners to close, while others have sought cheaper premises, often in nearby areas, or have cut back their selling space.

Bigger merchants, though hardly welcoming the increases, are better able to bear the burden of higher rents. "Although we expect rentals to rise more than 10 percent this fiscal year, we're confident that we will see strong sales growth that will help offset the increased costs," said Bossini International Holdings finance director Kathy Chan. The Hong Kong-based casual wear retailer, with about 30 stores in the territory, expects rents will eat up 20 percent of sales this year.

Landlords were able to push through increases because of higher consumer spending and the growth in tourism, said Jones Lang LaSalle managing director Fung Kin-keung.

Retail sales rose 8.5 percent in the first four months of the year from the same period last year, while tourist arrivals climbed 11.1 percent over the same period. Tourists were responsible for 20 percent of retail spending, up from 12 percent in 2000, underscoring just how critical visitors are to Hong Kong retailers, Fung said.

With the economy continuing to expand, more rent increases are coming. Jones Lang reckons rents for street-front shops and prime shopping centers could rise another 5 percent to 10 percent in the second half, while rents in non-prime areas could rise 5 percent.

The rebounding economy has cushioned the blow for many retailers, though the rent hikes have eaten into their gains.

Still, 96 percent of merchants in an earlier Jones Lang survey said they expected business will be better this year - though only 50 percent said they thought their margins would widen.

Retailers in the best position to absorb the blow of higher rents are those peddling goods favored by mainland shoppers, including cosmetics, jewelry and consumer electronics, said Simon Wong, associate director at property consultant CB Richard Ellis. Yet even some big retailers have opted to relocate within the same shopping district rather than pay sharply higher rents, said Simon Lo, director at property consultant Colliers.

Most retailers, though, will stay put, said Freddy Ho, sales director at Ricacorp Surveyors, especially those heavily dependent on consumer spending located in prime areas.

Falling margins, he said, might induce retailers to consider moving to an adjacent street, going for smaller shops or reducing the number of shops in one area.

"I don't think they will shrink back from this," Ho said. He expects rents will rise 20 percent in the second half.

Hong Kong Property Sector Rebounds But Caution Required: S&P

HONG KONG, July 6 Asia Pulse - The property sector in Hong Kong recovered strongly in 2004 but the outlook for the next 12 months is less certain, according to a new report released today by Standard & Poor's Ratings Services on Wednesday.

Fueled by a solid economic recovery and positive market sentiment, the sector started picking up in 2003 and 2004, according to the report, entitled "Hong Kong Property Review: Sector Rebounds But Caution Required."

The report said the luxury residential market has been the prime beneficiary of this trend, with speculative investors returning to the market, but the retail and office property sectors have also been very active.

As a result of these improved market conditions, most property companies have delivered a meaningful recovery in margins and improved profitability. The financial ratios for rated property companies in Hong Kong are now at levels sustainable for their respective ratings.

The report added that rating outlooks in the sector have nearlyall moved back to stable from negative over the past twelve months. Looking ahead the outlook for the property sector is less certain than it was a year ago. On the positive side, office property investors are starting to enjoy positive rental reversions, while improved tourist spending and domestic retail sales are likely to lead to solid growth in retail rentals.

However, the outlook for the residential property sector is more challenging with rising interest rates cooling down the market and reducing investment demand. In recent years, unprecedented capital inflows have kept mortgage rates in Hong Kong at historically low levels, according to the report.

But since April, banks in the territory have been raising their mortgage lending rates. Without cheap money, buyers, especially inthe top-end luxury property sector, are becoming more cautious, the report said.

Although the market faces a decline in supply, the prospective level of demand will be the key factor in determining the direction the market takes. Nevertheless, Standard & Poor's expects property companies to maintain appropriately conservative financial profiles.

(XIC)

Henderson reaps $5.6b from sales of 1,300 units in first half
Hong Kong Standard Staff reporter
July 9, 2005

Henderson Land Development said it reaped more than HK$5.6 billion from home sales in the first half.

General manager for sales Tony Tse said Friday that the property developer sold about 1,300 units in the first six months and expects second-half sales to be at least the same as a year ago at HK$8 billion.

Henderson, which booked HK$2.84 billion from apartment sales for the year ended June 2004, launched new projects including the co-developed Royal Green in Sheung Shui and Central Heights in Tseung Kwan O in the first half. It also sold units at existing projects like Splendid Place, adjacent to Taikoo Shing.

Hong Kong developers are benefiting from the rebound in property prices, with Centaline Property Agency reporting a 13 percent rise in the first half.

Cheung Kong (Holdings) said Friday it has sold 233 units at new luxury project The Legend in Tai Hang for more than HK$5.4 billion. Executive director Justin Chiu said sales were about 10 percent higher than expected.

However, rising interest rates have slowed sales over the past two months and property consultant CB Richard Ellis forecasts growth in a range of zero to 5 percent in the second half.

Citigroup estimates that after the latest 50-basis-point prime rate increase early this month, mortgage payments account for about 57 percent of monthly median household incomes. ``Unless we see substantial income and salary growth, upside in property prices will be quite limited," the bank said.

Langham Place to put eight more floors on sale
Raymond Wang, Hong Kong Standard
July 20, 2005

Great Eagle Holdings, whose Langham Place complex has already set a new price benchmark for offices in Kowloon, says it is in talks with blue-chip companies and investors ahead of next month's official launch of the 59-story office tower.

The company said it will offer seven to eight floors of Kowloon's tallest commercial building for public sale, after selling the 55th floor this month for about HK$175 million, or more than HK$10,000 per square foot, the highest unit price for Kowloon office premises since 1998.

Great Eagle assistant director Adrian Lee expects sustained demand from both potential occupants and investors due to a dearth of new office space in the area. He said several companies and investors were keen to buy more than one floor in the Mong Kok building.

Great Eagle plans to use the sale proceeds to cut debt and possibly invest in hotels in China.

Lee said that assuming a price of about HK$10,000 psf, the office space would fetch HK$7 billion, reducing the firm's gearing ratio to less than 30 percent from 62 percent.

Analysts said even the company's current gearing ratio is reasonable by international standards. After the sale, they expect the discount of Great Eagle shares to net asset value to narrow.

Great Eagle borrowed heavily to build Langham Place in partnership with the Urban Renewal Authority. The complex, including a five-star hotel, a shopping mall and 770,000 sqft of offices, is its largest investment ever.

The company said its long-term debt stood at HK$14.8 billion as of December 31, 2004.

Until now, the most expensive office space in Kowloon was in the Tsim Sha Tsui district, where unit prices are about HK$8,000 psf. Real estate agents say it is reasonable to expect Langham Place to exceed that since it is new, has seaviews and good transport links.

Great Eagle's Lee predicted GradeA office rents in Central would rise by more than 30 percent over the next 12 months as supply of new office space shrinks and demand revives. "The Kowloon Grade A office market will follow suit," he said.

Central office space filling up
Raymond Wang, Hong Kong Standard
July 27, 2005

Hongkong Land, the biggest landlord in Central, says its office vacancy rate in the prime business district has fallen to 3.7 percent, a five-year low.

The market average vacancy rate in the prime business district is 7 percent, according to the company.

In 2000, Hongkong Land's vacancy rate in Central was as low as 2.8 percent.

Office rents in the district's core have more than doubled in the past 12 months, property consultants Knight Frank said.

Overall Grade A office rents in the territory jumped 20 percent in the second quarter of the year to an average of about HK$30 per square foot per month, a level last seen in 2000, said Knight Frank. Central remained the most expensive area, with monthly rents as high as HK$75 psf.

The vacancy rate in the district continues to fall as financial institutions and business services firms expand, the consultancy said.

Despite having five million square feet of office and retail space in Central, Singapore-listed Hongkong Land, part of the Jardine Matheson group, failed to derive much benefit in the first half. Its problem was one common to SAR landlords - rent concessions, granted during the slump that followed the Asian financial crisis of 1997-98, which have yet to run out.

The company had first-half underlying profit of US$105 million (HK$819 million), up 2 percent from US$104 million a year earlier.

Hongkong Land follows international financial reporting standards, which require property revaluations to be reflected in the profit and loss account.

Thanks to a substantial rise in the value of its investment properties, Hongkong Land's net profit was US$1.195 billion for the first six months, compared with US$783 million in the first half of last year. Net assets per share jumped 21 percent to US$2.83.

Hongkong Land expects office rents to increase in the second half.

As new leases began to be negotiated at higher rates, net rental income in the first half rose when compared with the second half of last year.

"Rents are moving in the right direction, but the increase won't be significant in terms of the bottom line until 2006," chief executive Nicholas Sallnow-Smith said.

Hongkong Land's tenants typically sign three-year leases.

Meanwhile, Singapore-listed Mandarin Oriental International, the luxury hotel arm of Jardine Matheson, reported first-half profit jumped 10 times to US$55.3 million, compared with a restated US$5.5 million a year ago, due to rising room rates and a one-time gain from selling a hotel stake.

SAR to top Tokyo office rents
Mark Lee, Hong Kong Standard
August 10, 2005

Prime office rents in Hong Kong soared 32.3 percent in the first six months this year as demand continued to outstrip supply, according to global real estate agency Cushman & Wakefield.

The average occupancy costs of prime office space in Central district reached US$107.20 (HK$836.16) per square foot per year at the end of June, the firm said, compared with US$81 last December.

With prices forecast to increase another 20 percent in the next 12 months, second-place Hong Kong could overtake Tokyo, where prime office rent now averages US$119.8 psf per year, as the most expensive location in the Asia-Pacific region, the firm said.

By then, prime office rents here could approach the all-time high levels of US$129.07 psf per year recorded in June 1997, the firm said.

Cushman & Wakefield's Asia research director John Su said the rapidly rising rental costs had been more than matched by demand, especially from banks and financial institutions. The average vacancy rate for prime office properties in Central fell to 7.4 percent in June from 14.6 percent a year earlier, according to the firm.

"New supply of prime office properties remains extremely tight," Su said. "The AIG Tower, released earlier this year, is already 95 percent leased.

"Apart from the AIG Tower, the only new supply next year will come from the extension to the Landmark building, so we predict the vacancy rate will continue to fall."

Su said companies would inevitably decide to move to less expensive locations when their current leases expire. "As leases typically run for three years, companies renewing their leases this year face an average 60 percent increase in rental costs," he said.

"Companies whose leases expire next year will face an even bigger shock as they will be renegotiating contracts that started in 2003, when rents were at their lowest."

Su said average rents for prime office properties in Central had nearly tripled since the market trough in 2003.

Shanghai remains the most expensive office location on the mainland, with prime office rents averaging US$42.70 psf a year, followed by Beijing at US$29.70 and Guangzhou at US$27.mark.lee@singtaonewscorp.com

Swire scraps office tower, opts for mega hotel
Raymond Wang, Hong Kong Standard
August 12, 2005

Swire Pacific, a Hong Kong-listed conglomerate, plans to build a mega hotel as part of its Taikoo Shing developments, instead of a proposed office tower, as it announced a 11 percent rise in first-half net profit.

Property analysts estimate construction costs at up to HK$1.5 billion, assuming that the hotel - to be built on the former Mount Parker House site in Cityplaza Two - will provide more than 1,200 rooms.

The company, the biggest office landlord in eastern Hong Kong Island, has submitted a building plan for the hotel development to the government, Swire Properties chairman Keith Kerr said at the firm's briefing for analysts on its interim earnings Thursday.

Swire's underlying profit rose to HK$3.26 billion for the six months ended June 30 from HK$2.93 billion a year ago, largely in line with analysts' forecasts of HK$3.3 billion. Turnover rose 7 percent to HK$8.99 billion.

The company said it is not in a rush to press ahead with its office project in the extension of Cityplaza One, as it is proceeding with a 1.5 million-square-foot office project at 16 Westlands Road in Quarry Bay, which is close to its Taikoo Shing developments.

The 146,000-square-foot vacant site in Cityplaza Two was originally earmarked for a 34-story office project, with a potential gross floor area of about 610,000 sqft.

Tony Chan, executive director of Vigers Appraisal and Consulting, estimated construction costs for the planned Taikoo Shing hotel at between HK$2,000 and HK$2,500 per square foot.

Swire, which invests in aviation, marine services, beverages and property, owns a 20 percent stake in each of three hotels in Admiralty, which are managed by Marriott International, Conrad Hotels and Shangri-La Asia.

Regarding its earnings, Swire said profit of about HK$2.3 billion on the sale of its 17.62 percent stake in Modern Terminals will be booked in the second half.

Its net profit more than doubled to HK$7.33 billion in the first half from restated HK$3 billion a year ago, as it booked a HK$4.58 billion gain for the increase in values of its properties under the new accounting standards.

Real estate profits to rise
Raymond Wang, Hong Kong Standard
August 24, 2005

Hong Kong-listed real estate firms expect to report a combined net profit increase of up to HK$26 billion this year as a result of new accounting standards, according to a survey by Deloitte Touche Tohmatsu.

The anticipated gains reflect the 20 percent surge in residential and commercial property prices since the end of last year, said Richard Ho, China industry leader of the accounting firm's real estate and construction practice.

Hong Kong aligned its financial reporting rules this year with international standards. For property firms, there are two major changes.

First, they must state the current market value of their investment properties in the profit-and-loss account, instead of in the property valuation reserves.

Second, they must wait until a project is complete before recognizing any revenue from pre-sales of uncompleted flats. Some used the "stage of completion" method before, claiming a percentage of the revenue corresponding to the project's degree of completion.

Deloitte said nearly half of the 36 respondents had sales of more than HK$1 billion, while 51 percent had net asset value exceeding HK$2.5 billion.

Thirty-six percent of respondents expected an increase of more than 50 percent in net profit this year, while none anticipated a fall. Since the earnings season began this month, developers and landlords have been posting higher interim earnings.

Swire Pacific, the biggest office landlord in Island East, reported net profit of HK$7.33 billion, compared with a restated HK$3 billion in the first half of last year, as it booked a HK$4.58 billion gain from marking its properties up to current value.

There were exceptions, though. Beijing Capital Land, which will announce its first-half results later this month, issued a profit warning, saying changes in the revenue recognition method mean sales income from its three projects in the capital can not be booked until next year and 2007.

"Obviously, developers will explore other ways to structure their pre-sale activities so that the recognition of pre-sale income in phases may still be possible," Ho said. "They may subdivide the project into small phases to meet the requirements of completion."

However, mid-tier developers focused on single-tower projects will need to find other ways to justify recognizing revenue from sales of uncompleted flats.

Ho said 44 percent of respondents foresaw no change to their dividend distribution policy, since they view the increase in the fair value of investment properties as unrealized gains.

Companies were also worried about challenges from the Inland Revenue Department on recognition of fair value gains arising from revaluation. "As the IRD has yet to issue guidelines, respondents felt such recognition would potentially bring additional profits tax assessment on unrealized fair value gains," said Anthony Tam, deputy tax managing partner.

Office take-up slows in Central
Sandy Li
7 September 2005
South China Morning Post

Grade-A office take-up in Central will continue to slow at least for the next 12 months due to limited supply and high occupancy costs, according to property consultants.

Cushman & Wakefield said the low availability and limited number of new projects in the pipeline meant take-up for the next year would be restricted by supply despite the strong underlying demand.

Cushman & Wakefield director John Su said next year's take-up would decline to 250,000 sqft.

That was significantly lower than the nearly 2 million sqft of grade-A office space absorbed in Central between June 2003 and June this year, the company said.

The vacancy rate in Central would continue to fall from 9.9 per cent to about 8.7 per cent next year, Mr Su said.

Colliers International research head Simon Lo Wing-fai said the take-up rate had fallen by 30 per cent over the previous quarter.

"Companies are finding it difficult to get space if they want to expand. So most prefer to renew their existing leases or look for office space in Causeway Bay or areas other than Central," he said.

Cushman & Wakefield said high occupancy costs, which include office rents and management fees, also affected the take-up rate.

Businesses were more cautious about real estate costs because rents in most grade-A buildings in Hong Kong had surpassed the level of the previous market peak in 2001, it said.

The company expected the upward trend in occupancy costs would continue for at least another year because of limited new supply.

"The decentralisation trend has already begun in Hong Kong, with many companies committed to space in Hong Kong east and decentralised Kowloon over the past six months," he said.

Mr Lo said average grade-A office rents in Hong Kong had risen nearly 50 per cent since January.

Best third quarter since 1997 tipped for residential property
07 September 2005
Hong Kong Standard

Residential property transactions for the third quarter, traditionally a quiet season, should be the best since 1997, before the Asian financial crisis sent the Hong Kong property market reeling, according to consultants DTZ Debenham Tie Leung.

Research director Alva To forecast about 28,300 sales and purchase agreements and 10,000 completed transactions for the July-September period.

August saw 9,114 completed transactions, roughly the same as July.

The forecast calls for third quarter residential sales to be 37 percent lower than in the second quarter but 14 percent higher than in the third quarter of 2004.

Though mortgage rates have climbed to 5 percent from a historical low of 2.375 percent at the start of the year, To said the impact was muted by income growth _ median monthly household income has risen to HK$16,000 from HK$15,000 _ and declining unemployment. Residential sales launches, such as Metro Town, One Silversea and Harbour Green, will boost completed transactions this month, he said. ``We believe the market will pick up again in October, basically due to a slowdown of mortgage rate hikes,'' To said.

The consulting firm expects residential transactions to top 145,000 or 150,000 this year, the most since 1997. To said prices would be up by 20 percent overall from last year.

The company said shop rents were up substantially in the past two years.

Rents on Pedder Street in Central more than doubled from HK$200 per square foot in 2003 to over HK$425 psf in 2005. In and around Russell Street in Causeway Bay, the increase was 85 percent, to about HK$500 psf.

Life on the waterfront gets more expensive
Denise Tsang
9 September 2005
South China Morning Post

Four Seasons Place, arguably the city's most luxurious waterfront serviced apartments, has raised its rents by an average 6 per cent after the first batch of units were leased briskly after their release in June.

Launching 154 suites on the middle floors of the 60-storey building yesterday, the owner consortium has set a minimum rental of $35,000 a month for a 619 sq ft unit and a maximum of $82,000 a month for a 1,490 sq ft unit.

The launch is the second after the consortium - Henderson Land Development, Sun Hung Kai Properties, Towngas and Sun Chung Estate - leased 180 units on lower floors at a whopping average price of $53 per sq ft in June.

Henderson Investment executive director Patrick Sit Pak-wing said the first units were snapped up faster than expected on hefty demand for high-end serviced accommodation.

"The market is so strong that all the units went very fast in the first round of the launch," Mr Sit said. "It also reflects the strength of Hong Kong's economy and a larger number of companies establishing or expanding their offices here."

The first 180 rooms, located between the 12th floor and 26th floor, cost between $28,000 a month for a 547 sq ft unit and $75,000 for a 1,490 sq ft unit.

As a result of the robust demand, rents for the new units have gone up by an average 6 per cent, but some suites on higher floors with better sea views saw a jump of 11 per cent.

Justifying the high rentals, Mr Sit said the 519-unit property was equipped with unique facilities such as an all-seasons outdoor swimming pool on the 59th floor and easy access to the airport.

Lane Crawford site may fetch $2b
Foster Wong
18 August 2005
South China Morning Post

Wheelock & Co's Lane Crawford House in Queen's Road Central has stirred frenzied buying interest, with local developers and foreign investment funds bidding aggressively for a shot at what could be the most expensive en-bloc property in Central in almost a decade.

Market sources say Henderson Land Development and Australia-based Macquarie Group are just two of the known potential buyers for the 24-storey office-retail tower. Others lining up for a pop included investors from Singapore, Britain and the Middle East, the sources said.

"Everyone is talking about well over the $2 billion bracket in their offers. The market is likely to see something quite substantial from this sale," said one market source.

It is rumoured that Henderson Land has offered as much as $2.4 billion to secure the 28-year-old building which has a site area of 12,286 square feet and a gross floor area of 195,500 sq ft.

Should it fetch more than $2 billion, it would rank second only to the $3.64 billion sale of the Entertainment Building at 30 Queen's Road Central in November 1996.

One source said Wheelock had not yet shortlisted buyers who would then be invited to submit a formal offer before the private tender closes on September 12.

The developer was not keen to close the tender early unless it received an enormously high offer, one source said.

Both Wheelock and CB Richard Ellis - sole property agent for the sale - declined to comment on the tender yesterday and Henderson and Macquarie were not available.

Property consultants said the positive response for Lane Crawford House was widely anticipated in the face of the tight supply in Hong Kong's core commercial district where rents have been soaring.

"The building is located at the prime area of the core Central district where en-bloc commercial property is in short supply," said DTZ Debenham Tie Leung research director Alva To Yu-hung.

Built in 1977, the building once housed Lane Crawford's flagship store.

From the basement to the sixth floor the building comprises retail space with a gross floor area of 89,500 sq ft. The rest of the building is office space.

Lane Crawford House draws foreign bidders
Peggy Sito
13 September 2005
South China Morning Post

A Taiwanese insurance company is attempting to enter the Hong Kong property market by bidding for Wheelock and Co's Lane Crawford House in Queen's Road Central.

The 24-storey building had also attracted a bid from Singapore when the tender closed yesterday, according to a source close to Wheelock.

It was the first time the unidentified Taiwanese firm had shown an interest in Hong Kong's property market although it had other investments in the city, the source said.

Lane Crawford House is expected to fetch about $2 billion, making it one of the most expensive office transactions in Central in the past decade.

Last Friday, Hysan Development said it had sold the nearby Entertainment Building for $2.7 billion.

The source refused to reveal the final number or identify any of the bidders for Lane Crawford House but Henderson Land Development has been rumoured to have offered as much as $2.4 billion for the 28-year-old building, which has a site area of 12,286 sq ft.

It has also been reported that Sogo department store operator Lifestyle International Holdings intended to bid. Wheelock and CB Richard Ellis - the sole agent for the sale - declined to comment yesterday. Henderson and Lifestyle spokesmen were not available for comment.

However, active property companies such as Sun Hung Kai Properties, Swire Properties, Sino Land, Kerry Properties and Chinese Estates Holdings did not submit bids. Cheung Kong (Holdings) was also unavailable for comment on the tender yesterday.

Lane Crawford House has a gross floor area of 195,500 sq ft. The first six floors, comprising 89,503 sq ft, are designated for retail use. The remainder is office space. Built in 1977, the building once housed Lane Crawford's flagship store.

According to the tender brochure, most of the retail podium is vacant while the office occupancy rate is about 95 per cent, yielding an annual rental income of about $23.64 million.

The property is seen as a rare investment opportunity in Central. The only new space in the district this year will be supplied by AIG Tower, which is majority pre-leased. Next year, Hongkong Land Holdings will have its Landmark East extension providing a net floor area of 119,000 sq ft.

There is about 13 million sq ft of top grade office space in the heart of Central. Hongkong Land is the largest landlord in the area with 35 per cent of that space.

In the housing boom, Hong Kong hits peak
By Le-Min Lim Bloomberg News
MONDAY, SEPTEMBER 12, 2005

HONG KONG Hong Kong's luxury real estate market is hotter than those in even New York and London.

Prices on the Peak, the top of Hong Kong island, are rising as China's economic growth spawns a new generation of buyers looking to rub shoulders with Western executives and the city's richest families. Prices at the Peak start at 15 million Hong Kong dollars, or $1.9 million, for a two-bedroom apartment of 114 square meters, or 1,200 square feet, and exceed 200 million dollars for houses.

"The Peak used to be occupied by the old money of Hong Kong," said Eddie Tam, a watch-seller's son who spent more than 7.5 million dollars to renovate his 333 square-meter home and fill it with chandeliers, antiques and works by artists like Zhang Daqian, painter of the world's most expensive Chinese picture. "I definitely belong to a new generation of owners."

Stephen Chow, star of the "Kung Fu Hustle" movie, drew bids of up to 120 million dollars, or a record 32,400 dollars a square foot, last month for his four-story Peak home, according to real estate brokers Knight Frank.

London's priciest homes sell for the equivalent of as much as £2,000, or $3,673, a square foot, the company said. A New York apartment facing the Hudson River goes for upwards of $2,500 a square foot, according to Nicholas Brooke of Professional Property Services, a real estate adviser here.

Demand this year surged for landed property on the Peak worth 40 million dollars or more, said Raymond Fung, a director at Knight Frank Hong Kong. "Single-house property is so popular because people with money want to live by themselves, preferably with no neighbors, and certainly not with the average folks."

Hong Kong's property prices have risen for more than a year as the economy expanded and the jobless rate fell to a four-year low, rebounding from a slump in 2003 caused by recession and the SARS epidemic in the city.

The Peak, which rises 554 meters, or 1,818 feet, above Hong Kong's harbor, is often shrouded in fog in winter. In summer, its wooded slopes offer cooler temperatures than the densely packed harbor-side suburbs, part of the reason it was chosen as the site of the summer residence for British governors in colonial times.

Average prices at the Peak almost doubled to 12,600 dollars a square foot in August from 6,500 dollars in mid-2003, according to Ben Ma, research manager at Knight Frank. Mass-market prices have risen more than 60 percent to about 4,500 dollars over the same period.

Prices in luxury neighborhoods are rising faster than those in the mass market because rising interest rates are deterring some middle-class buyers, said Fung.

HSBC Holdings, the city's largest lender, increased its prime lending rate 25 basis points to 6.75 percent on Aug. 11. The rate was 5 percent at the beginning of 2005.

"Mortgage rates aren't a huge problem for those at the Peak," said Fung. "Many of them pay cash."

Tam, the watch-seller's son, owns a three-storey house with views of the city's harbor from the master bedroom on the top floor. The former Merrill Lynch banker, who founded Hong Kong hedge fund manager Central Asset Investment, said his property has tripled in value since he bought it after Severe Acute Respiratory Syndrome sent prices plunging. He declined to say how much he paid for it. Knight Frank's Fung said Tam's house is worth about 150 million dollars.

Tam, who owns Maserati and Mercedes sedans, earned bachelor's and master's degrees in engineering from University of Toronto and a second master's in management from Yale after his family emigrated from Hong Kong in the mid-1970s. He said he also owns investment properties in Beijing and Macao.

Chow, an actor and director, may have sold his house at 7 Pollock's Path to move up the road to No.10, a property called Skyhigh that commands 360-degree views from the top of the island, according to agents Knight Frank. Raymond Ho, the agency handling last month's sale, declined to name the buyer. Chow declined to comment, according to Jackie Fok, who handles press queries for the actor at Sense International Group.

Limited supply, especially of landed property like bungalows and townhouses, is driving price gains at the Peak, said Landscope Realty's Koh. The Peak has 546 stand-alone houses and 455 townhouses, according to Koh. This year, 40 apartments, 32 townhouses and three bungalows are for sale, according to Knight Frank's data.

"Quality property at the top-end of the market is still pretty scarce," said Tai Hui, a Hong Kong-based economist at Standard Chartered Bank. "The mass-market segment has a lot of unsold stock and faces competition from" neighboring Shenzhen.

October 5, 2005
Government Press Release
Property rentals improving

The rental affordability of households is better than any time during the entire period from 1984 to 1999, the Economic & Employment Council says.

At its seventh meeting today, members noted that despite property market volatility in recent years, in the long run rentals will move in tandem with the economy. The Government will monitor developments to foster healthy property market growth.

Meanwhile, members were briefed on recent achievements of the Subgroup on Business Facilitation. The Lands Department will delete nine special conditions, simplify seven items and consolidate 10 items into four to simplify the special conditions in the land lease. It will also review the general conditions.

An enquiry system has also been formed to advise landowners on the "before value" for exceptional cases. The department has initiated action on gazetting requirements once the agreement to the transaction is reached to speed up land exchange and modification cases.

Other improvements

The Food & Environmental Hygiene Department will improve the licensing regime for food retail and introduce a composite licence to cover 12 ready-to-eat food permits. The Environment, Transport & Works Bureau has reduced the number of categories of consumer goods to be regulated under the proposed Volatile Organic Compound legislation from 40 to six.

The Housing Department has pledged to complete the processes for scrutinising and approving fitting out works for retail businesses in housing estates in seven working days for simple cases and by 21 days for complicated ones. The Home Affairs Bureau and the Food & Environmental Hygiene Department will introduce provisional licensing for cinemas so operators can start business early and licence discs at ticket control points to enhance public awareness.

Vigorous measures needed

On the recently released World Bank Doing Business Report 2006 and the World Economic Forum Global Competitiveness Report 2005-06, the council considered the reports reaffirmed the need to introduce more vigorous measures to minimise regulatory barriers to facilitate business.

Members also noted the Government will follow up with the World Bank on the discrepancies identified in the source data for the "dealing with licences" and "property registration" components, which have caused a slip in Hong Kong's overall ranking in the World Bank report.

For council meeting papers click here : http://www.info.gov.hk/fso/eec/eng/

Shortage fear as new flats supply falls 17pc
Hong Kong may face a shortage of new apartments as supply dwindled 17 percent to 15,800 units in the first three quarters of the year from 19,100 units a year earlier, according to the government's quarterly statistics on housing stocks.
Raymond Wang
Hong Kong Standard
Saturday, October 22, 2005

Hong Kong may face a shortage of new apartments as supply dwindled 17 percent to 15,800 units in the first three quarters of the year from 19,100 units a year earlier, according to the government's quarterly statistics on housing stocks.

Supply this year is expected to be about 20,000 units, down 23 percent from 26,000 units in 2004, and well below the average annual take-up of 24,000 to 27,000 homes over the past decade, industry watchers said.

The quarterly statistics, released by the Housing Department, showed that newly completed flats in the private sector fell about 31 percent to 4,600 units in the third quarter from 6,700 in the same period of last year.

The government said its report is a snapshot rather than a forecast.

Pacific Century Premium Developments executive director Wendy Gan estimates that the annual supply of new homes will plunge to about 13,000 in the coming two years from about 26,000-30,000 between 2002 and 2004.

Supply this year is about 20,000, she added.

Property consultancy Knight Frank expects the scarcity to be even worse in the high-end market, with only 1,000 to 2,000 luxury properties expected to be released annually over the next few years.

According to the Rating and Valuation Department, the number of apartments with a saleable area of 1,000 square feet or more due for completion this year will decrease by almost 50 percent to 1,300 homes from 2,580 in 2004.

The government, however, said it would respond to market demand by releasing land for private residential development.

The government is set to provide up to 254 hectares to the property market in the next five years, according to Secretary for Housing, Planning and Lands Michael Suen, who did not give further details.

Since the government unveiled its list of sites in March for sale by application for the fiscal year that began in April, three residential lots in Kowloon were triggered for auction and sold last month.

The new application list contains 35 sites, including 11 rolled over from last year, that together cover some 26.85 hectares.

Suen said developers can suggest other sites be put on the application list for the next financial year.

Refurbishing adds to the appeal - Older blocks are getting full makeovers to meet tenant demand and compete with new developments
19 October 2005
South China Morning Post

FACED WITH INTENSIFIED competition from new projects, serviced apartment landlords have been upgrading their premises to increase their appeal.

Swire Properties and the Hong Kong and Shanghai Hotels Group led the market by renovating and refurbishing their properties about two years ago.

The facelift at Swire's Pacific Place Apartments in Admiralty is now almost complete, with reconfigured and redesigned serviced units being released at higher rents.

New equipment and facilities, ranging from broadband internet to plasma TVs and kitchen appliances, are incorporated to meet tenant demand.

Most of the 68 de Ricou serviced apartments in Hong Kong and Shanghai Hotels' The Repulse Bay complex have been refurbished.

Earlier this year, Sun Hung Kai Properties began upgrading its serviced apartment block The Royal Tower in Hillsborough Court in Mid-Levels.

New World Development is renovating its New World Apartments in Tsim Sha Tsui. Great Eagle Holdings' Eaton House in Happy Valley has also been upgraded.

Jane Garnett, director of residential services at CB Richard Ellis, said: "Many of the developments being renovated are of a reasonable age and are in need of some updating and upgrading work. Furniture and soft furnishings have to be updated with more modern styles.

"Bear in mind that many of the serviced apartment tenants take the units on a short or mid-term lease and may not look after the fixtures and fittings as well as a longer-term tenant might do."

The Royal Tower and New World Apartments were completed in 1993 and 1980, respectively.

Gearing up to meet the challenge of increased competition was another reason for the renovation.

With the recent launch of Four Seasons Place in Central and some boutique-style serviced apartment developments such as Erba and Shama in Mid-Levels earlier this year, many operators decided to complete their renovation work as soon as possible to be well positioned to meet new competition, Ms Garnett said.

She said serviced apartment tenants liked to live in small but good conditions, so landlords had to offer high quality space and facilities because of the "flight to quality" trend.

Because of strong demand for serviced apartments some developers or landlords have converted commercial or residential buildings into serviced units, creating more competition in the marketplace. Another potential conversion project in the pipeline was the Bank of East Asia's Wanchai Building at 314-324 Hennessy Road.

Ms Garnett said serviced apartment operators were now tending to offer more services to attract and retain tenants rather than competing purely on rents.

"This is to make tenants feel their every need is being met. If there's nothing more they need, then why would they move to another development?"

Value-added services include a grocery shopping service, provision of breakfast and daily newspapers, a limousine service from the airport on arrival and membership of popular venues such as gyms and dining clubs.

Landlords have been increasingly flexible in leasing terms to lure tenants. Four or five years ago, many serviced apartments had a policy of accepting only leases of three months or longer.

With tenants now demanding greater flexibility, most landlords offered a minimum lease term of one month, Ms Garnett said.

But tenants could often negotiate a better rate if they were prepared to commit to a longer stay.

"Tenants are demanding greater flexibility because of several factors - job uncertainty, shorter-term job contracts in one place, more executives on regional appointments and uncertainty over how long they will stay in each city. Landlords have had to react to this demand to maintain or grow their occupancy," she said.

The most common lease length in the market was three months. Tenants usually preferred to try the apartment before committing to a longer-term lease, she said.

Supply of new projects, however, remained limited as the government has tightened licensing control on serviced apartment operations.

Ms Garnett said it was equally attractive for developers or landlords to convert some grade-B office buildings into shopping centres or food and beverage venues that also presented good investment yields.

Of the new projects, another 339 units at Four Seasons Place are becoming available for lease. Sun Hung Kai Properties' residential project at Kowloon Station will provide several hundred serviced apartments for sale to individual buyers.

October 21, 2005
Government Press Release
Q3 flat construction up 64.5%

Construction of 5,100 private residential units started in the third quarter, up 64.5% on the previous one, the Housing Department says.

There were 4,600 units completed, down 37% on the previous quarter.

Taking the year's first nine months together, there were 11,700 units under construction, with 15,800 completed.

At the end of September, there were 17,000 unsold units in completed projects, with another 43,000 under construction, within which 3,000 were sold by presale.

There were 12,000 units from disposed sites where construction has yet to start.

Flat sales rally on new releases

Underpinned by the release of new projects, residential sales have rebounded more than 10 percent in October after declining for five straight months, real- estate agents said.

Raymond Wang
Hong Kong Standard
Monday, October 31, 2005

Underpinned by the release of new projects, residential sales have rebounded more than 10 percent in October after declining for five straight months, real- estate agents said.

Nearly 8,000 residential units have been sold, up from 7,100 in September, Centaline Property Agency said. Sales hit a 13-month low in September, with rising interest rates discouraging some buyers.

Including non-residential properties, the number of deals rose 13 percent to 9,800 from 8,670 in September, the agency said.

Midland Realty said sales in the primary residential market jumped about eightfold to almost 2,400 units in October from 270 in September. Sales from the most significant new apartment project to come on the market in September - Metro Town in Tseung Kwan O - have gone up this month, according to Land Registry figures.

Ricacorp Properties executive director Willy Liu said the number of transactions in the secondary market this month has fallen to about 5,500 units, a 13-month low.

Centaline said property sales in the first 10 months of this year rose 10.8 percent year on year to 110,100 units.

Sales in the second half are expected to hit 74,000 units, the highest since the second half of 1997, Ricacorp Properties managing director Ivan Ho said.

He said property sales are likely to climb to more than 140,000 units this year, following a more than 40 percent rise in 2004 to 123,000, the highest since the market peak in 1997, when about 180,000 units changed hands.

Separately, 70 new apartments were sold over the weekend, including 30 in Sun Hung Kai Properties' Harbour Green in West Kowloon, real estate agents said.

Meanwhile, the government's decision to delay the sale of a prime residential site in Oil Street, North Point, one of the most coveted plots of land on its reserve list, is unlikely to have a significant effect on the property market, industry watchers said.

They are looking to an auction of the Central Market site to set a new benchmark for the overall property market.

Expats take luxury to new heights
Prospects for top-end serviced apartments look rosy until well into next year as overseas professionals head for Hong Kong
16 November 2005
South China Morning Post

Luxury serviced apartments are expected to outperform other sectors in the residential leasing market over the next 12 months, riding on strong demand from expatriates wanting flexible leasing agreements.

The sector is experiencing an upward swing, and the high demand and high occupancy is expected to continue well into next year. The sector is also attracting tenants from the luxury residential segment.

Katinka van der Tak, residential leasing director at Knight Frank, said serviced apartments would continue to be the top performer in the residential leasing market as expat arrivals continued to boost demand.

Jeremy Lamburn, leasing manager at Swire Properties, said the demand for luxury residences started to go up at the beginning of the year, reflecting optimism about the economy in Hong Kong and the region.

Meanwhile, the steady growth of China trade and commerce and the Closer Economic Partnership Arrangement have resulted in more multinational companies setting up offices in Hong Kong, and this has stimulated the demand for quality serviced accommodation. "I foresee a continuing rise," Mr Lamburn said.

Simon Lo Wing-fai, research head at Colliers International, said uncertainty about the interest rate cycle and its upward trend was prompting potential buyers to look for short-term accommodation in serviced apartments rather than buy a flat.

Rents in the luxury serviced apartments sector rose more than 16 per cent year on year in the third quarter, following a 30 per cent rally last year, according to CB Richard Ellis (CBRE). There was a 15 per cent year-on-year rental growth in the general luxury residential sector in the same period.

The warm reception given to Four Seasons Place, which arguably contains the city's most luxurious waterfront serviced apartments, was the latest demonstration of keen interest in the sector.

Four Seasons Place is part of the IFC complex. More than 90 per cent of its 334 available rooms have been filled since the launch of the first and second batches in September. The average room rate was $53 per sqft for the first batch, and $56 per sqft for the second batch.

The complex has 517 serviced apartments and two penthouses. The remaining 183 standard-sized rooms will be put on the market towards the end of next month.

Last week, Four Seasons Place set a new record for Hong Kong's most expensive serviced apartments when it asked for $360,000 a month for one of its two penthouses. At $100 per sqft, the rent is more than double the average $39 per sqft for luxury serviced apartments.

More than 50 per cent of the tenants at Four Seasons Place were young professionals, expatriate singles or couples, working in the financial and services sector. They flew in and out of Hong Kong regularly and wanted a hassle-free living environment, the firm said.

"Serviced accommodation has been a growing trend for expatriates," said Belinda Kuan Shiau-nie, leasing director, Four Seasons Place. Many were on short- and mid-term contracts, and not the familiar two-year contracts of the past, she said.

Lachlan Sloan, managing director of global recruitment company Talent2 (formerly Wall Street Associates), said upwardly mobile business professionals saw serviced apartments with their short leases as "low-risk accommodation".

Jane Garnett, CBRE's director of residential services, said the supply of serviced apartments was not always on a level with demand. "We expect the sector to show a moderate rental increase next year, provided we are still operating in a sound economic environment," she said.

Apart from those at Four Seasons Place, another 3,511 luxury service apartments would come on to the market this year and next, said CBRE.

Knight Frank's Ms Van der Tak saw no threat to the conventional residential market, as one sector catered for expats on short stays and the other catered for expats with families on long stays.

Rise in office rents leads region

Prime office rents in Hong Kong's financial hub rose more than twice as fast as in any other Asia-Pacific city in the third quarter compared with a year earlier, boosted by robust demand and tight supply, according to real estate consultants Jones Lang LaSalle.

Raymond Wang
Hong Kong Standard
Thursday, November 17, 2005

Prime office rents in Hong Kong's financial hub rose more than twice as fast as in any other Asia-Pacific city in the third quarter compared with a year earlier, boosted by robust demand and tight supply, according to real estate consultants Jones Lang LaSalle.

Grade A office rents in Central jumped 74 percent year on year during the period and 16.5 percent from the previous quarter, the consultant said in a report.

That compared with a 31.4 percent year-on-year gain in Shanghai's Central Puxi, 31.7 percent in Bangkok's central business district and 12.5 percent in Singapore's main office area.

Grade A office rentals will continue to outperform rentals in retail and luxury residential properties over the next six months, Jones Lang LaSalle said.

"The overall business momentum remains strong and general businesses are still in expansionary mode," said Kenneth Tsang, head of research, Greater China (South), at Jones Lang LaSalle.

"With economic fundamentals intact, growing demand will continue to underpin rental growth in the Grade A office sector."

Economic growth in the Asia- Pacific translated into increasing demand for office space in key commercial centers in the third quarter, particularly from information technology, financial, professional and legal services companies, the report said.

Capital values for Hong Kong's Central office market rose 52.7 percent year-on-year in the third quarter and 3.3 percent quarter-on-quarter, the consultant said.

"However, increasing rents and the lack of contiguous quality office space in Hong Kong, particularly in the core areas, have begun to impact on the leasing market and resulted in a slowdown in leasing activities," it added.

Third-quarter take-up amounted to about 45,000 square feet in Central, contributing to less than 15 percent of the overall take-up during the period, Jones Lang LaSalle said. The vacancy rate in Central fell 0.2 percentage point to 5.6 percent over the quarter.

Average rents increased to about HK$52.80 psf per month, as landlords benefited from continuing demand and low vacancy rates.

Grade A office supply in Central remains tight, with Two International Finance Centre pretty much fully let and no new major supply coming on stream in the district.

Jones Lang LaSalle said the office investment market in Central slowed on rising interest rates, with capital values growing to about HK$9,700 psf in the quarter.

In the largest sales transaction of the year to date, Hysan Development sold the Entertainment Building in Central for HK$2.7 billion.

Elsewhere, strong demand from the banking and financial sector continued to account for take-up within the Singapore central business district.

"Supported by talks of the CBD rejuvenation and the award of the Business and Financial Centre site in the New Downtown," the Singapore office market is poised for an upturn, Jones Lang LaSalle said.

In Shanghai and Beijing, demand for office space was "robust" in the third quarter. However, Jones Lang LaSalle expects the huge amount of supply coming into the mainland market in the next few years to cause a downward pressure on rents.

Developer reaps $20b, halts launch

Cheung Kong (Holdings), Hong Kong's largest developer by market value, said it sold nearly HK$20 billion worth of properties in the first 10 months, which already surpassed home sales income of HK$15 billion-HK$16 billion for the entire 2004.

Raymond Wang
Hong Kong Standard
Tuesday, November 22, 2005

Cheung Kong (Holdings), Hong Kong's largest developer by market value, said it sold nearly HK$20 billion worth of properties in the first 10 months, which already surpassed home sales income of HK$15 billion-HK$16 billion for the entire 2004.
"In view of this, Cheung Kong will not launch new projects for sale until next year when an apartment project in Kwai Chung is likely to be the company's first new release," said executive director Justin Chiu.

However, Chiu added that the exact timetable for the sale of the Kwai Chung project will also depend on pre-sale consent for uncompleted flats.

Two major projects which came onstream in the first 10 months of this year were The Legend at Jardine's Lookout in Tai Hang, and Metro Town in Tseung Kwan O. The latter was developed with MTR Corp and Nan Fung Development.

About 70 apartments at The Legend project were sold for almost HK$6 billion in the first two weeks after they went on the market in late June, when market demand was on the rise. The developers did not disclose total revenue of Metro Town to date.

However, increasing interest rates have dampened buying sentiment, and Chiu expects the recent sluggish residential property sales to continue.

"Property transactions are likely to be more stable after the Lunar New Year [which falls in late January 2006]," he added.

Transactions in the secondary market may fall by a further 10 percent month on month to 4,900 units in November, while prices for secondhand flats may fall 5 percent in the short term, said Ricacorp Properties executive director Willy Liu.

As the property market has shown signs of softening, some speculators have failed to complete the purchase of new flats by forfeiting their deposits.

Chiu said no forfeited flat deals have been found in Cheung Kong's Caribbean Coast development in Tung Chung, and the company has no plans to cut prices for newly launched flats to lure home buyers.

Shares of Cheung Kong fell 0.32 percent Monday to close at HK$78.85 per share.

Outlook hazy for residential sector
Demand continues, but movement in the luxury market has slowed down due to the tenant and landlord ordinance
23 November 2005
South China Morning Post

DESPITE THE STRONG leasing activities with the influx of more expatriates, the growth of luxury residential rentals has been held back by the lingering effect of introduction of the landlord and tenant laws.

The buoyant leasing demand continued to move upwards with manufacturing companies and international financial institutions bringing in overseas executives given the bullish economic outlook in Hong Kong and the wider Asia region.

But as many tenants have taken advantage of the transitional termination notice (TTN) to renew leases at original rents, overall luxury rental growth has been constrained.

Jane Garnett, director of residential services with CBRichardEllis, said many tenants had taken advantage of the TTN mechanism to extend their lease for another year at the original rents.

"Bear in mind that most of the leases expiring this year were originally secured in and after the Sars period when rentals were at very low levels. Landlords have been [increasing rent by 15 per cent to 20 per cent on average since then]," she said.

"Therefore, as tenants can stay on in their existing property for another year at the same rental, many tenants have exercised this right and will worry about the increased rental next year."

The landlord and tenant ordinance, which took effect last year, gives landlords greater powers to evict tenants when their leases expire. The TTN, an interim measure implemented as part of the ordinance, allows tenants the right to stay in their existing property for a further 12 months at the same rental.

As the numbers of TTN implementations outnumbered new rental transactions in the market, the average achieved rental was held back, thereby distorting the actual level of upward pressure on luxury leasing levels in the third quarter.

"Even those tenants who have not implemented the TTN have used the TTN as a basis for re-negotiation with the landlord for a new two-year lease," Ms Garnett said. For instance, the tenant could have one more year at the current rental under the TTN implementation while the landlord demanded a rental increase of 20 per cent. They could agree on a new two-year lease at a 10 per cent increase, which was a win-win situation for both the tenant and the landlord, she said.

However, arrangements such as these had reduced movement in the rental market and had a dampening effect on overall rental increases.

According to a survey of luxury properties by CB Richard Ellis, average rentals on Hong Kong Island stood at $28.87 per sq ft per month at the end of the third quarter.

This represents an average increase of 4 per cent from the start of this year, a rise of 8.8 per cent over the same time last year, and an increase of 21 per cent compared with 2003.

"Over the course of 2005, the greatest rental increases were recorded in the Island South area, where the average rental per sq ft is $30.27, or an increase of 14 per cent on the same time last year," Ms Garnett said.

"The greatest increases in rental usually occur over the summer as newly arriving families compete to take up a relatively small number of properties. Therefore, the rate of increase of rentals has slowed down in recent months as the traditional 'busy season' is over." Looking ahead, she said, Hong Kong was seeing a higher number of new arrivals, and this trend was expected to continue into next year.

As Hong Kong remained a hub for business and residential activity in Asia, existing companies continued to expand their operations while new companies set up offices here, she said.

"Companies moving into the mainland market are still using Hong Kong as a launch pad, and local companies are adding to their headcount to cope with business coming from the mainland," she said.

As tenants with leases expiring in the first half of next year would still be able to take advantage of the TTN arrangement, Ms Garnett said it was likely there would be less internal moves in the leasing market than in previous years.

On the down side, however, some expatriates were leaving Hong Kong or declining to take up new assignments here due to the lack of places at international schools and the continuing poor air quality, she said.

The fourth quarter is expected to be generally quiet, as the majority of landlords are not yet prepared to compromise on rent in light of the optimistic economic outlook, which in turn will suppress local relocation interest.

The arrival of families relocating from overseas before the start of the new school year in September pushed the overall luxury residential vacancies on Hong Kong Island down to 3.5 per cent in the third quarter.

The vacancy rate on The Peak was 11.2 per cent, down by 7.9 percentage points over the second quarter. Jardine's Lookout was close to full occupancy with a vacancy rate of 0.5 per cent. Vacancy rates in Mid-Levels and Island South fell to 4.1 per cent and 3.3 per cent, respectively.

15pc plunge in property deals tipped
Property transactions and value are expected to drop by about 15 percent this month as the market grapples with increasing interest rates, real estate agents say.

Danny Chung
Hong Kong Standard
Monday, November 28, 2005

Property transactions and value are expected to drop by about 15 percent this month as the market grapples with increasing interest rates, real estate agents say.

Centaline Property Agency research senior manager Wong Leung-sing said he expects total transactions for residential, industrial and shop properties, as well as car parks, to be about 8,400 with total value of sales amounting to HK$31.5 billion, both representing about a 15 percent drop from last month's figures.

The transaction estimates also represent a 38.6 percent drop compared with the same period last year, with total value also dropping 31.5 percent.

Wong said latest figures up to last Thursday show there were 6,939 transactions this month, with total value coming in at HK$25.1 billion. Last month there were 9,861 transactions with a value worth HK$35.8 billion.

Wong said the latest estimates reflect the ongoing impact on the property market from interest rate hikes, with buyers cautious about entering the market.

Mortgate rates in Hong Kong have risen steadily by about three percentage points since March to about 5.25 percent as local banks followed interest rate hikes in the United States.

The US Federal Reserve hiked its federal funds rate seven times this year to 4 percent.

Ricacorp Properties said a flat at Kornhill near Sai Wan Ho recently changed hands for HK$2.8 million, about 10 percent below the market value, with the seller making only a small return of 9.4 percent after holding it for five years.

Recently, things have picked up, Wong said, with investors and buyers looking for bargains.

As such, Wong expects transactions to pick up next month.

But Ricacorp Properties head of research Patrick Chow reckons transactions for next month may drop to 6,500 cases due to few new flats entering the market in November as well as a weaker secondary market.

Chow said that if the United States increases interest rates by 50 basis points, it is likely Hong Kong banks will prefer to add 100 basis points, further affecting sentiment in the property market.

Property transactions, according to Centaline statistics, peaked at 16,280 cases in April with the total value of sales coming in at HK$47.9 billion but have fallen steadily since then.

Cheung Kong bid to revive home sales - Sweeteners include 95pc mortgages, but agents say they are not good enough
2 December 2005
South China Morning Post

Cheung Kong (Holdings) came up with a package of sweeteners for its Tung Chung project yesterday, which effectively slashed 8 per cent off property prices, in a bid to revive flagging sales.

The developer offered to provide mortgages of up to 95 per cent for the 330 unsold units in the last block of Caribbean Coast phase three at 2.25 percentage points below the prime rate, which is between 7.5 and 7.75 per cent.

Buyers will not have to start making repayments for 12 months.

Cheung Kong will also provide a home decoration package worth $65,000 to $97,000.

However, property agents doubt that the package will have much impact on the sluggish primary market where price-cutting is becoming the norm.

"The offer isn't attractive at all," said Ricky Au Kwok-kin, a manager at Ricacorp Properties' Tung Chung branch. "The widening price differences between the primary and secondary market means buyers will opt for second-hand flats rather than new units."

Cheung Kong has been selling the flats in the project - a popular development for speculators - at $3,960 per square foot since early this year.

However, secondary market prices have dropped to $3,000 per square foot as speculators dumped their units when the market started to turn sour because of sustained interest-rate rises.

The owners of about 30 Caribbean Coast units have already defaulted, abandoning their down payments to get out of the deal, according to Mr Au.

Cheung Kong's sweeteners come two weeks after Sun Hung Kai Properties offered mortgage subsidies, equal to more than 3 per cent of the property price, to buyers of its soon-to-be-completed Chelsea Court in Tsuen Wan to help them avoid defaulting.

Nonetheless, Cheung Kong's sales manager Joseph Lau Kai-man said the developer had no intention of dropping prices.

"We are in no rush to sell the project," Mr Lau said. "This latest offer is just aimed to provide an incentive for genuine end-users."

Last month's property transaction figures, due out today, are expected to be the lowest for 15 months, showing an 18.8 per cent drop in volume and a 28 per cent drop in value from October.

Flats sales dive on rising rates

Home sales in Hong Kong sank to a 15-month low in November, as rising interest rates kept buyers away and discouraged property developers from launching new projects.

Raymond Wang
Hong Kong Standard
Saturday, December 03, 2005

Home sales in Hong Kong sank to a 15-month low in November, as rising interest rates kept buyers away and discouraged property developers from launching new projects.

The 6,308 residential units sold last month represented the sixth decline in seven months and were the lowest since August last year, when 5,716 units were sold, Land Registry figures showed.

Last month's sales were 26.3 percent less than the 8,554 units sold in October, and a 41.1 percent drop from a year ago.

Sales value amounted to HK$19.4 billion, a slump of 35.1 percent from October and 44.5 percent from November 2004, the Land Registry said.

Rising interest rates were the major culprit for the plunge in residential sales last month, both in the primary and secondary markets, real estate agents said.

Hong Kong banks have been raising rates at a faster pace than the US central bank over the past few months despite the currency peg, as they hope to narrow the gap created earlier amid strong fund inflows.

Mortgage rates - which are generally 2 percent to 2.25 percent below the best lending rate - have increased seven times this year for a total of 3.05 percentage points to between 5.25 and 5.5 percent.

Because of the higher home loan rates, only about 4,500 secondhand units changed hands in November - the smallest number in the secondary market this year, Ricacorp Properties executive director Willy Liu said.

Liu predicted the number of property transactions in the secondary market would rebound slightly this month as prices for secondhand units have dropped by 6 to 8 percent.

"Some potential buyers will make decisions on home purchases when prices come down a bit," he added.

The slowdown in property sales was also partly due to the lack of new projects. Cheung Kong (Holdings), the largest developer by market value, has said it won't launch any new residential project this year with sales income having already surpassed last year's total.

The 1,077 sale and purchase agreements in the primary market in November represented a decrease of 59 percent from October's 2,629 units, according to Midland Realty.

"The sluggishness of the property market is likely to continue for a couple of months until the end of the Lunar New Year [in late January] when developers are expected to launch more new projects for sale," Liu added.

Unit sales of all kinds of properties, including residential, office and industrial, fell 18.3 percent to 8,058 in November from 9,861 a month earlier, the Land Registry said.

Overall value decreased 20.5 percent to HK$28.4 billion. The subdued market has forced some real estate agencies to reduce headcount.

Property agencies usually see 150 to 200 resignations each month, and the vacancies are easily filled.

However, Ricacorp Properties managing director Ivan Ho said the company is not planning to replace any this month.

HOS flats for 2007 sale
Disposal of 16,595 homes expected to raise more than $20b

Winnie Chong
Hong Kong Standard
Wednesday, December 07, 2005

http://www.thestandard.com.hk/newsimage/20051207/kingsford.jpg

As the property market struggles to regain traction, the Housing Authority announced it will dispose of its remaining unsold Home Ownership Scheme apartments beginning in 2007 and generate more than HK$20 billion.

But most analysts believe the sales will have little effect on the wavering real estate market.

The 16,595 new HOS flats have been kept vacant since 2002, when the government - with the encouragement of developers - halted the program that subsidizes the building and sales of flats for low- and middle-income people in an attempt to shore up the then swooning property market..

The authority plans to sell about 6,000 flats a year from the beginning of 2007 and generate overall revenue of more than HK$20 billion, said Tam Wing-pong, acting director of housing.

Tam announced the decision after a regular brainstorming session Tuesday of the Housing Committee, the authority's policymaking body.

Tam said that, in order not to tilt the property market, the authority will announce the timing, number and pricing of the sales one year in advance.

"We do not intend to compete with the private market," he said. "We believe our policy will not greatly influence the private property market."

Selling prices of the HOS units will go for about 70 percent of those for similar private apartments in the same district.

New World Development chairman Cheng Yu-tung claimed there will be minimal impact o
n the private housing sector, saying the number of apartments to be released is too small and the buyers they will attract are not those targeted by private developers, which have recently been focusing on more lucrative upscale projects..

"As HOS units will be sold in several lots, the market will be able to absorb them without great pressure," Cheng said.

In recent years, an average of 20,000 new apartments came onto the market annually.

Ricacorp Properties executive director Willy Liu echoed Cheng's views. "The prices and quality of HOS flats cannot compare with those in the private sector," he said.

But others are not so sure. Midland Holdings research department manager Anita Cheung believes reviving HOS sales will have a significant negative impact on the mass residential market.

"The HOS apartments will compete for the same buyers of [private] flats priced at below HK$1.5 million," she said. "It'll hurt the private market."

Cheung fears it will encourage potential buyers to delay purchases until the cheaper HOS flats come onstream.

However, the supply of new flats is expected to reach a low by 2007 when only 12,500 new apartments are due to be completed - a far cry from the 85,000 pledged by former chief executive Tung Chee-hwa in 1998.

"Since the supply of residential units will reach a historical low in 2007, supply will not be able to meet demand," said Wong Leung-sing, Centaline (Holdings) senior manager of research department.

In the sale of HOS flats, priority will be given to public housing dwellers, those on the waiting list and those who do not own an apartment and have only limited funds - with monthly income of less than HK$22,000 and assets of below HK$600,000.

Tam, the acting director of housing, said that in order to save money, the authority might revise some of the benefits given to new HOS owners, such as canceling the buyback scheme that allows owners to sell back flats to the authority within two years of purchase.

But, if this happens, the authority might scrap the policy banning people from selling their apartments during the first two years of ownership.

Tam hopes that the proposals will be approved by the authority early next year.

Federation of Public Housing Estates chairman Wong Kwun said he was worried that if the sell-back policy is scrapped, the HOS scheme will become less attractive to public housing tenants.

Democratic Party legislator Fred Li, a Housing Committee member, welcomed the proposal, believing it will bring much-needed income to the authority.

The vacant HOS flats are mostly located on Island East, Kowloon East, Sha Tin, Ma On Shan and Tin Shui Wai.

The first batch of HOS flats to go on sale will be Kingsford Terrace in Ngau Chi Wan, Ka Keng Court and Yu Chui Court in Sha Tin, and Tin Fu Court in Tin Shui Wai.

Strong office rents are here to stay, says Swire Properties
9 December 2005
South China Morning Post

Office rentals at Pacific Place have risen by more than 70 per cent so far this year and will remain firm next year, according to landlord Swire Properties.

Jolyon Culbertson, Swire Properties' director and general manager, said current office rentals at Pacific Place 1 and 2 were about $50 per square foot, compared with $29 per sq ft at the end of last year.

This represents an increase of 72.4 per cent, which is higher than the average increase in grade A office rents, which have risen 57.7 per cent since the beginning this year, according to property consultant CB Richard Ellis.

"I think [the rent] is going to be firm, from now on," Mr Culbertson said yesterday.

Despite the big jump in rentals, occupancies were high, he said.

Occupancy for Pacific Place 1 and 2 currently stood at 95 per cent, the same as in March, while occupancy for Pacific Place 3 had reached 85 per cent, compared with 33 per cent earlier this year.

Occupancy at the Island East complex - Taikoo Place and Cityplaza - was 90 per cent, up 5 per cent from March.

Rent in Island East has reached $25 per sq ft, compared with $15 per sq ft fetched in March.

Mr Culbertson said only a few tenants had moved out of Swire's properties as rents surged.

SkyPlaza, a $2 billion complex that comprises 40,000 square metres of retail and entertainment space at the Hong Kong International Airport, would not be a competitor to Citygate, Swire's mall at Tung Chung, Mr Culbertson added.

"Citygate appeals to the local community in Tung Chung, so there will not be any need for them to go shopping at the airport," he said.

"I have reservations about SkyPlaza. I think it's going to be interesting to see whether people will want to shop there or not."

HK still has plenty of bang for buck
11 December 2005
South China Morning Post

A budget of $8.6 million is not a large amount of money to spend in Hong Kong's expensive property market.

Yet, shrewd investors should be able to find plenty of buying opportunities with the diversity of what's available in the marketplace.

For those interested in residential properties in urban areas, a 1,200 sq ft apartment with a sea view in Taikoo Shing may be a good choice.

If you are looking for newer properties, you can purchase a 900 sq ft apartment in Grand Promenade in Sai Wan Ho on the eastern part of Hong Kong Island or a 1,100 sq ft apartment in Residence Bel-Air in Pokfulam near Island South.

Houses in the prestigious areas on Hong Kong Island, such as The Peak and Island South, are too expensive for those on an $8.6 million budget as even the cheaper average prices are $20,000 to $30,000 per square foot. If you are willing to do the commute and want the extra space, investors can afford houses in the New Territories, such as a 1,500 sq ft home at Hong Lok Yuen in Tai Po or a 2,000 sq ft residence at Palm Springs in Yuen Long.

Apart from residential properties, local surveyor Pang Shiu-kee said investors may find better-performing buys in the office and retail market for the same price.

"Of course, we are not talking about the very top end of the market in prime locations. A budget of $8.6 million it is not a lot of money, particularly for the expensive retail sector. What one can buy with this amount is a small shop with a size of 200 or 300 sq ft, in second or third-tier locations - but certainly not in the prime areas of Mongkok and Causeway Bay. For example, investors could go to North Point, Shamshuipo or To Kwa Wan to acquire a suitable shop," he said.

Depending on the size and location, there are many office properties in Hong Kong. According to agents, a 1,000 sq ft office unit in the Lippo Centre at Admiralty was traded at a price of $8.59 million two months ago.

Mr Pang said quality industrial properties, such as factory spaces in Kwun Tong and Cheung Sha Wan, could also provide attractive investment opportunities. "With $8.6 million, an investor can buy something in the size of 5,000 sq ft or more in industrial buildings in Kwun Tong," he said. "For those well-managed industrial properties, investors may realise a relatively high yield of 7 to 8 per cent per annum, which is a pretty good return."

Car-parking lots in prime areas or associated with popular property developments in Hong Kong are selling at about $400,000 to $800,000 each. Investors could buy up to a dozen parking lots with their $8.6 million.

According to agents' records, car-parking lots in Whampoa Garden in Hunghom were traded at about $500,000 each recently, while those in the newer development in the neighbourhood, Laguna Verde, changed hands for $800,000. Parking lots in Wan Chai cost more than $400,000 each.

Property sales value up 11pc

The growth in total value of Hong Kong property transactions slowed to about 11 percent in 2005 from an 86 percent surge a year earlier, as the number of purchases remained little changed amid rising prices, according to estate agent Midland Realty.

Danny Chung
Hong Kong Standard
Wednesday, December 28, 2005

The growth in total value of Hong Kong property transactions slowed to about 11 percent in 2005 from an 86 percent surge a year earlier, as the number of purchases remained little changed amid rising prices, according to estate agent Midland Realty.

Total value of transactions, which rose for the third year running in 2005 after five annual declines, will be close to HK$400 billion - still less than half the value recorded in 1997, Midland Realty said.

Rising prices for all types of properties was the main reason for the increase in total transaction value, with some big sales during the year helping to propel the market forward, Midland Realty chief analyst Buggle Lau said. Increasing interest rates slowed the market in the second half, he said.

Lau expects total transactions in 2006 to remain above the 120,000 level for the third successive year as the economy improves and pay increases start to kick in.

There were 122,459 transactions in 2005 up to December 22, slightly under the 123,480 cases for the whole of 2004, according to a Midland Realty survey covering primary and secondary residential properties, shops and carparking spaces. The associated value of the transactions was HK$392 billion to December 22, up 11.4 percent compared with the total of HK$352 billion last year.

Residential properties accounted for 102,419 cases in 2005, or 84 percent of the total. In April, a penthouse unit at The Arch, developed at Kowloon MTR Station by Sun Hung Kai Properties, was sold for a post-1997 record of HK$31,300 per square foot.

The second half recorded only 48,647 transactions up to December 22, down 34 percent from the 73,812 cases in the first half, with transaction value dropping from HK$233 billion to HK$158 billion.

In 1997, there were 205,461 property transactions and an associated value of HK$868 billion, both figures plunging in 1998, to 111,489 cases and HK$341 billion.

Transactions remained about the 80,000 to 90,000 level per year from 2000 to 2003, with total value about the HK$200 billion mark.

Midland reported that secondary market transactions over the long Christmas break weekend at 10 benchmark residential property developments fell 9 percent to 39 cases compared with the previous weekend.

Public housing tenants face paying for views
29 December 2005
South China Morning Post

Public tenants on higher floors and with better views and environment will face higher rents under a new public housing rental scale being proposed by the Housing Department.

A department source said yesterday the plan was to divide each public housing block into rental zones according to their height.

Tenants in the upper levels would be charged as much as 10 per cent more than those living in the middle levels, while those with flats in the lower levels would pay 20 per cent less than the middle-level tenants.

Further adjustments would be made according to the overall environment of the flat. For example, flats located next to waste stations would be cheaper, while those with sea views or mountain views would be more expensive.

The measures will be discussed at a special meeting of the Subsidised Housing Committee. Also on the agenda will be changes to the rent assistance scheme. The source said the department did not support the option of waiving rent or introducing an across-the-board rent cut, but proposed widening eligibility for rent assistance. . An estimated 33,800 households would benefit.

Chairman of the People's Council on Housing Policy Cheng Ching-fat criticised the Housing Department for ignoring the needs of public housing tenants.

"You can tell from its proposed new rental scale - it is bringing market mechanism to public housing," Mr Cheng said. "Once the proposal is approved, better-off people would be able to live on upper levels with better views, and you can tell who is the poorest judging from their living conditions. It is marginalising the poor."

Housing Authority member Wong Kwun welcomed the proposed rental scale, but insisted on a rent cut for public housing tenants to reflect the long period of deflation.

"It seems the Housing Department is trying to distract the public with its basket of measures and rent assistance," Mr Wong said.

Tam Wing-pong, deputy director of the Housing Department, said a rent cut was not reasonable in times of economic recovery.

"The economy is improving. And for those who really can't afford rents, they have already received help," Mr Tam. "We just don't want the Housing Authority to be accused of wasting public money by approving a rent cut."

Office rents to peak by late 2007

Office rents are likely to peak in the third quarter of 2007 and tail off during 2008 as supply increases, real estate consultant Knight Frank says.

Raymond Wang
Hong Kong Standard
Tuesday, January 03, 2006

Office rents are likely to peak in the third quarter of 2007 and tail off during 2008 as supply increases, real estate consultant Knight Frank says.

"With new supply of major developments limited up until 2007, larger tenants that wish to secure substantial amounts of Grade A office space are securing transactions at least 10 to 12 months ahead," said Mark Bernard, Knight Frank's executive director.

The only major Grade A office development under way on Hong Kong Island, Swire Properties' 18 Westlands Road in Quarry Bay, won't be available until 2008. The 68-story project will comprise over 1.65 million square feet.

Its major competition will be Sun Hung Kai's International Commerce Centre, a 2.4 million sqft development atop the MTRC's Kowloon Station, Knight Frank said. The initial phase of International Commerce Centre, comprising 450,000 sqft of office space between the 10th and 22nd floors, is due for completion by the end of 2007.

The entire project, which will also include two six-star hotels, luxury residences, serviced apartments and retail space, is due for completion in 2010.

Bernard said there are so few sizable rental opportunities on the horizon in the next two years that tenants with large needs are signing agreements on premises before they become vacant.

Much of the action currently revolves around the 120,000 sqft at Central district's Wing On Centre that accounting firm Deloitte will free up when it relocates to new offices at One Pacific Place.

"Most of the new office supply in the coming 12 months will be concentrated in Kowloon Bay - buildings such as Enterprise Square 5 and 668 Wang Tai Road, which will be completed in late 2006 and early 2007 respectively," said Bernard. "Supply in core districts in the next two years will be very limited."

The only new Grade A supply imminent in Central is Hongkong Land's 114,000 sqft Landmark Extension, expected to be ready late this year.

Pacific Century Insurance has now agreed to a contract giving it nine floors and naming rights at Central's Wing On Centre, one of the largest office leasing transactions in the past 18 months, Knight Frank said. The insurance company will take up floors 17 to 20, 22 and 23 and 26 to 28, a total of 180,000 sqft, plus 50 parking spaces in the basement. It will sign a six-year contract with a three-year renewal clause.

Office rents in the Central core rose 8.4 percent month-on-month in November, meaning that average rents for prime offices now are 3 percent higher than the previous market peak of October 1997, Knight Frank said.

Rents in the Central core averaged HK$68.55 per square foot per month in November. In Quarry Bay, average office rents increased 7.6 percent to HK$24.42 per square foot per month.

Overall, according to property consultants CBRichard Ellis, Grade A office rents and sale prices increased 57.7 percent and 12.8 percent, respectively, in the first 11 months of 2005.

The vacancy rate in prime areas was 4.6 percent in November.

Robust demand for space for both immediate use and future expansion is being seen from financial services companies, according to Alan Lok, senior director of office services at CBRichard Ellis.

Shrinking availability of office supply, particularly in Central, has caused the spread between prime and non-core Grade A rents to widen, he said.

On the other hand, buyer resistance to rising sale prices and interest rates began to strengthen in the third quarter, leading to consolidation in the office sales market.

Nevertheless, CBRichard Ellis expects both office rents and sale prices to continue their climb, rising 20 percent and 10 percent, respectively, during 2006.

Home sales worst since SARS crisis

December was the worst month for new home sales in Hong Kong since the SARS epidemic as rising interest rates sidelined buyers and developers held new flats off the market in hopes of better prices down the road.

Raymond Wang
Hong Kong Standard
Thursday, January 05, 2006

December was the worst month for new home sales in Hong Kong since the SARS epidemic as rising interest rates sidelined buyers and developers held new flats off the market in hopes of better prices down the road.

The Land Registry said 4,426 new homes were sold in December, the seventh time in the past eight months sales have declined.

The previous worst performance was in May 2003, during SARS, when 4,130 homes were sold.

But the contrast between conditions then and now couldn't be greater.

In early 2003, potential buyers not only anguished about Hong Kong's economic future but were even afraid to come out and house-hunt in case they caught SARS on the street.

This time, the economy is thriving, and any disaffection with the housing market is almost certainly the fault of interest rates, which have risen steadily since last year.

Though the US Federal Reserve this week gave its clearest indication yet that the current rate-rise cycle is near an end, no one expects the Hong Kong home market to rebound immediately.

"Developers are unlikely to aggressively launch new projects for sale early this year since buyers are still taking a cautious stance. Market sentiment may not be better until the middle of the year," said Francis Wong, head of the department of buildings and real estate at Hong Kong Polytechnic University.

Ricacorp Properties executive director Willy Liu said about 4,300 secondhand homes were sold last month, the smallest number in all of 2005.

Only about 100 units in new projects changed hands, down 90 percent from November.

"The market will remain quiet ahead of the Lunar New Year in late January," Liu said. "Developers won't start launching new projects for sale until February or March."

The agency said home prices fell 6-8 percent in the fourth quarter, but it expects 2006 sales numbers to rise to about 110,000 from just over 100,000 in 2005.

Despite late declines, though, prices actually gained 5 percent in the course of last year, Ricacorp said.

Eddie Hui, who also teaches in the department of buildings and real estate at Hong Kong Polytechnic, said he expected a 5 percent price appreciation this year.

December's sales were down 29.8 percent from November, when 6,308 homes were sold, and down 45.8 percent from December 2004, the Land Registry said.

Residential sales value was HK$10.7 billion, down 45 percent from November and 55.3 percent from December 2004.

Unit sales of all properties - residential, office and industrial - fell 32.3 percent to 5,456 in December from 8,058 a month earlier.

Overall value plummeted 48.9 percent to HK$14.5 billion.

Hong Kong offices Asia-Pacific's most costly: survey
January 5, 2006
AFP

Hong Kong office space is Asia-Pacific's most expensive, followed by Tokyo and Seoul, according to a new survey.

DTZ, a London-listed international real estate advisory and consultancy firm, made the findings in its annual global office occupancy costs survey of 117 business districts around the world.

The rankings focus on cost per workstation, which DTZ said better reflects the cost of accommodation.

"Hong Kong emerged as the most expensive location in Asia Pacific with occupancy costs escalating 61 percent, the highest percentage increase over the past decade and back to the level in 1995, to 15,000 US dollars per workstation per annum," DTZ said.

The willingness to pay for better-quality offices by multinational companies demonstrated their optimistic outlook for the greater China economy, it said.

Behind Hong Kong, Tokyo's Central 5 wards and Seoul ranked as second- and third-most expensive office locations, at 11,870 and 9,870 US dollars per workstation per year, it said.

Singapore was 12th, up from 17th, with office occupancy costs rising 20 percent to 4,770 US dollars per workstation, the survey found. It said the higher costs coincide with a continued strengthening of the city-state's position as a regional business hub.

The global survey found that four of the world's five locations with the highest growth in occupancy costs were in the Asia-Pacific -- Hong Kong, Hanoi, New Delhi and Mumbai.

Multinationals face 100pc rise in office rents
Savills says tight supply in years ahead will rapidly drive up costs
12 January 2006
South China Morning Post

Multinational firms are facing 100 per cent rent increases when leases come up for renewal this year because of limited office supply, according to property agency Savills.

Simon Smith, a research and consultancy senior director, said tenants negotiating lease renewals could easily find rents having doubled from three years ago when they signed current leases. "It's bad news for tenants. They are going to see their accommodation costs rise rapidly," he said.

With limited new supply in core Central, rents for office units with a harbour view at International Finance Centre and AIG towers had fetched $90 to $95 per square foot, Mr Smith said.

"The high rental premium and a lack of available space will give tenants few options and we do not expect to see a very high deal volume as a result," he said. "What we can expect is that some leasing deals will hit the headlines with exceptional rents of $120 per square foot and above for smaller deals."

In 1994, rents at Exchange Square were $110 per square foot.

Mr Smith expects grade A office rents to increase 20 per cent this year and prices to rise 10 per cent.

Average rents in Central range from $60 to $65 per square foot and are $20 to $25 per square foot in locations outside the district. The recent transaction price at Admiralty's Lippo Centre, the most actively traded office building, was $8,000 per square foot.

Mr Smith said tenants had little leverage in a lease negotiation as the average vacancy rate in grade A offices fell to just 5.4 per cent last month and would continue to drop to 3 per cent by next year.

"Private banks and other financial institutions find it extremely difficult to find space," he said, warning tight supply in coming years might limit business growth and rapidly push up rents.

"The situation is not going to ease as only 2.6 million sq ft of new grade A office space is expected to be completed this year and next. The figure can be compared with a 10-year average supply of 2.4 million sq ft annually and 10-year average take-up of 2.2 million sq ft."

New supply would come from West Kowloon, Kowloon Bay, Kwun Tong and Island East.

Given prevailing strong demand and tight availability, the new supply would be absorbed quickly.

Mr Smith forecast office rents would peak in the middle of next year.

Do you know any global "office rents" ranking which compares Hong Kong to other big cities? :?

Do you know any global "office rents" ranking which compares Hong Kong to other big cities? :?

Hong Kong storms into the world's top three most expensive locations
Published date: 5 January 2006

Hong Kong has soared up the global office occupancy costs league table and entered the top three most expensive office locations in the world, reveals global property adviser DTZ.



DTZ’s ninth annual Global Office Occupancy Costs survey, published today, is a guide to accommodation costs in major prime office locations covering 117 business districts in 46 countries worldwide. Ranking for the 2006 survey is focused on a per workstation basis to better reflect the costs of accommodation. For comparative purposes all total office occupancy costs are displayed in US dollars.



London (West End) maintained its pole position in the global ranking for the sixth consecutive year with occupancy costs of US$18,740 per workstation pa. Actual office occupancy costs have risen by 5.6% however, due to exchange rate differences between the US dollar and pounds sterling, this report shows a slight drop of 3% year on year 2005/06.



Washington DC climbed two spaces to become the second most expensive location with occupancy costs of US$15,370.



The most notable finding was the emergence of Hong Kong, which posted its largest increase over the past decade, 61% to US$15,000 per workstation pa and climbed an impressive 13 places to become the world’s third most expensive location. This increase has been driven by the positive take-up and business sentiment, especially by investment banks, with a greater willingness to pay for better quality offices. However, the fundamental reason for Hong Kong's surge up the table is due to the lack of available new Grade A office buildings coming onto the market.



Top ten most expensive office locations by occupancy costs in the 2006 survey:



1. London (West End)
2. Washington DC
3. Hong Kong
4. Paris
5. London (City)
6. Frankfurt
7. New York (Midtown)
8. Dublin
9. Tokyo (Central)
10. Luxembourg



India has one of the fastest growing economies in the world and a rapidly expanding real estate market, which is fuelling a surge in office occupancy costs across the country. The continued demand for space from the IT/IT-enabled services and business process outsourcing sectors is the main driver behind the growth in costs. The main beneficiary is Bangalore, which is fast becoming an established destination with large occupiers seeking consolidation and large built-to-suit facilities. However the largest increases in the 2006 survey have been recorded at Mumbai and New Delhi, which saw year on year growth of 27% and 29% respectively and now rank 20th and 43rd in the global league table.



Dubai also saw the second biggest increase in occupancy costs – up 50% to US$7,180 triggering a rise of 38 places to claim the 37th position and surpassing Riyadh to claim the third most expensive region in the Middle East, behind Doha and Kuwait City (included for the first time this year). This is a trend that DTZ Research anticipates to continue throughout 2006 due to undersupply despite the brisk development underway.



In Western Europe, London (West End), Paris and London (City) remained the top three expensive locations in Europe for the second year running, however all three locations experienced a decline in costs. This is a trend mirrored across the most of Western Europe primarily due to the depreciation of the Euro in comparison to the US dollar.



A similar picture can be seen across Central & Eastern Europe, which remained relatively flat in comparison to the findings from the 2005 survey. Marginal increases were only posted in Budapest and Kiev (13% and 15% respectively) as a result of steadily increasing demand combined with the continued deficit of high quality space in each market.



Joe Valente, Head of DTZ Research, comments: "One of the most notable themes arising from this year's survey is the growing evidence of a recovery of the major leasing markets throughout the world. The outlook for global office leasing markets is positive with the recovery gaining momentum in part because of the rise in demand from key sectors as well as the lack of supply of good quality stock. However, it is likely that the current rental cycle will peak in 2008/2009."



source: DTZ Holdings plc

http://www.dtz.com/portal/site/Global/menuitem.bea2fa2759fd49739d37a210da80cb3c/?vgnextoid=f230352dd7598010VgnVCM1000000e01a8c0RCRD

Wow... :bow:
Thank you for your informative post! :)

HK's real estate values are definitely very expensive whether residential, commercial or industrial!

Is there a possibility that Hong Kong will overtake Washington and London at some point?
Conditions are quite good at the moment and I know that Hong Kong climbed up the ranking very fast.
When do you think it might happen?

Is there a possibility that Hong Kong will overtake Washington and London at some point?
Conditions are quite good at the moment and I know that Hong Kong climbed up the ranking very fast.
When do you think it might happen?

I'm not sure about that. It will be according to the outcome of the city's economy and status in th future!

Is there a possibility that Hong Kong will overtake Washington and London at some point?
Conditions are quite good at the moment and I know that Hong Kong climbed up the ranking very fast.
When do you think it might happen?
Hong Kong's property market is quite volatile. Prices rise and fall very quickly, and present prices are probably at the top of the range, so the likelihood of further rises beyond Washington and London are low.

Here's an analysis from the Wall Street Journal highlighting just how volatile commercial rents can be, using 2 IFC as an example :

Office rents increase on tight demand
Hong Kong, Tokyo post largest gains among 10 markets
By Jennifer S. Forsyth in New York and Cris Prystay in Singapore
11 January 2006
The Wall Street Journal Europe

For the first time in five years, rents for top-quality office space increased as vacancies fell among 10 of the largest global markets.

Markets improved across the board, but Hong Kong and London had the most eye-catching numbers, according to a study by CB Richard Ellis, the Los Angeles-based real-estate-services firm. By the end of 2005, Hong Kong landlords bumped up their asking rates for leases on Class A properties by 45% to $58.81 a square foot, as the vacancy rate fell to 4.8% from 6.9% in December 2004.

Many of the largest global markets have benefited from increasing demand for office space while new construction remains constrained.

In Hong Kong's office market, rents and occupancy rates plummeted to record lows in 2003, when the city was gripped by severe acute respiratory syndrome. Few businesses were expanding, the economy stalled, and some companies were even evacuating staff. But just two years later, in 2005, rental rates for grade A office space had their highest single-year growth in 17 years, said Kenneth Tsang, head of greater China research for Jones Lang LaSalle.

With such a fast turnaround, there was little time for developers to complete new buildings that would boost supply. In Hong Kong's prime Central district, only one large office building was completed in 2005 -- the AIG Tower, where the 450,000 square feet filled quickly, with American International Group Inc. taking 100,000 square feet of it, said Nigel Smith, executive director of office services in Asia for CBRE.

Likewise, in Tokyo new buildings are coming online, but not fast enough to meet demand. Hence, Tokyo's vacancy rate dropped below 2% in the third quarter and is expected to have similarly low numbers for the fourth, though CBRE's data weren't complete for that market. Steven Dunn, CBRE's chief economist, said large Class A office space in the Japanese capital is so in demand that some Tokyo tenants have had to wait as long as two years to sign a lease.

Every six months, CBRE focuses on the office-sector performance in the following cities, which it describes as among the largest and "hottest" with the most reliable data: Hong Kong, London, Los Angeles, Madrid, New York, Paris, Sydney, Tokyo, Toronto and Washington. Other real-estate experts point out that list excludes some major markets, such as Berlin, that haven't made such impressive gains. They also point out that in some cities, the growth comes from a low point.

"Yes, it's true almost all cities in Europe in the last 18 months or so -- with the exception of the German cities -- have shown an increase in rental rates, but it is from a reduced rental rate compared with five years ago," said Michael Topham, chief executive in charge of European and U.K. operations for Hines, a CBRE competitor.

In 2001, a combination of overinvestment in the technology and telecom sectors, falling corporate profits and the Sept. 11 terrorist attacks in the U.S. caused a global business contraction, deadening the demand for office space in major cities, Mr. Dunn said.

Even London's stellar numbers can be misleading. London's office-rental rates increased 6.7% last year to $141.72 per square foot -- keeping it as the world's most expensive market -- driven up by a surge in job growth in the financial sector. But much like New York, where the midtown market continues to outpace downtown, London's recovery varies in degrees by geography, with the West End's rental rates still nearly double of those in the central city, said Bradley Baker, the London-based head of global tenant solutions, for Knight Frank Newmark.

In Hong Kong, the recovery has been pronounced in the five prime districts: Central, Admiralty, Wanchai, Causeway Bay and Tsim Sha Tsui. John Siu, general manager of Cushman & Wakefield Asia's Hong Kong unit, reckons that rents for prime offices in Central doubled in the past year.

Consider the rental rates at Two International Financial Centre, one of the hottest new office buildings on Hong Kong's harbor. Rents in the building, which opened in 2003, now top HK$80 (US$10.32) per square foot per month, double the rent the building commanded in January last year, Mr. Siu said.

Vacancy rates across Hong Kong's grade A office properties have plummeted, down sharply from records of 18% to 20% in 2003.

"I can see some resistance from the tenants to paying that kind of rent," Mr. Siu said. He expects rents to rise 15% to 20%. Mr. Tsang, at Jones Lang LaSalle, puts that figure a bit higher; he predicts that rents will rise 20% to 25% in 2006.

SAR offices rank as third most costly
Danny Chung
10 January 2006
Hong Kong Standard

Hong Kong has become the third most expensive place in the world to have an office, according to the 2006 Global Office Occupancy Costs Survey by DTZ Debenham Tie Leung.

It said Hong Kong's total occupancy cost per workstation per year is US$15,000 (HK$117,000), up 61 percent from last year's US$9,320, when it ranked 15th.

London's West End kept its position at the top of the heap with costs of US$18,740 per workstation per year. Washington DC climbed two places to finish second at US$15,370.

Hong Kong leaped ahead of Tokyo as the most expensive city for office space in Asia.

DTZ said the 61 percent increase was the biggest year-to-year jump in Hong Kong in a decade. The SAR's office costs now have returned to where they were in 1995.

"With positive take-up and business sentiment, especially from investment banks, the willingness to pay for better quality offices by multinational companies demonstrated their optimistic outlook for the Greater China economy," the report said.

Alva To, director of consulting and research, said the main reason for the increase in Hong Kong's case was that office rents in prime areas shot up by 70 percent in the past year to an average of HK$57 per square foot per month.

"But for the most expensive ones, I think some have already exceeded HK$100 psf," he said.

Costs such as maintenance and fitting out were estimated at HK$12.25 psf per month. To said these costs had fluctuated little compared with rents.

DTZ said the "space utilization standard" per worker in Hong Kong was 139.9 square feet - cramped by international standards, though less so than London's West End, where the standard was 113 sq ft. By comparison, the standard in many United States cities was over 200 sq ft.

中區甲廈呎租勢挑戰120元
業界︰供應短缺 部分空置率低於3%
2006年1月12日

http://www.mpfinance.com/ftp/Finance/20060112/la/12lax.gif

【明報專訊】由於需求強烈而供應緊絀，中環甲級寫字樓呎租現時最高已達90至95元，而預計空置率將持續下跌，有國際測量師行估計，中環今年一些較細單位的甲級商廈租金，可挑戰94年交易廣場曾創出每呎近120元水平最高紀錄。

紀錄由交易廣場94年創下

第一太平戴維斯資深董事盛世民昨天表示，中區甲級寫字樓空置率已跌至5％，國金1、2期，以及長江集團中心等寫字樓空置率更已低於3％。由於核心區租金高昂及供應量短缺，預期租賃成交量不高，部分細單位的呎租或將升至120元水平﹔該行預期，明年中，中環商廈空置率將跌至3％，為1993年後新低。盛世民預期，租戶轉租非核心區的情會加劇，料中環商廈租金將上升15％，並帶動港島東等非核心區商廈租金升20％至25％。寫字樓買賣市場將隨利率在首季見頂後，轉趨活躍，呎租可望升10％。

另高力國際 ( 香港 ) 常務董事潘秉兆表示，去年全年甲級商廈租金及售價分別錄得75%及40%升幅，預測2006年的租金上升約30%，售價升幅約5%。該行稱目前整體甲級商廈平均呎租為40.08元，單是去年第4季已上升12%。

去年外資基金60億掃貨

高力投資部行政董事胡孝直表示，2005 年是投資物業市場暢旺的一年，銀碼 3000 萬以上的投資物業總成交額達 601.25 億元，按年上升達 44%，而全年成交宗數則有 483 宗，按年上升 69%，當中10％成交屬於外資基金入市，佔 60 億元，其中逾半是澳洲的麥格里基金「掃貨」﹔2004 年外資基金入市約有 70 億元。胡續稱，不少外資基金仍在本港以至大中華地區物業市場尋找合適貨源，如新加坡的 Maple Tree 等。

另外，萊坊國際執行董事龐立德表示︰「2006 年核心區甲級商廈新供應只有中環置地廣場東翼擴建的 15.5 萬方呎，預期2006年租金會上升 30％。」龐立德表示，去年 IFC Two ( 國際金融中心2期 ) 及 AIG Tower 已錄得呎租達90元，與交易廣場 1994 年的最高呎租 120元，距離不遠。

( 明報記者廖彩芳、周偉強報道 )

Many thanks for these reports, hkskyline!
Unfortunately I can't read the last one because I cannot understand Chinese very well. ;)
Do you know an English version?
Anyway I think Hong Kong has potencial to surpass London and Washington in 2007 because of great demand, shortage in office space and low office construction activity (at least on Hong Kong Island) in the next two years. Hong Kong would be on top only in the short run because of volatility in its office market as you have already said. Okay London will be a very big challenge, but Washington can be overtaken easily I think. We can only await the course of events and I cross my fingers for Hong Kong! :cheers:

Synopsis
- Rents for Grade A offices in Central have gone as high as $90-95/sq foot
- predictions that prices can rise beyond the record set at Exchange Square in 1994 of about $120/sq foot
- vacancy rate will drop to about 3% - the lowest since 1993
- Central rents will rise about 15% this year, while Island East should see rents rise 20-25%

A lot the article talks about predictions and numbers from various analysts.

However, I doubt prices will rise significantly further since Union Square's supertall is under construction and will provide a large amount of supply in a few years.

I am afraid that the price of flat will be more expensive!!
But really a good news for HK economy! :)


Wednesday July 28, 3:53 PM
HK office rents up with high-end units in hot demand
By Tara Joseph

HONG KONG, July 28 (Reuters) - The 52nd floor entrance to UBS's Hong Kong office looks more like a spa than an investment bank, with a ceiling-to-floor waterfall trickling next to the elevator in a quiet, minimalist corridor. Spanning seven floors in the year-old IFC2, Hong Kong's tallest skyscraper, UBS's office -- a modern, central space -- is becoming an increasingly rare commodity as the city's economy roars back to life.

"There's no new supply coming. If you want 20,000 square feet, where do you go?" said Simon Smith, head of research at real estate brokerage FPDSavills.

Office rents in Hong Kong's Central district are rising sharply this year, with prime locations in hot demand as finance and trading houses seek new space amid the territory's increased trade and economic cooperation with China.

Many firms also took advantage of sweetened deals late last year and relocated to bigger, plusher offices when the property market was still mired in a six-year slump.

Rents in IFC now average HK$40 per square foot (US$5.12) per month, according to agents, up from the bargain price of HK$18 just over a year ago when the SARS virus crippled demand.

Banks such as UBS are looking for ample room to house large trading floors with an array of sophisticated technical equipment and large, luxurious conference rooms to woo clients.

Last year, Hong Kong's largest Central district landlord Hongkong Land , which houses high-end clients such as investment bank Morgan Stanley , had a vacancy rate of 16 percent. That rate is now below seven percent and agents say its properties look set to be fully occupied by year end.

SUPPLY CRUNCH

FPDSavills' Smith said a supply crunch looms for both retail and office space in Central.

With IFC2 now 90 percent leased, the only new space coming onto the market in Central is Swire Pacific's Pacific Place 3 and the AIG Tower being developed by Lai Sun Development Co. Ltd. , Singapore's CapitaLand Ltd. and giant insurer American International Group .

Hong Kong now ranks as the 24th most expensive place to rent office space in the world, up from 31st place six months ago, a recent survey by real estate firm CB Richard Ellis found.

The firm said average annual rents were US$48.39 per square foot a year, up from US$42.37 per square foot six months ago.

That's still cheap compared with central Tokyo, Asia's most expensive city for office space, where rents average US$116.23 per square foot per year.

But investment bank J.P. Morgan expects Central office rents to rise 40 percent this year and a further 20-25 percent in 2005 on strong demand. The bank is even more upbeat on the shares of property firms with a mix of office and retail space such as Wharf Holdings , Great Eagle Holdings Ltd. and Hang Lung Group .

Shares in office-focused property firms have far outperformed those of residential giants such as Sun Hung Kai Properties in the past few months.

"The office market looks good, but the retail market also looks good," said J.P. Morgan property analyst Douglas Sung.

For a related story on rising residential rents double click on story number .

Hi anson! Welcome to skyscrapercity!
Yes, the economy of Hong Kong is growing fast at present. But it will slow down in the course of this year as I've heard. So rents might increase with less speed or even drop (at least in the residential sector).
@hkskyline: Do you know why office rents in Island East will grow faster this year than in central district?
Exactly, when Union Square is ready for the market, there will be a shift in supply and demand (considering grade A office space) in favour of Kowloon.

@hkskyline: Do you know why office rents in Island East will grow faster this year than in central district?
Exactly, when Union Square is ready for the market, there will be a shift in supply and demand (considering grade A office space) in favour of Kowloon.
Rents in Island East are substantially lower than in Central / Admiralty / Wan Chai. A report issued by Cushman & Wakefield Asia in May 2005 indicated that the most expensive building on the list in Island East is only charging 25% of what 2 IFC is charging and even cheaper than Tsim Sha Tsui properties :

http://www.cushwakeasia.com/publication/pdf/hk/hkoff0505.pdf

So even with a substantial increase, Island East will continue to be a very cheap alternative to Central / Admiralty / Wan Chai, especially given there is little supply under construction after AIG, 3 Pacific Place, and 2 IFC. Companies may want to move to cheaper areas for their non-core operations.

Cushman & Wakefield's January 2006 Hong Kong property market report indicated that Grade A office rents should continue to rise in the short term. The economy is still doing very well, fuelling demand, while supply remains scarce, keeping prices high. They predicted a further 25% rental growth in Central.

However, prices are still below the October 1997 peak for all areas (Central, Wanchai, Island East, Tsim Sha Tsui) but they are substantially higher from the November 2003 low :

Central +228.1% from November 2003
Wanchai / CWB +154.8%
Island East +140.1%
Tsim Sha Tsui +90.7%

The rise is quite dramatic compared to 3 months ago for most areas :
Central +11.3%
Wanchai / CWB +11.0%
Island East +16.9%
Tsim Sha Tsui +2.0%

More information : http://www.cushwakeasia.com/data/200601a/hkcom0601.pdf

CB Richard Ellis published a Hong Kong Grade A office market report for Q4 2005. Their calculated vacancy rates indicate supply is extremely tight for the core areas :

Core Central 5.66%
Admiralty 2.86%
Sheung Wan 8.61%
Wan Chai 5.52%
CWB 4.10%
Tsim Sha Tsui 3.31%
Overall Prime 4.83%

Decentralised Hong Kong 10.25%
Decentralised Kowloon 5.14%
Overall Decentralised 7.47%

Overall Total 5.71% (335,896 out of 62,417,143 square feet)

Decentralisation Trend
"Take-up of decentralised office space continued as a number of market players relocated or took expansion space on a cost driven platform. As the market continues to head north, it is expected that increasing numbers of non-traditional Core Central dwellers will engage in relocation. With landlords more accomodating on break-lease as they witness the market hardening, we forecast decentralisation to continue as this option increasingly draws the attention of cost-conscious occupiers. Overall decentralised rents increased by 9% quarter over quarter."

More information :
http://www.cbre.com.hk/upload/contentUpd/eng/research/marketreports/hongkong4q05ofc.pdf

Booming market augurs well for Central site sale

Skyrocketing office rents in Central and tight supply of Grade A office buildings for sale lead market watchers to expect an overwhelming response to the public tender sale of the DBS Building.

Alman Loong and Wong Ka-chun
Hong Kong Standard
Monday, January 16, 2006

Skyrocketing office rents in Central and tight supply of Grade A office buildings for sale lead market watchers to expect an overwhelming response to the public tender sale of the DBS Building.

Completed in 1999, the 23-story building is located at 139 Queens Road Central, near The Centre and COSCO Tower. The building is currently owned and occupied by DBS Bank.

Charter surveyor S K Pang said the price of the building could reach up to HK$634 million, or HK$7,000 per square foot, based on the latest transaction price of the Shun Tak Building, another Grade A building nearby.

"It could drive interest from both local investors and foreign capital funds, which are looking for stable and considerable return from office investment," according to international property adviser Savills (Hong Kong), the sole agent for the sale.

The building has a total gross area is 90,703 square feet, including open- floor offices, together with conference rooms. A cargo loading area is also available.

DBS will lease back the property upon completion of the sale. The tender will close on February 22.

Savills said that 34 office buildings were sold in 2004 and 20 were sold in 2005. It predicts Grade A office rents will increase by 25 percent in 2006 and 10 to 15 percent more in 2007.

Savills director Peter Yuen said recent prices reflect the optimism of investors.

Recent transactions in Central include a HK$2.7 billion deal for the Entertainment Building and the HK$1.3 billion sale of 92-94 Queens Road Central.

Meanwhile, Crocodile Garments, a retail unit of Lai Sun Group, has accepted a HK$274 million land premium offer for its industrial building in Kwun Tong.

The company said it will pay the premium by internal resources and other bank facilities.

"The government will permit a change of use of the building from industrial to non-industrial purposes," the company said in a statement to the Hong Kong stock exchange.

The building located at 79 Hoi Yuen Road, Kwun Tong, will probably be redeveloped into a 30-story office-retail complex with a potential gross floor area of about 240,000 sq ft, an analyst said.

Okay, I see! Now it's obvious. Thank you, hkskyline!

HK Island buildings in class of their own, says university study
21 January 2006
South China Morning Post

Twenty per cent of buildings in a random survey of Hong Kong Island's eastern district are A-class, compared with just 7 per cent in Kowloon.

Using a building quality index it has devised, the University of Hong Kong's real-estate department surveyed nearly 300 buildings in 2004 and last year.

Of 160 buildings surveyed on Hong Kong Island, 20 per cent were class A, 35 per cent class B and 34 per cent class C. Eleven per cent were unclassified.

The comparative figures for 133 buildings that were surveyed in the Tsim Sha Tsui, Yau Ma Tei and Mongkok areas of Kowloon were: class A 7 per cent; class B 46 per cent; and class C 37 per cent. Ten per cent of these buildings were unclassified.

The index measures fire safety, maintenance of concrete surfaces, outer walls and drains, the age of the buildings, structural safety and hygiene conditions. Class C buildings require repair and renovation.

Daniel Ho Chi-wing, associate professor of real estate and construction, said buildings were unclassified when there was not enough data to evaluate them. Such buildings typically exhibit problems such as overcrowding.

Department chairman Chau Kwong-wing said it aimed to survey all buildings in a city-wide study costing $10 million. Flat owners would be able to access the data free of charge.

The large-scale assessment will start in June.

"Building maintenance is not receiving the attention it deserves. We hope the general public will become more aware of its importance," said Professor Chau.

He hopes the department's work will help both government and flat owners implement the mandatory building-inspection scheme.

The government is conducting a public consultation on the proposed scheme that will end this month.

Under the proposal, management committees of buildings 30 or more years old will be required to engage professionals every seven years to certify they are safe.

The scheme is intended to force owners to rectify faults and physical deterioration that may pose a threat to public safety.

ING fund buys $68 mln Hong Kong office block

HONG KONG, Feb 6 (Reuters) - A Southeast Asia-focused fund run by ING Real Estate said on Monday it had made its third purchase in Hong Kong, buying an office block from Raymond Industrial Ltd. for $68 million. The IP Property Fund said in a statement it had bought the 25-storey building known as 410 Kwun Tong Road, which was 99 percent occupied, with the Hong Kong government taking up 60 percent of the lettable space.

The $200 million fund is financed by Singapore developer CapitaLand Ltd. , ING Real Estate and European institutional investors.

The fund has filled a 32 percent allocation set for Singapore, but says it is looking to make more investments in Thailand, Malaysia and Hong Kong.

It has invested in a residential project in Hong Kong and bought a floor in the Harcourt House office block in the city's Wanchai district in 2004.

Hong Kong's office rents are soaring as landlords renegotiate three-year leases signed in a market slump during the 2003 outbreak of the SARS respiratory disease.

Consultants CB Richard Ellis forecast that office rents will jump an average 20 percent in 2006, as a shortage of new supply forces vacancies down to 5 percent from 5.5 percent now.

ING Real Estate, part of Dutch financial services group ING Groep NV , has a portfolio of around $77 billion.

HK households in negative equity up 2,000 in Q4

HONG KONG, Feb 6 (Reuters) - The number of Hong Kong property owners who owe more on their home than it is worth rose more than 20 percent in the last quarter of 2005, the Hong Kong Monetary Authority said on Monday, as interest rates rose.

But the city's de-facto central bank played down the rise of 2,000 in the number of mortgages in negative equity to 11,000 at the end of the year, as a series of interest rate rises put the brakes on a property market rebound.

Joseph Yam, the authority's chief executive, told legislators on Monday the increase in negative equity was marginal compared with the situation in 2003.

In June 2003 negative equity cases peaked at 106,000 after a slump in the property market and an outbreak of the SARS respiratory disease, which ravaged Hong Kong's economy.

Many analysts expect the property market to head higher again this year, forecasting interest rates will peak and wage growth, coupled with fears of a shortage of new flat supply in the next few years, will encourage home buying.

Rents of serviced flats likely to rise 20pc
Yvonne Lee
Hong Kong Standard
Wednesday, February 22, 2006

Rents for luxury serviced apartments in Hong Kong are likely to rise 15 to 20 percent this year, said Belinda Kuan, leasing director of Four Seasons Place at International Finance Centre.
She said the reasons were continued economic growth and an imbalance between supply and demand.

Rents for premium serviced apartments climbed more than 11 percent last year, while rents for luxury serviced accommodations like Four Seasons Place jumped 29 percent, according to property consultants CB Richard Ellis.

Simon Wong, the consultancy's head of Hong Kong research, forecast a 15 percent overall rent rise for serviced apartments this year, but he made no specific predictions for the luxury sector.

Katinka van der Tak, director of residential leasing at another consultancy, Knight Frank, said that Four Seasons Place's forecast of up to a 20 percent increase is reasonable in the light of limited supply of luxury serviced apartments in prime business areas.

She said rates were already up 10 percent since October.

Knight Frank said Hong Kong had about 8,500 serviced apartments, of which 65 percent were on Hong Kong Island, mainly in Causeway Bay, Wan Chai and Central. Twenty-five percent were in Kowloon and the rest in the New Territories.

Four Seasons Place, which is jointly developed by Sun Hung Kai and Henderson Land, said its occupancy rate was around 90 percent and its average monthly rental rate was HK$60 per square foot. Lease periods ranged from six to 12 months.

If fully leased, its 519 rooms would generate at least HK$300 million in rental income per year.

Kuan said the development's average rental rate has increased by 25 percent since it opened last July.

Knight Frank predicted that 3,500 new serviced apartments would come on the market in the next three years, pushing total supply to 12,000 rooms by 2008.

Most of the additions would be in Kowloon and the New Territories.

Public rent assault begins
Jonathan Cheng
Hong Kong Standard
Friday, March 10, 2006

In one of the biggest recent shake-ups in public housing policy, housing chief Michael Suen has introduced plans to tie public housing rents to market conditions, something social advocates worry will trigger higher rents for the poor.
Lashing out at the current provision that prevents rent increases, Suen, secretary for housing, planning and lands, called the proposed overhaul - in which rents will rise and fall in line with market indicators such as the consumer price index or average household income - a "more rational and flexible" system.

Suen contended it would maintain affordable rents for low-income households while keeping solvent the Housing Authority, which oversees the SAR's massive public housing program. About 30 percent of Hong Kong's seven million citizens live in public housing. But the announcement - five years after the government commissioned the policy review and following a string of bitter court challenges over the affordability of public housing - is certain to ratchet up an already contentious debate as the proposal enters a three-month public consultation this week.

Many fear that the proposal will lead to unchecked increases in public housing rent. Cheng Ching-fat, chairman of the People's Council on Housing Policy, anticipates the new plan will push up rents for low-income families by about 10 percent.

Those fears were stoked Thursday by the government strongly signaling it intends to kill a statutory provision that is supposed to cap public housing rents at 10 percent of the median household income of public housing tenants.

In fact, the median has remained consistently higher than 10 percent, prompting a judicial review in 2001 against the government brought by an elderly public housing tenant. The Housing Authority had estimated it would lose HK$1.52 billion in rental income if it had to rejig the rents to match the cap.

Even though the judicial review was rejected last year by the Court of Final Appeal, the court effectively ruled that the government could not legally increase rents.

"We were put into a very awkward situation where rents were only allowed to go down, and to us, that's not sustainable," said Carlson Chan, assistant director of housing. "We're proposing a system where rents increase when they should, and decrease when they should."

Suen, who also chairs the committee overseeing the Housing Authority, remained coy on whether the government would propose the overturning of the so-called 10 percent rule, a controversial move that would allow the authority to adjust rents. Such a move would almost certainly spark a fierce legislative showdown. But administration officials admitted Thursday that it would be almost impossible for the government to implement its plan to tie rents to market conditions with such a restriction.

"If we even get to the point where we need to change the law, and we need the legislative support, it will come because we have the public's support and the people will know why we're asking for it," Suen said. "I don't foresee any difficulties."

Another controversial proposal unveiled in the wide-ranging review will see rents for public housing flats vary by as much as 30 percent, according to factors such as floor levels, proximity to garbage rooms, views and flat orientation.

Such "differential rents" would first be applied to newly completed estates, and perhaps later to existing estates. But critics warned this would stigmatize families who could not afford better accommodation.

"It's informal discrimination," said Lau Kwok-yu, a public housing academic at City University of Hong Kong.

Sze Lai-shan, of the Society for Community Organization, said the differential rates indicated the government had strayed from its original public housing mission. "These people applied for public housing because of their financial situation," she said. "They don't want to be identified and labeled."

She also criticized an authority proposal to exclude welfare recipients from future calculations of the median rent- to-income ratio, dismissing it as an attempt to artificially portray a light rent burden. "It shows that the Housing Authority is not sincere about wanting to change anything for the poor," Sze said.

Lore of the land
As the debate hots up over proposals to resume regular land auctions, Stephen Brown urges Hong Kong to build a sustainable redevelopment system overseen by an independent watchdog
17 March 2006
South China Morning Post

Last week we had the government considering the resumption of land sales, while apparently being careful to protect the residential market by inferring that such sales would be limited to the commercial sector.

Presumably such a move would be because someone in the administration has decided that office rents in Hong Kong are too high. On what subjective basis this was decided, one can only speculate.

At the end of the third quarter of last year, Hong Kong had half a millionsemi-skilled workers and 1.2 million professional and managerial workers. So we really have arrived as a service economy.

But then reports during the week indicated it had been decided that commercial rents are too high and could threaten the city's competitiveness.

However, despite a boom in the service economy, at the top end of the market, office rents in prime central Hong Kong seem perfectly reasonable compared with other world cities.

Low corporate tax and the flow of mainland initial public offerings indicate there are excess and higher rates of return and profitability in Hong Kong today than other financial centres, and a premium rent could be expected.

On my own rough estimates, taking an average of $25 per square foot per month as an average office rent throughout the whole of Hong Kong, annual rents paid for office space would be about $36 billion here, or about 3 per cent of GDP. This is well below London and New York's rents as a percentage of GDP.

They are similar-sized economies, but respectively have four times and twice as much office space as Hong Kong.

But Hong Kong is unique among major cities by having a huge choice of office locations, all at different price points that can be readily accessed.

There are really six points around the harbour: Causeway Bay, Wan Chai, Quarry Bay, the emerging office markets in Kwun Tong, Kowloon Bay and Tsim Sha Tsui.

Are our rents too high? How do you judge it? Are we under-supplied? Should we promote the regeneration of these suburban areas, which have MTR and motorway links and are nearer the workplaces of much of the population?

I would argue that our office market reflects our competitiveness rather than determines our competitiveness.

But even if you are worried about the office market and office rents, bear in mind that we have, as we all know, little or no manufacturing in Hong Kong today, but we have twice as much industrial space, almost 190 million square feet, as we do office space.

But of course not much of it is used for industrial use anymore. I know of a couple of buildings in Kwun Tong where a school bus comes in the morning and a stream of kids can be seen coming out of the elevators there.

Whatever one might argue, the fact is that between 1984 and 2004, office rentals have risen by an accumulative 82 per cent, and shop rentals by 171 per cent, but they are both considerably smaller than the corresponding growth of 288 per cent in per capita GDP or that of 387 per cent in per capita labour earnings.

Yet, the government may auction more commercial development rights in primary locations. If it does, this would be no more than a knee-jerk reaction to calls by a narrow vested interest group, often big overseas businesses who have the ear of the administration. Such auctions would represent intervention, and random, unjustified intervention, in my opinion, in the market.

Accusations of intervention will then, if history is to be our guide, go hand in hand with ridiculous claims that releasing hugely valuable sites at the top of the market is in some way a favour to certain developers.

This absurd comment will then lead to the government claiming it is only reacting to the market and asking market prices, and the merry circle that has been going on for more than a century will continue.

The administration has grown up upon new land sales, leaving in the wake huge, at best economically derelict, swathes of land that have been released and developed over the previous 150 years.

The government used to claim that there was a shortage of land in Hong Kong, when in fact there are as many development rights as you want, depending on the plot ratio you want to give to any one site.

While telling the story about the shortage of land and drip-feeding new land on to the market, government and society are unable to rethink the system to enable the changing of buildings' functions, thus facilitating sustainable development and regeneration.The administration has recently spent a lot of time trying to put the "forever" slogan back into the land market here and rebuild confidence in its product.

We have seen an end to the Home Ownership Scheme, a halt to land sales, then the application list (system of selling land), an extension of mortgage tax relief - surely a measure which is anathema to a free market economy - and now a move to price public housing rentals more fully.

The real issue now is that with a near static and ageing population and with huge swathes of economically derelict building in our urban cores, I see no reason why we need much more raw land or development rights to be released.

The policy challenge is not whether or how you sell land. It is a tougher one of getting the urban renovation and rejuvenation cycle working.

In London, 60 per cent of all new housing today is built on recycled sites. However, in the whole of Hong Kong, according to the Ratings and Valuation Department, we have demolished only 3,500 residential units in the past five years and only 80,000 square feet of office space.

Given its ability to print revenue through issuing new development rights, the administration has had no incentive to undermine its new bill of revenues.

This system then begets high land values, as demand knocks against inflexible supply, which then drives up site values and inevitably restricts competition, as fewer and fewer people can afford to pay a huge up-front sum to buy development rights at auction.

If the buyer pays today's price but sells in three years at a much higher price, he keeps almost all the profit, given our low taxation. The big merely get bigger and of course fewer.

Revenue from the sale of new and modified development rights then gets allocated into the capital works reserve fund, which can only be used for building roads and infrastructure, to open up new areas and to allow more new development rights to be released.

We in Hong Kong, unlike true world cities, amusingly call this mechanism by which we convert revenue from selling development rights into concrete as sustainable development. We sustain pouring concrete.

It is obvious that there are huge, fundamental flaws in our land tenure and planning systems that affect every aspect of public and private life.

Whether one prefers the release of new development rights through auctions or application lists is really a small issue.

I would prefer that the administration finally got out of the land market and did away with controlling development use through lease terms and administrative largesse, and allow planning processes in the context of a fully independent and open Town Planning Board.

Government ownership of land and invasive control of its use is an absurd accident of history, which arose out of the British Colonial Office's decision taken after 1776 to generate revenue in its colonies from land. The idea then was to employ levies, taxes, premiums, or whatever indirect taxation that it could, to avoid the problems that had been seen in America.

In Canada, Africa, India and Australia, various levies were introduced to ensure that taxation was subtle. However, these countries escaped from this system when they were given the independence dowry of freehold land.

Hong Kong was not given that dowry and we still retain the requirement to pay all of the value of the development rights up-front as a large sum.

It is really, if you think about it, a pretty ridiculous way of taxing a business. It's the same as asking a local bank to pay a lump sum today on a full account of its profits in 2010. We do not do that.

The payment of huge lump sums, as opposed, for example, to a development tax on the actual realised profits at the end of a scheme, might generate large sums of cyclically volatile revenue.

But this revenue is of little use if we end up, as we did last year, with a non-operating surplus of $19 billion, while we in the same year cut $10 billion in expenditure from the likes of education and welfare, all achieved by a government which, at the end of 2005 on the accruals accounts basis, had a balance sheet of $861 billion.

If I have to give an answer on the specific question of whether to sell or not, I would plump for the application list, over and above the government force-fed system.

I never did understand how a civil servant could decide that site X on plot ratio Y for use A in Tuen Mun should be auctioned on a particular Tuesday in March at 2.30pm.

I would remain an advocate of the application list only to buy time while we address the real issue of whether the use of our land should still be a matter for career civil servants.

I would only support the continuation of the application list on the grounds that it seems to be doing a good job of keeping unnecessary new sites off the market, and may be one of the reasons why the secondary office market in Kowloon in particular is seeing so many new quality office buildings springing up in run-down areas.

What we really need to consider is the relevance of the lease modification premium and the auctioning of development rights.

We need to look at replacing these Victorian mechanisms with formal fiscal revenues, levied on actual realised development betterment gains, or an annual land value tax.

Formal taxation of betterment gains brings land under legislative and budget scrutiny, and revenue from land becomes a recurrent tax, and as such a source for funding education, welfare, social security and other needs.

We need to try to get the government out of its role as player and referee in the land market. We need to look at removing restrictive covenants in leases and setting up a credible, independent town planning structure.

We need to implement policies that foster local renovation, refurbishment and redevelopment of existing spaces, while altering our existing legislation to recognise economic dereliction as well as existing physical disrepair conditions in the current 90 per cent compulsory purchase legislation, which came to the fore last week also when the government was proposing minor amendments.

Stephen Brown is a director of the think-tank Civic Exchange and head of research at Kim Eng Securities. This is an edited version of his speech at Selling Hong Kong's Land, a conference organised by the University of Hong Kong and the South China Morning Post, and supported by the Citigroup Foundation.

Office market on the move 80pc of new commercial units will be outside the CBD
8 March 2006
South China Morning Post

The office market in Hong Kong will enter a new phase from this year until 2010, when about 80 per cent of new units will be located outside of the traditional districts that offer grade-A office space, property consultants said.

In the next five years, 23 projects comprising 10.8 million sq ft of office space will be built.

Only five of these would be in the core areas [of Central, Wan Chai/Causeway Bay and Tsim Sha Tsui], Jones Lang LaSalle said.

"This will be the first time that any development cycle in the grade-A commercial market will provide such a high proportion of accommodation in non-core areas," said Gavin Morgan, head of Jones Lang LaSalle's Hong Kong commercial department.

In the last cycle, much of the new office space was in Central developments such as Two IFC and Chater House.

Experts said the increase of supply in non-core areas reflected the decentralisation of the office market.

David Holdsworth, managing director of Pamfleet (HK) said: "Central rents are obviously rising because [of] the absence of space.

"As all the major buildings fill up, there isn't just any choice. You either have to [be] able to pay those high rents in prime buildings or you [have] got to start moving.

"Decentralisation will continue to offer comparatively attractive rental deals for those people who cannot afford to pay Central rents."

Major buildings to be completed this year include the 112,000 sq ft Landmark East extension in Central and the 360,000 sq ft Nina Tower in Tsuen Wan.

In the next two years, Sun Hung Kai Properties will complete its twomillion sq ft International Commerce Centre at Kowloon Station, and Swire will complete its office project, One Island East, in Westlands Road, Quarry Bay.

Knight Frank executive director Mark Bernard was optimistic about Island East.

"The quality of office buildings is very good - even better than in Wan Chai and Causeway Bay," Mr Bernard said.

"Quarry Bay has traditionally provided a lower-cost option for tenants looking for prime office space outside of the Central business core. Strong demand for space in the area has driven up rents, particularly over the past few months."

According to Knight Frank, Quarry Bay office rents have more than doubled over the past year to average $31.21 a sq ft a month. The average rent in Central is $75.21 a month and about $38 a sq ft in Wan Chai and Causeway Bay.

In the next 12 months, rents in Quarry Bay were expected to increase by 30 per cent.

Mr Bernard expected Swire Properties to set the rent for One Island East at 10 per cent to 15 per cent below the market price to attract tenants.

But Swire would push up rents in the area once One Island East was occupied, he said.

Mr Bernard said the area would continue to attract interest from end users and property investors.

His comments come as an Australian fund Allco is in talks to buy Hongkong Land's office building at 1063 King's Road.

Also, the family of Charles Ho Tsu-kwok, a tobacco tycoon who owns the Sing Tao Group, is selling its 450,000 sq ft headquarters at 865 King's Road, estimated at $700million.

The industrial building could be redeveloped for office use.

But Desmond Poon, associate director at Chartersince Realty, said fringe Central areas such as Wan Chai and Sheung Wan would benefit the most from the relocation trend because office rents would obviously go up.

He said it was difficult for Island East to compete with Admiralty and Wan Chai as many companies that had been located in the CBD for a long time would be reluctant to move to Quarry Bay.

"They will relocate to places still close to the CBD, then move back to Central once the office rents ease again," he said.

Flat shortage fears ease as supply leaps
Raymond Wang
Hong Kong Standard
Saturday, April 22, 2006

http://www.thestandard.com.hk/newsimage/20060422/FLATS.jpg

Supply of new apartments has risen sufficiently to meet demand for the next three years, according to the government's quarterly statistics on private housing stocks, undercutting speculation that the city is facing a serious residential shortfall.

Figures released by the Housing Department Friday show that stocks have risen nearly 10 percent to 60,000 units over the past three months, a combination of 16,000 unsold newly-completed flats and 44,000 uncompleted flats available for pre-sale as of the end of last month.

That compares with 55,000 - 39,000 still under construction - available at the end of December.

After receiving the government's presale consent, developers can start putting apartments on the market 20 months ahead of completion.

Buggle Lau Ka-fai, chief analyst of Midland Realty, hailed the new figures for being "not far from the average annual take-up of between 20,000 and 25,000 new units over the past decade."

Lau said the jump in available housing was partly because some developers delayed launching projects in the first quarter, when market sentiment was unfavorable due to rising interest rates.

He said less than 2,000 new residential units were offered for sale during the period, compared to more than 3,000 in a normal three-month span.

Dismissing recent worries of a shortfall, Secretary of Housing, Planning and Lands Michael Suen Ming- yeung said that figures don't necessarily reflect the situation on the ground, since they exclude some potential pre-sale units that aren't under construction but have already received the government go-ahead.

Deputy Commissioner of Rating and Valuation Lo Hing-chung pointed out last month that in addition to the under-construction flats, there are nearly 64,000 never-lived-in apartments, giving a total supply of more than 100,000 units. Assuming the take- up rate remains about 20,000 a year, "it would take five years for these flats to be digested," he added.

Centaline Surveyors managing director Victor Lai said although demand may slightly outstrip supply in the primary residential market over the next couple of years, some demand has switched to the secondary market, which accounted for 85 percent of total home sales of 103,000 units last year, compared with 74 percent in 2004 when the number of transactions in both the primary and secondary markets was 106,000 units.

Average residential prices as of February have surged 53 percent since their trough in the middle of 2003, according to Monetary Authority statistics.

The luxury residential market outperformed other sectors during the more than two-year period, particularly those bigger than 160 square meters each, which jumped an average 91 percent, according to the authority.

Hong Kong Property Review 2006
Thursday, April 20, 2006
Government Press Release

The Rating and Valuation Department today (April 20) released the internet version of its annual publication "Hong Kong Property Review 2006" which contains statistics and commentaries of the local property market in 2005.

The internet version, covering the full content of the publication, can be viewed and downloaded free of charge from the Department's website at http://www.rvd.gov.hk.

Printed copies of this publication will be available for sale around mid-May.

Further enquiries concerning this publication can be directed to the Department's Technical Secretary (Information), Ms Nancy Hung, at 2150 8807.

Hopes on rates fuel demand for homes
Danny Chung
Hong Kong Standard
Monday, May 01, 2006

http://www.thestandard.com.hk/newsimage/20060501/Vision-city-V.jpg

Sales of new flats were brisk over the first two days of the May Day long weekend as prospective buyers sought special deals, some with expectations of interest rates peaking.

There was strong interest at the 1,507-unit Vision City project in Tsuen Wan which Sino Land is developing with the Urban Renewal Authority.

Sino put 108 homes up for sale at 6pm Sunday and in two hours it sold "more than 100" at an average price of HK$5,400 per square foot.

Ricacorp Properties branch manager Patrick Lau Pak-yan said more than 500 people attended.

He agreed the long weekend and expectations of interest rates peaking were attracting buyers.

"But the main reason I have heard is that Tsuen Wan has not had this kind of supply for a long time," Lau said.

William Kwok Chi-wai, Cheung Kong (Holdings) deputy chief manager for sales, said it sold 20 homes at The Pacifica II in Cheung Sha Wan, a joint Cheung Kong-Sun Hung Kai project.

At least 16 homes were sold at the development Saturday, including 10 reserved units.

Another four sold Sunday, all of them to end-users at prices between HK$4,600 and HK$5,100 psf.

He said more than 1,500 people attended the sale.

Ricacorp branch manager Sunny So Hok-lun said more than 52 units were sold over the weekend with at least 30 going Sunday alone.

Buyers at The Pacifica were attracted by prices and flexible payment terms and, with interest rates expected to peak, "confidence has been strengthened."

The developer is offering holiday- period buyers special mortgage rates and special prices on plasma TVs and furniture.

The company would decide today on the number of units to be included in the next batch it plans to release.

Sun Hung Kai sold 10 homes at its Oceanfront project at Ma Wan over the weekend at prices around HK$4,850 psf.

It also sold 16 units at its luxury Noble Hill project in Sheung Shui at prices of about HK$7,600 psf. It said it would release another eight units for sale today.

Hang Seng Bank chief executive Raymond Or Ching-fai Sunday reckoned the US Federal Reserve would have to raise interest rates once or twice more before they stabilize.

Last week, US Federal Reserve chairman Ben Bernanke hinted that the central bank may pause in interest rate rises.

Meanwhile, Centaline Properties expects transactions of new residential properties for April to number about 755, representing a 14 percent drop compared with the March figure of 881.

But research department senior manager Wong Leung-sing said total transactions are expected to reach HK$4.2 billion, about 15 percent higher than the month before - representing a five-month high.

"This reflected brisk sales at Sha Tin luxury flats The Great Hill in March, which clearly pushed up the value of primary transactions for April," he said.

Transactions usually reflect the previous month's market because of a delay in transaction registrations. The drop in transactions also reflected the fact that many people holiday abroad during the Easter weekend, he added.

Wong said, because of already keen market interest in Sino Land's Vision City and developers looking to sell off remaining stock at The Pacifica, Oceanfront, Noble Hill and Metro Harbour View, expected transactions in May and June would number about 1,000 per month.

Caribbean Coast hit by defaults
Prudence Ho
12 June 2006
Hong Kong Standard

More than 40 flat buyers at Caribbean Coast, a joint Cheung Kong and MTR Corp development in Tung Chung, defaulted on their payment as the outlook for Hong Kong property turned starkly bearish.

Cumulative value of non-payment topped HK$100 million but theflats in question accounted for just 2 to 3percent of a total of 1,500 units in four blocks of the project, executive director Justin Chiu Kwok-hung said Sunday.

Deposits of up to 30 percent made by the defaulting flat buyers have not been forfeited, he said. Cheung Kong will offer buyers, who are unable to complete their deal in the next two months special payment arrangement, Chiu said, without giving any details.

The defaults centered on units in blocks nine to 12, where most of the apartments were sold between 2004 and 2005 at prices ranging from HK$2,700 to HK$3,700 per square foot, Chiu said.

At present, prices for Caribbean Coast units in the secondary market have fallen to HK$2,700 psf, prompting some buyers to give up on the deals to minimize their loss, real estate agents said.

Under such bearish conditions, experts expect the number of defaults in the primary property market to rise.

Last week, buyers of 20 flats at The Merton, a New World Development and Urban Renewal Authority project in Western district, failed to make their payments.

Payment defaults, industry observers say, could hit several residential projects which become ready for occupancy this year as fears of further interest rate hikes hang over the property market.

Total property transactions in May hit 9,332, down 37.2 percent year on year, government figures show and total turnover plunged 38.7 percent to HK$33.2 billion during the same period.

Over the weekend, Henderson Land off-loaded 22 apartments at Grand Promenade in Sai Wan Ho, while around nine units at Residence Bel-Air, a Cyberport development in Pok Fu Lam were sold at HK$7,700 psf, according to real estate agents.

Hong Kong office rent to rise 10 pct and peak -JLL

HONG KONG, July 4 (Reuters) - Hong Kong office rents will rise another 10 percent in the next six months as companies expand in a thriving economy, but then they will peak after tripling since 2003, according to consultants Jones Lang LaSalle.

Rents rose on average 75 percent last year and are up 14 percent so far in 2006, as three-year leases signed in a property market slump during an outbreak of the SARS respiratory disease in 2003 are renegotiated.

"We expect the market to peak in the next 12 months, with quarter-on-quarter growth reducing," Gavin Morgan, regional director at Jones Lang LaSalle, told a news conference.

"But between now and the end of 2006, we expect rents to increase around 10 percent," he said.

"During this period records will be broken, but it won't be a balanced view of the market. Relatively speaking, Hong Kong isn't expensive compared to other major centres."

Very few new buildings are going up in the crowded city, while demand for office space is rising as Hong Kong flourishes as a financial centre for booming China.

Investment banks, hedge funds and law firms are taking up the plush offices, while Chinese firms listing on the Hong Kong stock market and state companies are renting in cheaper locations.

All this benefits Central district landlord Hong Kong Land , but a knock-on "decentralisation" effect is good for landlords Great Eagle (Holdings) Ltd. , Wharf (Holdings) Ltd. and Swire Pacific Ltd. .

The only "grade A" offices opening this year are York House in Central, Teddy Tower in Tsuen Wan and One Kowloon in Kowloon Bay -- a total of 1.4 million sq feet. Next year 1.1 million square feet of office space will be completed, but in 2008 3.8 million square feet hits the market.

That will be back to a peak supply level hit in 1999, when 3.5 million sq feet of completions helped lift vacancy rates to around 16 percent in 2000 from previous 7 percent.

The vacancy rate for prime offices is now about 4.6 percent, down from 9 percent in 2003, according to Jones Lang LaSalle.

Annual office occupancy costs in Hong Kong are US$101.67 per sq ft, just higher than Moscow and Mumbai on US$94 and US$93 and far outstripping Manhattan prices of US$55, according to property consultants CB Richard Ellis. London's West End tops the league with US$185, while costs at central Tokyo offices are US$130.

But Grade A rent in prime areas is still 43 percent lower than a 1994 peak, and 29 percent below 1997 levels.

Prime office rents tipped to rise 15pc
Hong Kong Standard
Friday, July 07, 2006

Rents of Grade A offices in Hong Kong are likely to rise 10 to 15 percent further in the next six months after jumping 21 percent in the first half of the year due to scarce supply and robust demand, real estate consultants Knight Frank Petty said Thursday.

The consultancy said demand for premium office space remained firm over the second quarter on the back of steady economic growth. "Companies are increasing headcount and require expansion space," said Alnwick Chan, executive director of Knight Frank Petty. "However, space is limited, particularly in terms of whole floors or consecutive floor space."

Options are limited for corporate tenants due to Hong Kong's low Grade A vacancy rate - averaging 4.5 percent - combined with a shortage of new supply, Chan said.

In the second quarter, monthly Grade A office rents throughout the city increased 8.5 percent to an average HK$51 per square foot.

Meanwhile, selling prices in Central and Admiralty rose 4 percent and 5 percent, respectively, to an average HK$10,100 and HK$8,100 psf.

There has been no new inventory of Grade A office stock since the completion of AIG Tower in Central last year, Chan said.

While projects such as 100 Queen's Road Central and York House in Central will be completed in or near the central business districts, the bulk of new office supply in the second half of the year will actually be in Kowloon, the consultant said.

Noting that the rental gap between Central and areas like Island East (around Quarry Bay and Tai Koo) is about HK$40 to HK$50 psf, Knight Frank Petty said it expects more companies will relocate to decentralized districts as the gap continues to grow.

In the luxury residential market, the consultant expects a 15 percent growth in rental between now and December. Luxury rents and selling prices continued on an uptrend in the first half year, with rents rising 3.9 percent to an average HK$34 psf per month. Meanwhile, selling prices rose 5.5 percent to an average of HK$10,000 psf.

"Leasing activity remains firm as Hong Kong is attracting more overseas expatriates as well as increasing relocation activities," said Andrew Pang, Knight Frank Petty's executive director of residential sales.

However, prices are still below the October 1997 peak for all areas (Central, Wanchai, Island East, Tsim Sha Tsui) but they are substantially higher from the November 2003 low :

Central +228.1% from November 2003
Wanchai / CWB +154.8%
Island East +140.1%
Tsim Sha Tsui +90.7%

The rise is quite dramatic compared to 3 months ago for most areas :
Central +11.3%
Wanchai / CWB +11.0%
Island East +16.9%
Tsim Sha Tsui +2.0%

More information : http://www.cushwakeasia.com/data/200601a/hkcom0601.pdf

CB Richard Ellis published a Hong Kong Grade A office market report for Q4 2005. Their calculated vacancy rates indicate supply is extremely tight for the core areas :

Core Central 5.66%
Admiralty 2.86%
Sheung Wan 8.61%
Wan Chai 5.52%
CWB 4.10%
Tsim Sha Tsui 3.31%
Overall Prime 4.83%

Decentralised Hong Kong 10.25%
Decentralised Kowloon 5.14%
Overall Decentralised 7.47%

Overall Total 5.71% (335,896 out of 62,417,143 square feet)

Decentralisation Trend
"Take-up of decentralised office space continued as a number of market players relocated or took expansion space on a cost driven platform. As the market continues to head north, it is expected that increasing numbers of non-traditional Core Central dwellers will engage in relocation. With landlords more accomodating on break-lease as they witness the market hardening, we forecast decentralisation to continue as this option increasingly draws the attention of cost-conscious occupiers. Overall decentralised rents increased by 9% quarter over quarter."

More information :
http://www.cbre.com.hk/upload/contentUpd/eng/research/marketreports/hongkong4q05ofc.pdf

Looks like bubble in property prices.

I don't think it's a good phenomenon maintaining the high economic growth.

Rents for Hong Kong offices shoot skyward
By Joshua Fellman
Bloomberg News
SUNDAY, JULY 9, 2006

HONG KONG Office rents in Hong Kong's Central district, at their highest level in 12 years, may rise further as investment banks and financial services companies jostle for business in China.

Space in International Finance Center 2 - the latest and tallest addition to the city's skyline - rents for as much as 130 Hong Kong dollars, or $17, a month a square foot, or $183 a square meter, according to the property adviser Savills. That level compares with $15 a square foot for parts of London. The previous Hong Kong record, set in 1994 at Exchange Square, next to the IFC tower on the harbor in Central, was 121 dollars per square foot.

Banks like ABN AMRO Holding and UBS are expanding in Hong Kong to tap the private banking and corporate finance needs of China, the world's fastest-growing major economy. Chinese companies raised $12.6 billion in the city this year, compared with $7.3 billion in the same period in 2005, data compiled by Bloomberg show.

"The accountants, the lawyers and even the bars that cement the social networks in the financial industry are all in Central," Simon Smith, head of research for Savills in Hong Kong, said in an interview by phone. "Clients expect their bankers to be there. It's the top-quality district. It's also near many of the best residential districts."

In the past 12 months, ABN AMRO has added about 33 percent more space in Central, mainly in the Cheung Kong Center, said Hui Yuk-min, a bank spokeswoman in Hong Kong. UBS, Lehman Brothers Holdings, Merrill Lynch and Société Générale are among other banks that have taken more space.

Average rent for top quality office space in the city's center rose 18 percent in the first half, bringing the gain since the 2003 low to 297 percent, according to Savills, which forecasts a further rise of as much as 10 percent this year. Most leases in Hong Kong are fixed for three years, so companies face a jump in rent when they renegotiate this year.

A rental index compiled by Savills is at 150, compared with 100 in 1992 and 200 at the peak in 1994. Shares of Hongkong Land Holdings, which draws most of its income from rents in the five million square feet, or 465,000 square meters, it owns in Central, have climbed 32 percent in the past year.

China's economy expanded 10.3 percent in the first quarter, the highest rate among the world's 20 largest economies.

Another reason for the increase is limited new supply - there's a shortage of new top-quality office space scheduled for completion before the end of 2008. The vacancy rate has fallen to 5 percent, with the rate for the highest-quality buildings dropping to 2 percent, Savills figures show.

"It's difficult for these tenants to move, and they are in high-margin businesses that can withstand big increases in overheads," Smith said.

Still, rents may be reaching their peak, said Gavin Morgan, a regional director at Jones Lang LaSalle in Hong Kong. The company predicts that rents will climb as much as 25 percent in 2006 after a 14 percent first-half increase.

Average rents are lower than the last peak in 1994 in part because developers have built offices elsewhere on Hong Kong Island and across the harbor in Kowloon.

"The decentralized sector will keep a natural brake on Central office rents, especially given the new supply coming through," said Keith Kerr, an executive director at Swire Pacific.

Fears office values may fall if GST imposed
Hong Kong Standard
Saturday, July 15, 2006

Commercial and industrial property values, along with the number of transactions, may drop by up to 30 percent if the government pushes ahead with its proposed goods and services tax, says Midland Realty.

Midland's Pierre Wong Tze-wa said Friday the imposition of GST would be an "extremely big blow" for non- residential properties.

He pointed to industry figures showing that commercial and industrial property transactions in the 12 months to June 30 totaled HK$59.4 billion. Assuming a GST rate of 5 percent, that means a total sum of about HK$3 billion would "immediately evaporate" from the value of the properties involved, he said.

Transaction costs would also increase, as GST would add another 5 percent on top of the stamp duty of 3.75 percent and agency fees of 2 percent, plus legal fees.

As a result, short-term speculation would be drastically affected since it would cut into capital gains profits, Wong noted.

He said stamp duties would be hit if speculators curbed their buying. Citing figures indicating there were about HK$17.9 billion worth of transactions involving speculators in the past 12 months, and assuming they did not buy because of the GST, the government would lose stamp duty revenue totaling HK$670 million, Wong said.

"It's like killing the chicken for the eggs," he said, adding that he expects overall transactions to fall by 30 percent while prices would drop by 25 percent.

Midland sales director Daniel Wong Hon-shing said GST would discourage foreign companies from coming to Hong Kong, pointing to government statistics showing that a low and simple tax regime was one of the main reasons why foreign companies set up shop here.

Alvan Chan Wai-chi, also a Midland sales director, said GST would impose additional costs on investment funds that have been buying commercial and industrial property with an eye to listing them as real estate investment trusts.

Pierre Wong said some planned REITs may be canceled as a result.

F*ck GST.

Developers to speed up flat releases
Raymond Wang
Hong Kong Standard
Thursday, July 20, 2006

New apartment sales may almost double in the second half as developers are set to speed up residential project launches amid improving market sentiment, real estate agents say.

Tuesday's successful land auction will "encourage developers to accelerate sales of new projects," said Ricacorp Properties executive director Willy Liu Wai-keung.

But he noted that "the higher-than- expected price of the auctioned Lantau Island site indicates little about prices for the overall housing market."

The number of new residential property sales is tipped to rebound by more than 90 percent to 8,000 units in the second half of this year from a record low of 4,200 units from January to June.

Rising interest rates have deterred some developers from launching new projects for sale in the first six months as they focused on clearing their inventory of unsold units, Centaline Property Agency said.

However, some developers are set to roll out large-scale projects in the second half in the hope that interest rates may stabilize, Centaline said.

While major lenders in Hong Kong have left interest rates unchanged, indications in the US financial markets are that another 25 basis point increase is likely, thus raising the federal funds rate to 5.5 percent.

Expectations heightened Wednesday, following a 0.3 percent increase in the US core consumer price index in June - excluding food and energy.

Hong Kong follows US rates, but has ignored the two previous rates increases.

Whether interest rates are adjusted upwards or not, more than 12,000 new apartments are expected to be available for sale this year. These will mostly be small- to medium-sized flats, Ricacorp's Liu said. That compares with last year's 16,000.

New projects slated for sale in the second half include Park Island in Ma Wan developed by Sun Hung Kai Properties. Units may be available for sale by end of this month, Liu said.

Henderson Land Development and Cheung Kong (Holdings) are also set to step up sales to realize their target of between HK$10 billion and HK$12 billion in sales for the year, real estate agents said. Cheung Kong plans to launch Le Point, a residential project at the Tiu Keng Leng MTR station in the third quarter. Henderson will this week sell the latest batch of 15 inventory flats at Royal Green in Sheung Shui. At Tuesday's auction, Chan Shu-kit, chairman of listed restaurant operator Tack Hsin Holdings, offered the winning bid for the Lantau Island residential plot for HK$30.5 million.

This was more than double the minimum price of HK$14.46 million.

The transaction price exceeded analysts' forecasts of about HK$18 million.

Developers may find it harder to trigger residential sites for auction as the government is likely to raise the minimum prices for land available on its reserve list if it uses the land price for the Lantau lot as a benchmark to decide the minimum bid for the next land auction, said Henderson general manager for sales Tony Tse Wai-chuen, Wednesday.

Sun Hung Kai Prop to sell HK$15 bln flats in 06/07

HONG KONG, Sept 14 (Reuters) - Sun Hung Kai Properties Ltd. , Hong Kong's most valuable developer, said on Thursday that it plans to sell 3,000 housing units in the fiscal year ended June 2007 for HK$15 billion ($1.93 billion).

Hong Kong real estate companies pre-sale development properties before construction is completed but only book the transactions and profits when the apartments are ready to live in.

Sales of new apartments in Hong Kong slowed to a trickle at the beginning of 2006. But expectations that the rate cycle was peaking lifted new apartment registrations to 2,800 in August, against a low of 223 in February, boding well for Sun Hung Kai's earnings this financial year.

Good old days are back
Booming mainland propels demand for Hong Kong office space back to pre-1997 levels, creating new job opportunities
20 October 2006
South China Morning Post

THE DEMAND FOR office space in Hong Kong has shot back to the pre-1997 level of its economic heyday.

Financiers and banks are cashing in on the mainland's booming economy and insurers and personal bankers are arriving in Hong Kong in droves.

This is good news for developers such as Swire Properties and Sun Hung Kai Properties.

It also means "great opportunities" for careers in office leasing and management, according to Doris Chu, head of HR and administration at Swire Properties, one of Hong Kong's most prominent office landlords.

"The market is clearly enjoying a strong period of growth in take-up. It has been helped by economic growth in China, capital raising for mainland companies and the increase in private banking," Ms Chu said.

Swire Properties has already seen the financial sector swamp demand for its latest development at Pacific Place.

Hi-tech Three Pacific Place is virtually at 100 per cent occupancy, most notably as a result of expansion by European financial services group Société Générale and The Bank of New York, as well as the arrival of Macquarie Goodman Asia.

With the financial sector accounting for about two-thirds of all offices at Three Pacific Place, Swire Properties director and general manager Jolyon Culbertson described it as a "grade-A finance and banking hub".

"The supply of grade-A office space in prime areas continues to be limited," Mr Culbertson said.

"Three Pacific Place has served to meet the demand of multinational companies that are experiencing solid business growth and expansion plans in the region."

Swire Properties is now banking on its next big development, One Island East, which it hopes will be a sought-after refuge as the financial services sector "continues to expand and push demand" in its traditional nerve centre of Central.

Scheduled for a single-phase completion in 2008 and featuring superlative harbour views, the 70-storey, grade-A office building will add a further 1.5million sqft to Swire's thriving new business community in Island East - extending from Taikoo Place to Cityplaza. Island East is home to more than 300 corporations, and the recent arrival of DBS Bank and expanded offices for American International Assurance indicate the financial sector already views it as an attractive option to crowded Central.

Swire Properties director and general manager Stephan Spurr said: "Occupancy in Island East is up to 97 per cent and our vacancy factor is back to pre-1997 levels."

In such an active office market, job opportunities are across the board. Swire has openings ranging from assistant building manager, tenant liaison officer, building surveyor and business executive to computer, marketing, administration and customer services staff.

Ms Chu said: "There are great career opportunities in the property management and leasing fields."

Besides regular recruitment, the property arm of Swire Group also offers opportunities through a three-year management trainee programme for "high-calibre graduates with a versatile mindset, who are flexible and capable of coping effectively with the changing environment".

Graduates from all disciplines are welcome, with recruitment now under way.

"Trainees with outstanding performance will be offered a promising career to develop with the company," Ms Chu said.

Sun Hung Kai Properties, another huge property developer and landlord with a workforce of 23,000, is similarly encountering spectacular demand for offices.

The firm's portfolio, which includes Central Plaza and Two IFC, Hong Kong's tallest building, continues to expand.

The International Commerce Centre is set to become Hong Kong's next tallest skyscraper and the third-tallest in the world when it opens at the end of this year.

The firm's real estate agency executive director, Victor Lui, said the 490-metre, 118-floor landmark in West Kowloon "will take on global importance and reinforce Hong Kong's status as an international financial centre".

Its 5.5million sqft of grade-A offices will be the most spacious in Hong Kong. Despite being across the harbour, it is just a few minutes by train from Central and meets "surging demand for quality offices with the increasing presence of mainland and foreign firms in Hong Kong", Mr Lui said.

"A number of multinationals and major local companies are also looking for more office space for expansion amid a steadily improving local economy."

Deputy general manager for office leasing Lo King-wai believed "strong leasing activity will continue to bode well for the office market". Reflecting this, Sun Hung Kai has just embarked on its biggest office upgrade programme in 10 years.

Being modernised to the tune of HK$600million are Millennium City 2, Sun Hung Kai Centre, Harbour Centre, Central Plaza, World Trade Centre, Metroplaza, New Town Tower in Sha Tin, Sheung Shui Plaza and Grand City Plaza in Tsuen Wan.

Expansion in Hong Kong, together with major projects in the mainland, including Shanghai IFC, means the company is "always recruiting", with vacancies including posts for leasing managers, officers and executives.

Good old days are back
Booming mainland propels demand for Hong Kong office space back to pre-1997 levels, creating new job opportunities
20 October 2006
South China Morning Post

THE DEMAND FOR office space in Hong Kong has shot back to the pre-1997 level of its economic heyday.

Financiers and banks are cashing in on the mainland's booming economy and insurers and personal bankers are arriving in Hong Kong in droves.

This is good news for developers such as Swire Properties and Sun Hung Kai Properties.

It also means "great opportunities" for careers in office leasing and management, according to Doris Chu, head of HR and administration at Swire Properties, one of Hong Kong's most prominent office landlords.

"The market is clearly enjoying a strong period of growth in take-up. It has been helped by economic growth in China, capital raising for mainland companies and the increase in private banking," Ms Chu said.

Swire Properties has already seen the financial sector swamp demand for its latest development at Pacific Place.

Hi-tech Three Pacific Place is virtually at 100 per cent occupancy, most notably as a result of expansion by European financial services group Société Générale and The Bank of New York, as well as the arrival of Macquarie Goodman Asia.

With the financial sector accounting for about two-thirds of all offices at Three Pacific Place, Swire Properties director and general manager Jolyon Culbertson described it as a "grade-A finance and banking hub".

"The supply of grade-A office space in prime areas continues to be limited," Mr Culbertson said.

"Three Pacific Place has served to meet the demand of multinational companies that are experiencing solid business growth and expansion plans in the region."

Swire Properties is now banking on its next big development, One Island East, which it hopes will be a sought-after refuge as the financial services sector "continues to expand and push demand" in its traditional nerve centre of Central.

Scheduled for a single-phase completion in 2008 and featuring superlative harbour views, the 70-storey, grade-A office building will add a further 1.5million sqft to Swire's thriving new business community in Island East - extending from Taikoo Place to Cityplaza. Island East is home to more than 300 corporations, and the recent arrival of DBS Bank and expanded offices for American International Assurance indicate the financial sector already views it as an attractive option to crowded Central.

Swire Properties director and general manager Stephan Spurr said: "Occupancy in Island East is up to 97 per cent and our vacancy factor is back to pre-1997 levels."

In such an active office market, job opportunities are across the board. Swire has openings ranging from assistant building manager, tenant liaison officer, building surveyor and business executive to computer, marketing, administration and customer services staff.

Ms Chu said: "There are great career opportunities in the property management and leasing fields."

Besides regular recruitment, the property arm of Swire Group also offers opportunities through a three-year management trainee programme for "high-calibre graduates with a versatile mindset, who are flexible and capable of coping effectively with the changing environment".

Graduates from all disciplines are welcome, with recruitment now under way.

"Trainees with outstanding performance will be offered a promising career to develop with the company," Ms Chu said.

Sun Hung Kai Properties, another huge property developer and landlord with a workforce of 23,000, is similarly encountering spectacular demand for offices.

The firm's portfolio, which includes Central Plaza and Two IFC, Hong Kong's tallest building, continues to expand.

The International Commerce Centre is set to become Hong Kong's next tallest skyscraper and the third-tallest in the world when it opens at the end of this year.

The firm's real estate agency executive director, Victor Lui, said the 490-metre, 118-floor landmark in West Kowloon "will take on global importance and reinforce Hong Kong's status as an international financial centre".

Its 5.5million sqft of grade-A offices will be the most spacious in Hong Kong. Despite being across the harbour, it is just a few minutes by train from Central and meets "surging demand for quality offices with the increasing presence of mainland and foreign firms in Hong Kong", Mr Lui said.

"A number of multinationals and major local companies are also looking for more office space for expansion amid a steadily improving local economy."

Deputy general manager for office leasing Lo King-wai believed "strong leasing activity will continue to bode well for the office market". Reflecting this, Sun Hung Kai has just embarked on its biggest office upgrade programme in 10 years.

Being modernised to the tune of HK$600million are Millennium City 2, Sun Hung Kai Centre, Harbour Centre, Central Plaza, World Trade Centre, Metroplaza, New Town Tower in Sha Tin, Sheung Shui Plaza and Grand City Plaza in Tsuen Wan.

Expansion in Hong Kong, together with major projects in the mainland, including Shanghai IFC, means the company is "always recruiting", with vacancies including posts for leasing managers, officers and executives.

IPD plans property index for HK
6 December 2006
South China Morning Post

London-based Investment Property Databank (IPD), which manages an index tied to property derivatives contracts, expects to introduce Hong Kong's first investment property index over the next 12 months.

Kevin Swaddle, director for Asia Pacific at IPD said: "We are now concentrating on the market in Hong Kong and Singapore."

Shanghai and Beijing would be next, and IPD will eventually establish a pan-Asian investment property index similar to one if established in Europe, Mr Swaddle said.

IPD, which operates in 20 countries including England, Australia and the United States, launched its commercial property index in Japan in 2004 and it will appear in South Korea next year.

He said investment banks have to secure a licence from IPD before using the index as a basis for selling property derivatives contracts.

"We have talked to a number [of investment banks]. They are very interested in knowing more about our plans," Mr Swaddle said while on a trip to Hong Kong.

In Britain, IPD has licensed 12 banks, including Goldman Sachs, JP Morgan and HSBC to trade property derivatives on IPD indices.

"Many of them have representatives in Hong Kong," he said without elaborating.

Mr Swaddle emphasised that IPD's index - which covers investment properties in the residential, office, retail and hotel sectors - will be calculated on total returns rather than the price model of the existing index.

According to Professional Property Services, there are about 80 to 100 quality buildings in Hong Kong.

Last month, Colliers International and inter-dealer broker GFI launched a derivatives contract after starting a residential price index. The index, complied by the University of Hong Kong and based on transaction figures from the Land Registry, will be the basis for "price return swaps" - contracts on the property market's future performance.

"It's a different animal," Mr Swaddle said, adding that IPD's statistics are based on actual properties in actual investment portfolios.

He said IPD needs the support of developers in disclosing costs and income information of their portfolios.

Investors will receive a report so they can evaluate their portfolios, strategies, forecasts and market trends.

Sales of HOS flats will not hurt market: estate agents
Hong Kong Standard
Friday, November 24, 2006

The relaunch of the government's home ownership scheme flats early next year may capture some first-time buyers from the private housing sector, but its impact on the overall residential market will be minimal, market figures said.

Given the limited number of the first batch of 3,056 HOS flats which will become available, the sales will have only a short-term effect on the market, Centaline Property Agency research department associate director Wong Leung- sing said.

"Some prospective first-time buyers from the private residential market will switch their focus to HOS flats, which are attractively priced," Wong said.

Cheung Kong (Holdings) deputy chief manager for sales William Kwok Tsz-wai said there was still a price gap between the government's subsidized flats and the private housing sector.

"Some second-hand flats in small- scale private housing developments with poor facilities may be affected by the relaunch of HOS flats," Kwok said.

HKR International marketing manager Violet Lam Hung said the relaunch of HOS flats would have little influence on the private residential market, as HOS units cater mainly to buyers with less money.

She added there was also a quality difference between the two markets.

Midland Realty chief analyst Buggle Lau Ka-fai said demand from first- time buyers for small flats remains robust, as reflected in Land Registry figures.

These showed 29,878 transactions worth less than HK$1.5 million each were recorded in the first 10 months of this year, accounting for 51.4 percent of overall transaction volume in the secondary market for the period.

But Lau said the relaunch of HOS flats would still only have a minor impact on the secondary private residential market.

In January, the authority will start selling flats at Kingsford Terrace Stage I in Wong Tai Sin, Yu Chui Court Stage III in Sha Tin and Tin Fu Court in Tin Shui Wai.

Prices will be based on the market value of similar private residential developments in the vicinity and will include a 30 percent discount.

The prices will also take into account the fact that the flats have been vacant for several years since they were completed.

The authority said mortgage payments should not exceed 40 percent of the income of the buyers.

Selling prices for the flats are expected to range from HK$563,000 to HK$1,896,700, which translates into HK$1,010 and HK$2,420 per square foot, respectively.

The government's 16,641 completed but vacant home ownership scheme units represent another potential supply source in the medium term.

In January this year, the Housing Authority said it would resume sales of these flats in two phases per year, with 2,000 to 3,000 flats per phase, starting from 2007.

The government suspended the sale of all subsidized flats, including HOS flats, in 2002 to stabilize slumping home prices.

Only public rental housing tenants (green-form applicants) and eligible households (white-form applicants) are permitted to buy the flats.

White-form applicants are subject to limits on their income and assets when applying for the flats. Monthly income is limited to HK$22,000, while assets are limited to HK$610,000.

The quota allocation between white- form and green-form applicants will be set at 20:80.

Among the bigger estates due for sale are Kingsford Terrace with 2,010 flats; Yau Mei Court Phase 3 in Kowloon East with 1,480 flats; Kam Fung Court in Ma On San with 1,892 flats; Yu Chui Court in Sha Tin with 1,489 flats; and Tung Tao Court in Hong Kong East with 1,216 flats.

Ricacorp Properties executive director Willy Liu Wai-keung said that, in the long run, the resumption of HOS flat sales would build up buying momentum from first-time buyers which would, in turn, benefit the overall market in future.

In Asian real-estate market, Hong Kong has edge
Office market booms as firms seek space near Chinese cities
By Maura Webber Sadovi
13 December 2006
The Wall Street Journal Asia

Hong Kong's commercial real-estate market is booming again. Glittering modern office towers command dramatic Victoria Harbor views and among the world's richest rents. Some developers are expanding the boundaries of the area's traditional office market and adding new icons to the growing skyline.

Despite increasing competition from Shanghai, many U.S. and multinational companies and financial firms still favor locating their Asian headquarters in Hong Kong, attracted by the cosmopolitan English-speaking region that is home to some seven million people just southeast of mainland China. As investor interest in China has intensified, Hong Kong has drawn many bankers, lawyers, accountants and other businesspeople because of its proximity to China and a hospitable living environment offering amenities such as international schools.

"Hong Kong is a leaping-off point for China," says Andrew Ness, executive director of research for CB Richard Ellis Group Inc. in Asia. "It's a good place to marshal your forces."

One large project under way: Hong Kong-based Sun Hung Kai Properties Ltd.'s 118-story tower, to be called the International Commerce Centre, in Kowloon, across the harbor from Hong Kong's core central-business district. The tower will include both office and hotel space.

For now at least, the strength of Hong Kong's real-estate market appears to put to rest a long-simmering question -- whether Hong Kong will be overshadowed by other cities in Asia. Many analysts say the region's legacy, as a former British colony that became a special administrative region of China in 1997, still gives Hong Kong an edge as a center of commerce.

The good times come just three years after the region's economy was in the doldrums after being battered by the Asian financial crisis of the late 1990s, the tech bust and the severe acute respiratory syndrome outbreak in 2003, according to Moody's Economy.com. Since 2004, employment levels have been on the rise and insatiable investor interest in Asia has helped the Hong Kong region's economy come roaring back, sending the Hang Seng Index to records in November.

New office supply is expected to provide some relief to tenants who have seen stiff increases recently in prime rents. After dropping out of the list of the 10 most expensive office-space markets from mid-2002 to mid-2005, as ranked by CB Richard Ellis, Hong Kong was the fifth most-expensive out of 176 markets in major cities world-wide, according to a survey released in November. London's West End and Tokyo's Inner Central area were the first and second priciest, respectively. The estimated cost to occupy prime space in Hong Kong was US$116.25 per square foot annually, a figure that includes rent, local taxes and service charges.

Still, the region's high prices put off some investors. Hong Kong was ranked 15 out of 19 Asian-Pacific cities in terms of prospects for commercial real-estate development and investment, based on a survey conducted between June and August of 175 real-estate experts including lenders, investors and developers by the Urban Land Institute and accounting firm PricewaterhouseCoopers. While Hong Kong is a favorite target for first-time investors in Asian-Pacific real estate, the ranking could reflect concern that the market is overpriced, says Stephen Blank, a senior resident at the Urban Land Institute.

Indeed, Hong Kong's share of the growing direct commercial investments flowing into the Asian-Pacific region shrank to 10% in the first half of 2006 from 17% in the year-earlier period, according to a recent study by real-estate services firm Jones Lang LaSalle.

Still, Guy Hollis, international director in the Asian-Pacific region with Jones Lang LaSalle's International Capital Group, believes Hong Kong will continue to be a go-to city in Asia, just as the U.S. boasts gateway cities such as Chicago and New York. Mr. Hollis says investor demand for property there will remain strong, though Hong Kong's transaction levels are constrained because many of its building owners are long-term holders of property. "If I had a couple buildings to sell in Hong Kong," he says, "I could sell them."

Housing plot sets record in HK land auction

HONG KONG, Dec 19 (Reuters) - A prime residential plot set a price record for a Hong Kong land auction on Tuesday, selling for about 60 percent more than expected and fuelling forecasts luxury home prices have further to go.

Hong Kong's most valuable developer, Sun Hung Kai Properties Ltd. , bought the rare site at 12 Peak Road for HK$1.8 billion ($231.5 million), or HK$42,196 per square foot of gross floor area.

The highest previous price per square foot paid in a land auction was at the height of a property bubble in 1997, when a plot sold for HK$18,357 per sq ft of gross floor area, according to consultants Jones Lang LaSalle.

The prestigious address sold on Tuesday for more than double the starting price of HK$768 million, taking many industry players by surprise. Five analysts polled by Reuters offered a mean forecast price of HK$1.14 billion.

"I think the price is high," said an analyst, who asked not to be identified.

"The implication is that Hong Kong will continue to see a two-tier market," he said. "Luxury will do well because of rich immigrants from China and overseas Chinese, while the mass market will continue to be stagnant."

Average Hong Kong home prices are 70 percent higher than a trough during the 2003 outbreak of the SARS respiratory disease, but the market has slowed as mortgage rates doubled this year -- hurting the likes of Sun Hung Kai and rival Cheung Kong (Holdings) .

Some analysts believe a peak in U.S. interest rates could revive interest in the mass housing market.

After a dip at the end of last year, the more buoyant luxury residential sub-market has been rising steadily for most of 2006, and prices were up 2.8 percent in the third quarter from the previous three months, according to consultants CB Richard Ellis.

With new supply tight at a time when the expatriate community is growing, luxury home vacancy rates have fallen to 5 percent from 35 percent in 2001, with rental yields down to just below 4 percent from 5 percent five years ago.

A 4,400-sq-ft home on the Peak, a mountain district overlooking Hong Kong's famous harbour, recently sold for US$10.8 million, but average prices in the area are still 20 percent below their 1997 level.

Sun Hung Kai is selling a luxury residential project on the Peak at HK$35,000 per sq ft. But the analyst said the firm would need to squeeze more developable gross floor area from its newly acquired plot and sell homes at HK$47,000 per sq ft to make a 15 percent profit margin.

Sun Hung Kai's shares closed 1.73 percent weaker on Tuesday, while the benchmark Hang Seng Index ended 1.19 percent lower.

Office rents in Central keep upward momentum
Hong Kong Standard
Friday, February 23, 2007

Demand for office space in non-core areas of Hong Kong Island is continuing to rise, an international real estate consultancy said.

Jones Lang LaSalle said supply of space in non-core areas is also rising.

However, office rents in Kowloon are stable and may have even dropped slightly, due to keen competition from office buildings offering cost-effective solutions, the consultancy said.

Market sentiment is still positive overall, as reflected by the large number of early lease commitments.

Office rents in Central are still edging higher with demand continuing to increase this year, Jones Lang LaSalle said.

The high volume of transactions below 10,000 square feet that characterized the market last year will continue this year. However, the consultancy expects more larger transactions of more than 30,000 sqft driven by pent-up demand for non-core accommodation.

Jones Lang LaSalle does not expect a significant increase in the number of new startup companies in Hong Kong this year, and predicts 2007 will rather be a period of consolidation for those that have recently established themselves and started operations. Expansion will be the major driver because of the increasing number of mergers and acquisitions between mainland companies and multinationals, Jones Lang LaSalle said. Expansions will drive demand alongside organic growth among domestic and international firms.

The consultancy said location- sensitive "rental refugees" will have a particular impact on fringe Central locations and play a significant part in maintaining rental growth through the first half of this year.

New Grade A office accommodation in non-core locations will prompt tenants in older buildings to consider cost-effective relocation, as rents in these areas continue to drop, it said.

More than two million sqft of new office space will be available on Hong Kong Island this year, all of which will be in non-core locations.

Jones Lang LaSalle expects further new supply in 2008 will lower the rents in all submarkets by the fourth quarter of this year.

Gavin Morgan, regional director and head of markets, Hong Kong, at Jones Lang LaSalle, said: "We expect a high level of transaction activity and a significant number of pre-commitments to major new schemes."

One Island East is Hong Kong Island's only major new building due for completion and as a result will be the prime focus in this area.

Rent declines will not be acute and many larger transactions will be supply- driven, Morgan said.

"We expect positive sentiment and expansion-driven demand to remain key drivers through 2007," he said.

Jones Lang LaSalle executive Fiona Ngan said rents of office premises in Kowloon are quite stable although they have fallen slightly, given that there will be a continuously sufficient supply of office space, including Millennium City 6 and Enterprise Square 5.

More than 4,300 new flats set to test market
Hong Kong Standard
Monday, April 09, 2007

Developers are expected to launch more new projects this quarter to meet demand mainly in the mass residential market.

Property agent Ricacorp estimates that up to 4,323 homes in 25 projects could hit the market.

The New Territories will account for most of the new supply with 2,131 units, followed by Kowloon with 1,574 and Hong Kong Island with 618.

The single biggest project is phase one of Central Park Towers in Tin Shui Wai, being built by Cheung Kong (Holdings) (0001), which has 1,902 flats in total.

Other projects are more modest in scale, with the next three projects, all in Kowloon, offering about 300 homes each.

SEA Holdings (0251) is building a 48-story residential and retail project with 304 flats at Po Kong Village Road in Diamond Hill.

The company said in its 2006 interim results that pre-sales are planned for early this year.

Henderson Land Development (0012) will offer 312 units in phase three of Metro Harbour View at Tai Kok Tsui, and another 326 in a mixed-use project at 500-502 Tung Chau Street, Cheung Sha Wan.

On the island, Swire Pacific (0019) and China Motor Bus (0026) are offering 184 flats at the junction of Kam Hong Street and Java Road, North Point.

Asia Standard International Group (0129) will offer 180 flats at its project at 238-242 Aberdeen Main Road.

Ricacorp Properties executive director Willy Liu Wai-keung said developers were quite active with new launches in the first quarter, especially last month, pointing to brisk sales at projects such as The Vineyard by Sun Hung Kai Properties (0016) and Bel- Air phase six by Pacific Century Premium Developments (0432).

Henderson Land managed to sell all 119 units at The Verdancy in Yuen Long in one weekend two weeks ago, generating HK$163 million.

"In the second quarter, there will not be much luxury property, but more mass residential such as Central Park Towers," Liu said.

Midland Realty chief analyst Buggle Lau Ka-fai said the market performed respectably in the first quarter.

"We believe the momentum will carry on to April and May but it may slow in June at the end of the quarter," Lau said, referring to the start of the summer holiday season.

Asked if the market would see more primary market sales, Lau said the first quarter saw about 2,700 deals involving new flats but more than 20,000 transactions in the secondary market.

"The secondary market will remain the driver in terms of quantity," he said.

07復活盤銷361伙最旺
09/04/2007
東方日報

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豫 豐 加 推 30 伙 應 市
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嵐 岸 假 後 漲 價 5%
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首 季 豪 宅 交 投 新 高
另 方 面 ， 長 實 （ 0001 ） 副 首 席 經 理 （ 營 業 ） 郭 子 威 稱 ， 馬 鞍 山 嵐 岸 昨 原 價 加 推 約 十 伙 ， 呎 價 維 持 四 千 九 百至 六 千 五 百 元 ， 該 盤 過 去 四 日 累 售 五 十 一 伙 ， 八 成 為 用 家 。 假 期 後 ， 二 座 C 及 D 室三 房 戶 首 先 加 價 半 成 至 呎 價 近 五 千 二 百 元 。

利 嘉 閣 則 指 出 ， 今 年 首 季 逾千 萬 元 住 宅 買 賣 共 錄 九 百 八 十 七 宗 ， 按 季 升 兩 成 七 ， 總 值 二 百 四 十 三 點 二 億 元 ， 按季 增 四 成 一 ， 兩 數 字 同 創 ○ 五 年 次 季 後 新 高 。 另 美 聯 指 出 ， 今 年 首 季 二 手 居 屋 錄 二千 零 一 十 宗 登 記 ， 按 年 升 兩 成 一 ， 創 近 六 季 新 高 。

東 港 城 人 流 升 35 ％
另 外 ， 新 地 （ 0016 ） 代 理 租 務 部 高 級 推 廣 經 理 梁 婉 珊 料 ， 將 軍 澳 東 港 城 商 場 五 日 復 活 節 長 假 期 ， 商 場 人流 及 營 業 額 分 別 為 七 十 三 萬 及 二 千 萬 元 ， 分 別 按 年 升 三 成 五 及 三 成 三 ， 人 均 消 費 三百 至 八 百 元 。 商 場 稍 後 會 進 行 全 面 大 翻 新 ， 並 會 增 加 商 戶 數 目 ， 詳 情 稍 後 公 布 。

Backlog focus fails to hit flat sales
Hong Kong Standard
Monday, April 23, 2007

Residential sales in the primary market were steady at the weekend with 174 units sold as developers concentrated on clearing inventory.

Henderson Land Development (0012) led the sales roster of listed companies, selling 22 flats at its Sherwood project in Tuen Mun at more than HK$2,700 per square foot.

Mid-sized developer USI Holdings (0369) registered sales of 14 flats at The Waterfront at Kowloon Station, a project completed in 2000.

Asking prices at The Waterfront were slashed by 15 percent to about HK$8,600 psf to secure sales.

Cheung Kong (Holdings) (0001) continued sales at its Sausalito project in Ma On Shan with 15 three-room units sold at prices between HK$4,300 and HK$6,300 psf.

New World Development (0017) sold 15 flats at The Merton in Western, while Sino Land (0083) also sold 15 flats at Vision City in Tsuen Wan.

Sun Hung Kai Properties (0016) offloaded 10 flats at Harbour Green in Tai Kok Tsui, while Sino managed to sell 10 units at One SilverSea nearby.

But sales by all of these big companies were surpassed by the 112-unit Grand Garden at Shau Kei Wan, where 40 units were sold at HK$5,700 psf at the weekend.

Grand Garden was built by two private developers, one of which is Pofield Holdings. Flats were released for sale Friday.

"There are not many new projects being launched," said Willy Liu Wai- keung, executive director at Ricacorp Properties.

Developers have been offloading inventory flats, Liu said.

Cheung Kong plans to release the remaining 30 four-room units at its Metro Town project at Tiu Keng Leng station for sale possibly before the government land auction next month.

Rents set to triple at Citibank Plaza
Hong Kong Standard
Tuesday, May 15, 2007

Champion REIT (2778), which earns income from Citibank Plaza, expects rents for the Grade-A office building in Central to more than triple when tenants renew leases this year.

The real estate investment trust is poised to reap the rewards of rising office rents as discounted leases of more than HK$20 per square foot in monthly rent signed during lean times a few years ago come up for renewal.

Rents have breached the HK$80 mark at Citibank Plaza, Champion REIT chairman Lo Ka-shui said Monday after the trust's first annual general meeting since listing last May.

Rents have also exceeded a forecast of HK$71.48 psf made at its initial public offering.

Lo said occupancy in Citibank Plaza was about 96 percent.

"Prospects for the year are promising - more than 50 percent of the space in Citibank Plaza is due for a rental reversion or renewal at a time when vacancies are expected to remain low and rents are rising," he said. But the rate of office rental increase in the financial hub may slow after strong gains in recent years, he said.

Meanwhile, commercial landlord Swire Properties said there was robust demand from banking and finance institutions for space in prime business locations. Swire announced the recent signing of two office leases in Pacific Place in Admiralty, increasing the building's occupancy to near 100 percent.

Average effective rents for One and Two Pacific Place stand at a high HK$70s psf and for Three Pacific Place at mid HK$60s psf, Swire said.

Natixis, a Europe-based international investment bank, expanded its Hong Kong office in Two Pacific Place to more than 40,000 sq ft.

Hong Kong Monetary Authority is also taking up more than 27,000 sq ft in One Pacific Place to meet the expansion of its World Bank Occupier-International Finance Corp office.

They are among many banking and finance institutions that have leased office space in Pacific Place for their operations, Swire said.

"We see sustained strong demand from investment banking, insurance and finance sectors for quality office space in prime areas and, indeed, we continue to receive expansion requests from existing tenants," said Jolyon Culbertson, director and general manager of Swire Properties.

"With the tight supply of grade-A offices in the central business district, the rent of Pacific Place offices is expected to stay firm."

Thaksin hits Peak
Hong Kong Standard
Wednesday, June 13, 2007

Thaksin Shinawatra, the ousted prime minister of Thailand, was the purchaser of the luxury townhouse on The Peak recently sold by Sun Hung Kai Properties (0016) - a property whose price tag of HK$41,000 per square foot set a record in Asia's luxury property market, sources told The Standard.
A source close to the deal said it was billionaire Thaksin who paid an astounding HK$210 million for the 5,100 sq ft townhouse, referred to as House 1 at Severn 8, The Peak.

Two other sources also named Thaksin as the buyer, whose identity was previously unknown.

"It is obvious the seller is pushing the price to the limit," said a source who has been in the property industry for more than 30 years.

"It would require someone who either loves the property very much or who does not care about money at all to make the call of buying it for more than HK$41,000 per square foot."

The Severn 8 development is considered one of the biggest projects in Hong Kong in terms of size and luxury.

Thaksin's townhouse - complete with swimming pool - does not stand on its own but is connected to other units and, therefore, was considered unlikely to fetch such a premium price.

Local media had previously reported only that the property was sold to an unnamed "businessman."

"The price shows how good the quality of House 1 is in terms of its geographic location and how quiet the living environment is," Midland Realty sales director Gary Yeung Wing-kin said after the deal.

Befo
re the sale, local media had speculated that the house was reserved for Martin Lee Ka-shing, co-vice chairman of Henderson Land (0012) and younger son of company chairman Lee Shau-kee, to move into after his recent HK$100 million wedding to model and actress Cathy Chui Chi-kay.

The price Thaksin paid for the property was a record for the luxury market - not just in Hong Kong, but for the whole of Asia.

The businessman-turned-politician has been spotted in Hong Kong shopping with his wife several times recently.

Thaksin has been in exile since a military coup took control of Thailand last September while he was out of the country on a diplomatic visit.

Since the coup, he has been living mostly in London.

SHKP bought the land for its 22-house project on Severn Road for HK$8,353 per square foot of developable gross floor area at a government land auction in February 2000.

Thaksin's purchase price is the latest in a string of records for the 8 Severn Road development.

Houses 6 and 7 sold for HK$36,500 psf, or a total of HK$320 million, in November 2006 - then a record for the luxury market in Hong Kong.

That mark was surpassed by House 5 in the same development, which sold in March 2007 for HK$38,800 psf, or HK$200 million.

I thought he just had his assets frozen?

Luxury home prices look on course to hit 1997 levels
Hong Kong Standard
Wednesday, July 11, 2007

Real estate consultant Jones Lang LaSalle forecasts that by the end of the year prices in the luxury residential market will be on a par with 1997 levels, while growth in the low to mid-tier market will be limited by abundant supply.

Reviewing the property market for the first half of the year, the consultant said the capital value of luxury homes rose 9.8 percent during the period, a much higher rate than the full-year growth in 2005 (2.9 percent) and 2006 (3.2 percent).

For units worth HK$20 million or above, total transactions reached HK$22.8 billion for the first half of 2007, or 90 percent of the 2006 total. For properties worth more than HK$100 million, the figure was HK$13.8 billion, which already exceeded last year's aggregate.

The market surge is attributed to stable mortgage rates, increasing demand as a result of the booming stock market, and a shrinking supply of new sites.

"We expect these conditions to sustain over the second half of the year," said Joseph Tsang, international director at Jones Lang LaSalle.

"We are not surprised to see more record-breaking transactions, especially for new properties."

He projected another 10 percent rise during the second half, and by then prices will be "very close" to the levels of 1997.

But the number of transactions has still not recovered to former levels.

He noted the long-neglected New Territories market was catching up with the traditional area.

He added that although "there are reports of mainland buyers offering exceptionally high prices for top-tier houses, it is local users who supported the market in general." In the luxury residential rental market, the strong expatriate demand supported a 5.8 percent rise in the first half of 2007.

Supply continued to tighten as some suitable leasing stock has been sold. He expected rents to go up 10 percent for the full year.

With tax cuts and job security helping to encourage people to buy properties, there was a growth of 5.6 percent in the mass sector.

"The reduction of stamp duty for properties under HK$2 million also helped boost demand," Tsang said.

Living Large in Asia
Hong Kong and Singapore find the price of success may be just too high.
6 August 2007
Newsweek International

Well-heeled expatriates in Asia's financial capitals generally have life pretty easy. But this summer, those in Hong Kong and Singapore are starting to sweat. The problem? Sizzling real-estate markets that make even bankers blink, and international schools packed like the Tokyo subway at rush hour. One-bedroom flats in Hong Kong's toniest buildings now go for $5,000 per month. Office rents in Singapore have shot up 105 percent in the past year--the fastest appreciation rate in the world. For workers with kids, the picture is particularly bleak. Incoming students at international schools now land not in classes but on long waiting lists--unless their parents jump the queue by purchasing debentures that have sold for as much as $120,000 in Hong Kong.

Asia's dueling financial hubs invest a lot of capital--real and emotional--in what's often cast as a zero-sum contest for the affection of foreign companies. Yet both cities have done so well wooing them of late that the major threat facing each isn't the other, but bottlenecks in the expatriate infrastructure common to both. High-end housing costs are pushing past records set before the 1997-98 Asian financial crisis, prompting Singapore's founding father, Lee Kuan Yew, to lament, "We must check this spike in rents or we will lose our competitiveness."

Talent is getting tougher to find as both economies near full employment. Office rents are driving even the richest investment banks to seek cheaper alternatives to prime downtown addresses. And as both cities gear up to increase their populations by luring hundreds of thousands of additional outsiders over the coming decade, locals are getting squeezed. "There may be a political cost if Singaporeans feel priced out by foreigners," warns Charles Chong, head of a parliamentary committee on national development in Singapore.

Both cities are, in a sense, victims of their success. Each ranks among the most efficient spots on the planet to register new businesses. They boast world-class banking, accounting and legal services, undergirded by respect for contracts and commercial codes not found in the rest of Asia. And the rivals are über -efficient travel hubs to boot. In a region awash in cash from record trade surpluses, Chinese expansion and a flood of new stock listings, the cities have posted incredible GDP growth numbers of late--6.8 percent and 7.9 percent for Hong Kong and Singapore, respectively, last year.

Given that local fertility rates are falling, both hubs hope to continue to fuel that boom via immigration. Singapore's Minister for National Development Mah Bow Tan expects the city-state's population to hit 6.5 million by 2027, up 2 million from today--which implies a yearly influx of 100,000 foreigners over the next two decades. Hong Kong Chief Executive Donald Tsang has said he envisions his city's population eventually surpassing 10 million--a 30 percent increase from today's total--thanks to "an injection of new blood from all nationalities." As the hubs grow more receptive to outsiders, new factors are ensuring that immigrants arrive in large numbers. Whereas globalization was once confined to hefty multinationals, today's expatriates work disproportionately for smaller-and medium-size companies. Nor are they predominantly European or North America anymore; China, India and South Korea are just three of the many countries now sending professionals abroad in strength.

The impact of such influxes on Hong Kong and Singapore is now evident everywhere. Education, once an afterthought in expatriate relocations, has rapidly become a vexing issue in both cities as demand for placements outstrips supply and drives up prices. Singapore's top international school, United World College of Southeast Asia, now charges $16,500 a year for primary pupils and $20,000 for those in secondary school. Fees can run even higher in Hong Kong, where many of the 56 accredited international schools are fully enrolled. In a study released last week, the American Chamber of Commerce found that "Hong Kong's competitiveness is being negatively affected by the inability of incoming investors to find places in school for the children of their expatriate staff members, which in turn limits their ability to transfer the best and brightest people here." The Amcham study noted that combined waiting lists at five popular schools topped 1,600 in June and that schools wishing to expand faced regulation by 14 government entities. The study recommends that the government establish a "one-stop shop" for fast-tracking expansions.

The result is a booming market in debentures, which are like bonds issued by the school to raise money, giving holders preferential access. In recent years their price has shot above $100,000 for top placements in Hong Kong. The Amcham report's appendices include a letter from one U.S. expatriate who, failing to find a school for his son and daughter, moved his family to Guangzhou, where spots at the American School were open. In Singapore's case, the biggest issue is real estate. Citywide, foreigners purchased 27 percent of all private residences sold in the first quarter of 2007 and some 60 percent of those on offer at luxury developments in the Marina Bay and Orchard districts. Analysts say most of these were obtained as investments. Rents have even become a diplomatic issue. According to one European ambassador (who spoke to NEWSWEEK on condition that he not be specifically identified), "We are approaching a situation where embassy rents are no longer affordable for even the bigger countries." In one private study circulated among diplomats, rents in the downtown area that foreign missions are permitted to inhabit were shown to have tripled. "We're forced to either pay or close shop," the diplomat said. Several embassies are now considering downsizing their presence in the city-state for budgetary reasons.

Indeed, numerous commercial and residential tenants in both hubs have begun to flee districts where rents have grown too dear. In Hong Kong, companies that negotiated sweetheart commercial leases in the Central District back in 2003-04 are now leaving due to massive increases imposed on renewal and the lowest vacancy rates in two decades. In one dramatic shift, Morgan Stanley has reportedly taken options on 18 floors in the yet-to-be-finished International Commerce Center on the Kowloon side of Victoria Harbor. It and other projects have expanded the financial district beyond Hong Kong Island into territory once best known for its tourist shops and working-class housing estates.

Of course, the hardest hit aren't bankers or ambassadors, but regular people. Average Singaporeans, the majority of whom live in government-built apartments purchased at a discount, are rankled by rising sales and prices of luxury flats, which make it harder for them to afford to upgrade. In Hong Kong recently, the plight of a foreign teacher hired on a government program to teach English in local classrooms sparked a debate on the letters pages when he wrote in to say that he felt compelled to leave because he couldn't afford to send his own children to international school. Singaporean newspapers have mulled the trials of 37-year-old IT consultant Yogesh Powale, who arrived from India last year with a monthly salary of $2,650 but couldn't afford to live in the city with his wife and daughter. His solution: send the family home and rent a small room for himself.

All this raises the question of whether "second cities" in Asia will soon begin drawing people--and business--from the bigger hubs. Rents in Kuala Lumpur are comparatively affordable (a five-bedroom house in the city costs less per month than a top-end bachelor pad in Hong Kong). Taipei is gaining a reputation as a city friendly to middle-income expats with families. And Bangkok--despite its political tumult--has the potential to become a regional logistics center. One obvious hub-in-waiting is Shanghai, which has the advantage of being located inside the most highly coveted new market. Greened up and deregulated, allowing people to come and go as effortlessly as they can in Hong Kong, Shanghai would be extremely attractive.

Although the shift won't happen in a dramatic way any time soon, the potential competition has leaders in both Singapore and Hong Kong taking countermeasures. The Hong Kong government recently released two decommissioned local schools for use by international counterparts from Germany and Singapore. Meanwhile, Singapore last week raised taxes on land development to slow a speculative redevelopment boom.

But the most likely end to the hubbub will be an outside shock. It's worth remembering that during the SARS epidemic four years ago, rents plummeted after an expatriate exodus. Weighted as they are toward finance, both cities are vulnerable to regional market movements, particularly a downturn in China, where the economy has expanded at a double-digit pace for the past five years. Whatever the cause, boom-bust cycles are, truth be told, the norm in both of Asia's hot hubs. But that's scant comfort for anyone looking for a flat or a homeroom in this summer's dog days.

Middle-class housing sales brighten sentiment
5 September 2007
South China Morning Post

Homebuyers are regaining their confidence in the housing market following a rebound in transaction volumes in middle-class housing estates in the secondary market, according to property agents.

Buying sentiment was also boosted by the sale of a special unit at Grand Waterfront in To Kwa Wan at a record high for the area.

The average prices of the key 50 housing estates monitored by Ricacorp Properties rose 0.6 per cent to HK$4,087 per square foot last week from HK$4,063 per square foot a week earlier.

The growth was due to an increase in transactions in key middle-class housing estates, while property prices remained flat.

Transactions in middle-class housing estates rebounded last week. Taikoo Shing in Quarry Bay is one of the major middle-class housing estates on Hong Kong Island. Last week, the housing estate recorded 23 transactions with an average price of HK$6,023 per square foot, up 130 per cent from 10 transactions a week ago.

Grand Promenade in Sai Wan Ho also recorded seven transactions last week, increasing 133 per cent from three transactions in the previous week.

According to Ricacorp Properties' research, transactions in the key 50 housing estates jumped 18 per cent to 304 units from 257 units.

In the past few weeks, transactions in low-end housing estates in the New Territories were the most active. However, the situation turned around last week. The key estates on Hong Kong Island and Kowloon jumped 37 per cent and 30 per cent to 70 and 136 transactions, respectively.

Property sales in the New Territories dropped to 98 units last week.

Shih Wing-ching, the chairman of Centaline (Holdings), said: "Transactions in the secondary market would drop significantly once a new project in the same area is launched in the market. But the property sales in the New Territories only dropped 3 per cent after the sales at Central Park Towers in Tin Shui Wai."

It showed that the demand for residential property was strong, he said.

In the primary market, property agents said there were about 340 transactions, mainly from Central Park Towers and the remaining units in Grand Waterfront.

A 1,662 square foot unit at Grand Waterfront, which sold for HK$22.93 million or HK$13,800 per square foot, hit the record high for property prices in the area.

Mr Shih expects transactions in the secondary market will continue to rise, as the demand for residential units is strong.

Deals exceed 11,000 for six months in a row, but some analysts are not so optimistic
SCMP, Property, 17 Sep

Predicitions that Hong Kong's mass housing market is poised for another bull run are gaining strength as sales surged against a background of falling new supply and steady growth in the economy.
Monthly transaction volumes in both the primary and secondary markets have exceeded 11,000 deals for six months in a row - the first time this has happened in 10 years.
And with the ratio of secondary market sales in the transaction picture steadily rising, the bulls say the market is gaining sufficient momentum to trigger a V-shaped rebound in capital values they now forecast will gro 10 per cent in the fourth quarter, and a further 10 to 20 per cent next year.
However, not everyone is quite so optimistic. Some property consultants say the surge in sales volumes does not necessarily imply a similar strong growth in capital values, arguing that today's buyers are more rational after the 1997 market crash.
Having recovered from the crash during the 1997-98 Asian financial crisis, the residential property market went into another tailsopin as a result of Sars. But having ridden a roller coaster, prices have now grown steadily for two years.
Patrick Chow Moon-kit, a research manager at Ricacorp Properties, sees more upside ahead. "We will see a strong bull run this time, on the back of a number of favourable factors, " he said.
Chief among the favourable factors, agents say, are a steady economic growth rate of more than 5 per cent and an improving job market, with the unemployment rate falling to a nine-year low of 4.1 per cent.
As a result, property transactions rose last month to a two-year high of 13,664, a rise of 23 per cent from July.
Alva To, the head of consultancy of DTZ's North Asia division, said slaes volumes were likely to remain at these high levels. "We expect September's activity will remain at a high level of about 12,500 with tihrid-quarter transactions reaching 37,694, posting a year-on-year increase of 39.4 per cent and making it the highest thrid quarter in the past 10 years," he said.
The August figure was also the sixth consecutive month that sales volume exceeded 11,000, suggesting a booming economy had spurred people's buying power and fuelled a growing interest in buying a home, Mr To said.
Another positive indicator, say optimists, is the growing share of transactions in the secondary market and is seen as an indicator of real buying force.
"The ratio between first-hand and second-hand properties has been widening and it is quite similar to the previous patterns," Mr Chow said.
In 1997, second-hand homes accounted for 87.4 per cent of the 166,982 property deals. The ratio fell to 62.8 per cent of the 84,439 transactions in 1998 as developers offloaded their stock by undercutting secondary prices. After years of clawing back its share, the ratio of second-hand home transactions fell back to 62.9 per cent in 2004 when the SARS broke out.
But in the first eight monthhs fo this year, the ratio grew back to 86.6%, taking into account that primary property sales volume was sustained at an average of more than 1,200 deals in the same period.
"When interest rates start falling and inflation sees a faster pace of growth, that will lure more buyers to go into the market, triggering the start of a bull run in the sector," Mr Chow said.
Fredy Wu, the chief executive of Hong Kong Property, said he was optimistic about the market outlook.
"In 1997 more than 70% of the buyers were speculators. Today they represent perhaps 30%" Mr Wu said.
Nicholas Brooke, the chairman of Professional Proerty Services, also takes a cautious approach.
"I think while the volumes in the mass market indicate increased activity, this is taking place in the case of the primary market at values which show little uplift," Mr Brooke said.
"In the case of the secondary market, deals are being done at prices which reflect in many cases a much more realistic attitude on the part of vendors."
According to Mr Brooke, more upgaraders are coming to the market as an opportunity to negotiate for better terms.
"I do not see this in any way as the start of a bull run." he said.
On the other hand, the luxury sector prehaps presents a completely different story. In the first seven months of this year, there were 47 luxury residential transactions recorded last year, more than the 39 transactions recorded last year, according to DTZ. In terms of values, the transactions increased threefold from a year ago to HK$12.52 billion.

Home Sales
Year, First Hand, Second Hand, Second-hand as % of total
Year 1997: 21123, 145859, 87.4%
Year 1998: 31398, 53041, 62.8%
Year 1999: 21997, 58239, 72.6%
Year 2000: 16379, 50767, 75.6%
Year 2001: 20563, 50983, 71.3%
Year 2002: 26489, 48095, 54.5%
Year 2003: 27378, 46131, 62.8%
Year 2004: 25874, 76668, 74.8%
Year 2005: 15071, 88337, 85.4%
Year 2006: 12158, 70209, 85.2%
Year 2007: 9955, 64095, 86.6% YTD August
Source: Midland Realty
[B][NB Extrapolating for 2007, primary sales of 15k will be similar to 2005 level, but secondary possibly 100k, highest since 1997 and almost 50% higher than last year]

Completed units in private domestic sector (graph)
1991-1999: Average of 26,216 with highest at 35320 units in 1999 (nb 1997 was lowest at approx 17.5k)
2000-2008*Forecast: Average of 12,740 with highest at just over 30k in 2002, lowest at 12740 in 2007, forecast of approx 15k in 2008.
[NB shows supply in 2004-8 lower than anytime in 1991-2008 range, with 1997 by far the lowest at 1/3 the high in 1999]
Source: DTZ Research

AFX News Limited
Hong Kong govt sells Tai Po site for 4.55 bln hkd; in line with market forecasts
09.17.07, 4:56 AM ET

HONG KONG (Thomson Financial) - The Hong Kong government on Monday sold a 238,164-square foot residential plot in New Territories for 4.55 billion Hong Kong dollars, or 48 percent more than the lot's floor price, highlighting increased demand for luxury housing locations.

Analysts had expected the Tai Po Site in New Territories to fetch as much as 4.6 billion dollars, against a minimum guaranteed bid of 3.08 billion.

The waterfront site is expected to be developed into a low density, high-end residential project.

Expected sale price to be 10k/square foot for waterfront views, but in Tai Po .. quite expensive for its far location.

The site is in Pak Shek Kok and not quite in Tai Po yet. It's more south the Science Park just next to Tolo Higway.

If the new buildings are going to be single family houses, it will be sure more than $10 per sq ft. If not, it may be cheaper.

http://www.mingpaonews.com/20070918/18ga201.gif
Parcel B was the one got sold yesterday. Parcel A and C were sold to the same group of developers earlier this year. So, all three parcels are expected to be developed together at one piece.

Parcel D is not yet sold to anyone.

Orange parcel is to be recreational area. Purple parcel is Science Park Phase II and III.

HK office market faces double hit
Subprime pain, abundant supply likely to affect rental segment, consultants warn
19 September 2007
South China Morning Post

Hong Kong's robust office rental market could take a delayed double hit from an Asian fallout from the United States subprime mortgage debacle and an abundance of new supply coming on to the market in decentralised areas, property consultants warn.

"On the surface, it still appears to be a calm sea. But there could be a swirling current beneath," said a consultant who asked not to be named.

"There are already noises in the market that some investment banks will consider holding off their expansion plans in Hong Kong or Asia, even though they have not taken any action so far."

Demand for grade A office space in Hong Kong has long been driven by the needs of finance, insurance, real estate and other professional services tenants, with hedge funds and investment banks being the principal sources of expansion amid the boom that got under way in the equities market last year.

As head-counts in the financial sector jumped, demand for extra space drove office rents in Central to fresh highs, reaching a record of more than HK$160 per square foot.

In the first half of this year, office rents in Hong Kong rose 19 per cent, on top of a 27.8 per cent increase last year, said Alva To, the head of consultancy at DTZ's North Asia division.

That supercharged performance has raised concerns among some analysts that rents may have overrisen and are now ripe for a correction in the risk-averse market that has developed from the subprime credit concern.

Simon Lo, the head of Colliers International's research department, said: "There is no evidence yet that the market has been affected by the subprime debacle.

"But history teaches us that such global issues will affect the ups and downs of the financial sector. And that may eventually affect the demand for office space.

"This is an issue of leverage. The number of new funds expands rapidly as firms get high leverage from banks.

"But the question is, when banks begin to put a squeeze on credit, will the funds' expansion contract?"

Nicholas Brooke, the chairman of Professional Property Services, said: "On the office front, I think there could be some pain as most of the financial institutions appear to be caught up one way or another in the subprime debacle.

"However, I sense that many are going to want to draw attention away from that involvement and will want to create stories of growth, success and activity, and where better to counter any negative publicity than here in Asia?"

Savills, CB Richard Ellis and DTZ all agreed that the subprime issue could affect the demand for office space in Hong Kong.

However, they said it was impossible to quantify the impact. While a clearer picture was likely to emerge next year, the immediate outlook appeared to be good, they said.

Chris Marriott, Savills commercial leasing senior director, said if the subprime issue was to have an impact, it would not be immediate. "The whole Asian office market, including Hong Kong, will be robust over the next 12 months," he said, citing continued strong demand.

Mr Lo, however, said in the medium term, office rents in Hong Kong could reach a cyclical peak.

"From now until the middle of next year, we will witness a turning point. The market must be softening," he said.

On the demand side, potential tenants had begun to resist the rapid rent escalations of the past few years, and on the supply side, a large stock of office space in decentralised areas would slow the market's growth, consultants said.

According to Jones Lang LaSalle, more than 4.4 million sq ft of office space will be available in the market, including 900,000 sq ft at phase one of the 118-storey International Commerce Centre in West Kowloon. What will be Hong Kong's tallest building has attracted key investment banking tenants.

Last month, Morgan Stanley announced that it would move to ICC from Exchange Square in Central by the end of next year. Other investment banks such as Deutsche Bank and Credit Suisse are in talks with Sun Hung Kai Properties on leasing floors in the building.

0917 [Dow Jones] Midland (1200.HK) may rise 2-3% amid likely broad market strength, also helped by HK Economic Times report quoting Land Registry data as saying 3Q (up to Sep. 27) property transactions at 34,022; for first 3 quarters, total deals +40% on-year at 97,991, near 2006's full-year level. Adds, estate agents expect full-year transaction to hit 140,000, highest since 1998, underpinned by wealth effect from soaring stock market, mainlanders buying HK flats, negative interest rate, upgrading demand. Midland earnings highly geared to local property market strength; it last month posted 6.2X jump in 1H07 net profit to HK$230 million; stock +20% since interim results, but more upside likely if property market stays buoyant, especially on hopes of more U.S., thus HK rate cuts.(RLI) Contact us in Hong Kong. 852 2802 7002; MarketTalk@dowjones.com

The Standard, Victor Cheung and Stephanie Tong

Two residential sites were sold at auction yesterday at more than double their opening prices following fierce bidding which far exceeded market expectations.
A consortium consisting of Sino Land (0083), K Wah International (0173) and Nan Fung Properties secured the 69,822-square-foot plot on Welfare Road in Aberdeen for HK$5.71 billion.

This was almost 130 percent above the opening bid of HK$2.5 billion.

Facing Shum Wan yacht pier and the Aberdeen Channel, the site has up to 646,220 sq ft of floor area.

That translates to an accommodation value of HK$8,836 per sq ft - a record high for Island sites compared with traditional luxury areas of the Peak and South Bay.

Analysts had expected the site to be sold for HK$3.46 billion to HK$4.4 billion. The high auction price indicated the tight supply of luxury sites, they said.

"The supply on the Island side is extremely scarce and the site has excellent seaviews which can be developed into a large-scale luxury project," said Savills Valuation and Professional Services managing director Charles Chan Chiu-kwok.

Knight Frank executive director Alnwick Chan Chi-hing said: "The aggressive bids are also due to the expectation of the South Island MTR line being built by 2011, which will greatly improve the traffic condition in the southern district."

The only land on Hong Kong Island to be sold this financial year attracted 85 bids from 15 paddles.

All major developers including Sun Hung Kai Properties (0016), Cheung Kong (Holdings) (0001), Henderson Land Development (0012), New World Development (0017) and Swire Pacific (0019) took part in the bidding.

The site "attracted strong interest and bidding sentiment is strong," said auctioneer Graham Ross.

Donald Choi Wun-hing, managing director of Nan Fung, which has 30 percent interest in the project, said: "We think the transaction price is very reasonable as we are extremely optimistic in the luxury residential market of Hong Kong."

Sino Land (0083) and K Wah (0173) hold a 35 percent stake each in the development.

The other plot auctioned yesterday is located in Cheung Sha in southern Lantau Island.

The plot went to Sino Land for HK$482 million, 92.8 percent higher than the reserve price and exceeded market expectations of HK$260 million to HK$300 million. It is earmarked for a luxury project.

Flat prices to rise amid strong sales
Hong Kong Standard
Monday, October 22, 2007

Property agents said selling prices are set to rise five to 10 percent in the next two months as weekend primary market deals indicate strong buying sentiment.

Long Beach in West Kowloon, a project by Hang Lung Properties (0101), sold about 80 flats yesterday, boosting the total sold to about 350, at prices between HK$6,900 per square foot and HK$8,200 psf.

Executive director Terry Ng Sze-yuen said Hang Lung is likely to achieve its sales target of up to 500 units earlier than expected.

Hang Lung's success comes as availability of new flats start to dry up.

Market sources said Chinese Estates Holdings' (0127) The Zenith in Wan Chai sold about 43 units in the past three days, leaving about 20 unsold. Prices were from HK$7,600 to HK$8,200 psf.

Henderson Land Development (0012) sold 18 units at Grand Waterfront in To Kwa Wan for HK$7,000 psf, leaving about 100 units unsold.

New World Development (0017) sold 10 units at Prince Ritz in Prince Edward Road West for HK$6,000 psf. Less than 40 units remain unsold.

Agents said primary-market deals in the past three days were up by 20 percent.

"In the fourth quarter, luxury home sales will be the best performer," Centaline Surveyors managing director Victor Lai Kin-fai said.

Lai said rising luxury sales would be a catalyst for prices of "all kinds of properties, especially that of traditional large-scale residential projects." He said average prices will rise by "at least 10 percent."

Midland Realty executive director Vincent Chan Kwan-hing, who expects increases of 5 percent to 10 percent, said. "Some developers have set a rather high selling price for existing new residential projects, leaving little room for prices to surge."

Sky-high rentals make
Central a tight squeeze Huge demand and low supply are driving up prices as cost-conscious companies turn to non-core districts for space
31 October 2007
South China Morning Post

The booming financial sector and sustained economic growth have fuelled business expansion from local and multinational companies, driving up office rents.

Mark Bernard, executive director of commercial agency Knight Frank, said strong demand from companies in the financial sector had absorbed most of the available prime office space this year.

He said Hong Kong commanded the second highest office rents in the world after London's West End, and this trend was expected to continue as Hong Kong benefited from the mainland's economic boom.

Investment banks and financial institutions have mainly contributed to the take-up of prime office space in Central where vacancy rates are low at 1.8 per cent, according to Knight Frank.

Rents range from an average of HK$90 per sqft a month for traditional grade-A office space to an average of HK$150 per sq ft a month for premium grade-A space in the district. Prime buildings, such as Chater House, AIG Tower, Two IFC and Cheung Kong Center, command the highest rents in the city.

Mr Bernard said with supply scarce, smaller pockets of space that became available in Central were quickly being taken up by the increasing number of new hedge funds setting up office in Hong Kong. For instance, The Blackstone Group recently relocated from One IFC to Two IFC and took up additional space there.

Lee Wee-liat, head of research for Greater China at Jones Lang LaSalle, said overall grade-A office rents in Hong Kong had increased by about 12.4 per cent in the first nine months of this year.

Those in Central outperformed the market and grew by 21.2 per cent.

He estimated that companies had absorbed more than 2million sqft of office space so far this year for their expansion and consolidation requirements, which already exceeded the average take-up of 1.6million to 2million sq ft a year over the past few years.

He forecast that the number of new offices will increase significantly next year which may create pressure on office rents, particularly those in non-core business districts.

But office rents in Central should remain firm thanks to the tight supply within the core business district, and should be least affected by the increase in new office completions elsewhere across the city, he said.

Peter Chan Suk-chung, director of the commercial department at Centaline Property Agency, said the increasing number of newly incorporated companies in Hong Kong also boosted demand for office space, especially prime properties in Central and the surrounding areas such as Sheung Wan and Wan Chai.

"There is basically no supply of new office buildings coming on stream in Central. At the same time, several old properties, such as the Luk Hoi Tong Building, are going to be pulled down for redevelopment. This will further strain the stock of office properties available for lease there," he said.

However, the trend of decentralisation was picking up pace as cost-conscious companies, and those looking for larger floor space, turned their attention to new office buildings in non-core districts such as Quarry Bay, Kwun Tong and Kowloon Bay, he said.

"New office buildings are springing up in decentralised locations such as Kwun Tong and Kowloon Bay.

"The building specifications and facilities of these intelligent office towers are often better than many existing grade-A buildings in core areas and their landlords are offering competitive leasing packages to draw tenants," Mr Chan said.

Mr Bernard said office space was so tight that financial institutions in Central were looking at opportunities outside of the traditional business district for the expansion of their operations. A prime example of this was Morgan Stanley's recent deal to lease up 10 floors at the International Commerce Centre (ICC), which is under construction in Kowloon Station.

DBS Bank was also committed to relocating its operations to One Island East in Quarry Bay, taking up around 220,000 sq ft of space in the new building.

"Another trend we have seen is that companies outside of the banking and financial industries are looking at space outside of Central not only due to expansion needs but as a result of stratospheric rents in the district. Not every tenant has the means or is willing to pay high market rents in Central," Mr Bernard said.

"In fact, tenants who leased space in 2004 and 2005 with upcoming rent reviews are faced with markets rents that are close to double what they are currently paying.

"This has resulted in some tenants relocating out of the core Central area to reduce exposure to high rental costs."

He said some companies were not only relocating out of Central but also from other districts on Hong Kong Island such as Wan Chai, Causeway Bay and Island East. While rents in these districts averaged about 40 per cent to 70 per cent lower than in Central, companies operating there came from industries as diverse as accounting, advertising, trading and the like. They tended to be more cost sensitive compared to banks and other financial institutions.

"While rents are not as high as in Central, the comparative rate of growth in rents has also been significant and has more than doubled since 2004," he said.

Housing Authority sets rents for eight new estates
Saturday, November 3, 2007
Government Press Release

The following is issued on behalf of the Housing Authority:

The rents for about 20,000 public rental housing (PRH) flats in the Housing Authority's (HA) eight new estates scheduled for completion in early 2008 will be fixed based on the reduced district best rent levels.

The reduced district best rent levels, which were endorsed by the authority's Subsidised Housing Committee, were in line with the authority's earlier decision to apply an across-the-board rent reduction for all existing PRH estates in August, a spokesman for the HA said today (November 3).

Following the passage of the Housing (Amendment) Ordinance 2007 on June 13, which enables the establishment of a new income-based rent adjustment mechanism, the Housing Authority adopted a uniform rate of 11.6% rent reduction in accordance with the extent of changes in the public rental household income index since 1997 as a starting point for the new mechanism to operate effectively and fairly. Correspondingly, the district best rents for newly completed PRH estates would also be reduced by 11.6%.

The reduced inclusive best rent at $56 per square metre per month for flats in urban district would apply to the 716 Non-standard flats at Oi Tung Estate Phase 5, 3,995 New Harmony flats at Choi Ying Estate Phases 1 & 2, 1,598 Non-standard flats at Yau Lai Estate Phase 3, 3,196 New Harmony flats at Un Chau Estate Phase 2 and 337 Converted Housing for Senior Citizens flats at Un Chau Estate Phase 4.

The rent for the 1,598 New Harmony flats and 385 Annex Block flats at Kwai Chung Estate, Kwai Chung and 2,333 Non-standard flats at Mei Tin Estate Phase 3, Sha Tin, will be $54.10 per square metre per month.

The 1,598 New Harmony flats at Ching Ho Estate Phase 2, Fanling, will be $39.60 per square metre per month. The 3,836 Non-standard flats at Tin Ching Estate Phases 1 & 2, Tin Shui Wai will be $37.30 per square metre per month. (See table for the rents for the eight new estates.)

"Under this rent fixing exercise, more than 83% of the flats are set at a rent level below $1,800 per month," the spokesman said, adding that public housing rents, inclusive of rates, management and maintenance costs, were heavily subsidised.

The spokesman said that the first rent review cycle for these new estates would tie in with the review cycle of the entire PRH stock to be conducted in January, 2010.

Noting that the rent levels were within the prospective tenants' affordability, the spokesman said that low-income households who could not afford the rents of the new flats would be offered refurbished flats in older estates where they could immediately apply for the Rent Assistance Scheme.

The spokesman explained that rents of new estates were fixed according to the best rent of each district which was determined having regard to the location and value of the estate concerned.

"Given the staggered completion of new PRH estates, we will continue conducting two rent fixing exercises each year for new estates," the spokesman said.

Land is to Hong Kong what oil is to a Gulf state


Money is behind the absence of discontent and lack of political argument since the handover

Ian Jack
Saturday November 10, 2007
The Guardian

Having breakfast at my hotel in Hong Kong, 60 floors up, I looked down over the harbour and counted the ships. Two dozen of them were moving, bow waves and wakes creasing the narrows between Hong Kong island and Kowloon: ferries, tugs, barges, and a couple of Star Line liners returning through the mist from the overnight casino cruises that allow passengers to gamble legally outside Hong Kong's territorial waters. More ships were at anchor, awaiting their place at the container wharves. Hong Kong is no longer the world's busiest port - that position is held by Singapore, and both ports will soon be overtaken by Shenzhen and Shanghai - but 500 ships still call here every week, mainly to load the machine-made products of Guangdong, the province in southern China that has become the factory to the world.

A hundred years ago the Thames was as crowded and just as befogged: in Hong Kong, the carbon emissions from those Guangdong factories and power stations drift south and east, so that for nearly a fifth of the annual daylight hours one side of Hong Kong harbour, which takes seven minutes to cross by ferry, is invisible to the other. But it was not Conrad's river that I thought about when I glanced at the newspapers and studied the view. At breakfast I thought about Detroit. On Wednesday General Motors reported a loss of $39bn (£19bn), among the biggest ever for a multinational company, while British Airways announced that after 50 years of service it would stop flying to the city that was once the automotive trade's world capital and the sixth (by some estimates, the fourth) largest city in the US. Ford is said to be on the verge of bankruptcy, more than 320,000 workers have lost their jobs in American vehicle and auto-parts manufacturing in the past seven years.

Detroit is a ruin to equal Grozny or Machu Picchu. From the air, you see a huddle of old skyscrapers surrounded by many acres of scrubland where the inner suburbs once stood. On the ground, the streets of downtown Detroit - represented aerially by the huddle of skyscrapers - are almost empty of cars and people. The abandoned railroad terminus rises in six storeys from an open plain of vacant lots. When I went there three years ago to see Diego Rivera's famous murals of car-making in the Detroit Institute of Arts, an old man approached me on the gallery steps to ask where I was from, lone strangers being so unusual as to be welcomed.

Exemplifying the change in the world's balance of power by contrasting the fortunes of Detroit and Hong Kong is too crude a trick. Still, reading reports from the western world in Hong Kong is rather like hearing about a bitter winter from the vantage point of a warm spring. This week Alibaba.com, a website connecting China's entrepreneurs to buyers and sellers in the rest of the world, raised $1.5bn in its first public offering on the Hong Kong exchange, while, thanks to feverish share-buying in Shanghai, the worth of PetroChina rose to more than a trillion dollars, the highest market capitalisation of any company in history. General Motors' loss equalled Bulgaria's gross domestic product; PetroChina's market value briefly (the shares went down) equalled the worth of all shares tradeable on the Russian stock exchange.

The soundtrack to the harbour view is the noise of tower blocks being built, often on land reclaimed from the sea. The harbour has shrunk and goes on shrinking, and Hong Kong has exported most of its factories to Guangdong. What Hong Kong does more than ever is money. Turn away from the harbour and towards Hong Kong island's high ridge: the power of money rises vertically in tower after tower, sometimes topped off, retro-style, in simple versions of the Chrysler or Empire State buildings.

Lost at the feet of these money towers is a domed building from the British era, passed on the street beside it by double-deck trams of the same vintage. This is the chamber of Hong Kong's legislative council, which Chris Patten did his best to democratise in his time as the colony's last governor. Ten years ago, the fear was that Beijing would trample all over it. In fact, the handover's "one country, two systems" solution has persisted. A proportion of the council is directly elected by public vote and Beijing has promised that the chief executive will be elected by universal suffrage from 2012. How strong, meanwhile, is the demand for democracy or the perception of Beijing oppression?

A council by-election is scheduled to take place on December 2 and on Thursday I went to an election meeting at Hong Kong University's main hall. Eight candidates sat in a line across the stage, but only two of them really mattered. This is a contest between two women, Anson Chan and Regina Ip, both of them former senior civil servants in the British colonial administration (Chan was Patten's chief secretary). They represent the argument between "democracy" (Chan) and "good governance" (Ip), which is to say between government by the popular Hong Kong vote and government according to the wishes of the Communist leadership in Beijing. Ip is seen as Beijing's placewoman; Chan is the socially grander of the two and tried to have the meeting conducted in English rather than Cantonese.

The hall was packed with students and television crews. The sparring between the two women was often applauded, though the level of discourse would strike anyone from Britain or the US as polite and brief. And it may be a mark of the absence of open argument in Hong Kong that the next day's front page headline in the South China Morning Post ran "Ip, Chan go head to head in rough-and-tumble debate".

Opinion polls have Chan and Ip running neck-and-neck, which suggests that "democracy" (and therefore Beijing disapproval) is not a popular cause. There may be historical reasons for that. Christine Loh, who runs Civic Exchange, a thinktank that produces lively insights and information on Hong Kong's politics and environment, says that a characteristic of former colonies is that they're accustomed to the idea that policy is decided elsewhere. "Our bureaucratic structures are there to implement rather than make policy. We're used to commenting on policy, even criticizing policy, but we don't have a tradition of competing ideas.'

But the larger reason for content is surely money. By no means is everyone rich in Hong Kong. Nearly half of the population lives in public housing, and the people who shop in the many outlets of Armani, Vuitton and Marc Jacobs have often crossed from mainland China and places such as Dongguan, where this week Tony Blair was paid his $500,000 for speechifying at a new development of luxury villas. (Bill Clinton got only half that for a speech in Shenzhen five years ago: the "progress of capitalism" marches on in China and no mistake.) Every Hong Kong citizen, however, shares standards of public transport, schools, hospitals and general civic efficiency that would be unusual in mainland China.

How does the government raise the money? Not from income tax with a marginal rate set to fall from 16% to 15%. The answer is land. Turn away from the sea view again and look down from another window at the white-painted cathedral of St John's. It sits on the only freehold plot in Hong Kong. The Crown claimed the rest of the colony, and now the government of the Special Administrative Region owns it, taking great dollops of leasehold rent and premiums from developers. Land is to Hong Kong what oil is to a Gulf state, which is why piles are being driven into the seashore and so much of the harbour has vanished. The revenues have sustained a long outbreak of peace.

Financial Times forsakes view to save on soaring IFC rents
8 November 2007
South China Morning Post

The Financial Times is moving out, over and up.

Next month, the FT will say goodbye to the splendid harbour view from the 29th floor of Two International Finance Centre as the pink paper's Asia headquarters relocates two blocks west and 30 stories up - to the 59th floor of The Centre - a week before Christmas.

The venerable British daily's cushy waterfront digs were always borrowed space on borrowed time. When the paper expanded to launch its Asia edition during a Sars-plagued 2003, it managed to bargain down rent at the newly opened IFC II to as low as HK$30 per square foot. But over the past four years, rents at the tower have skyrocketed to top HK$160 per square foot.

Moving two streets away is one small step for the newspaper and one giant leap for its bean counters. Property agents reckon gross rents at Cheung Kong's The Centre are about HK$40 per square foot which isn't bad for Central (even though it's closer to Sheung Wan).

With rents in the core financial district continuing to climb, it appears only the richest of media companies will be able to hang on. Perhaps it is only a coincidence but tycoon Li Ka-shing appears to be the only developer offering news organisations shelter from certain banishment to Island East (home to this newspaper, Reuters, Ming Pao, the Hong Kong Economic Times and the Hong Kong Economic Journal) or Kowloon.

Unless you work at Bloomberg, which remains ensconced in the swanky setting of Mr Li's Cheung Kong Centre, the slog to the FCC after work just keeps getting longer.

The Standard
Victor Cheung

Thursday, November 29, 2007

Foreign funds have always been active players in Hong Kong's property market, but recently they have changed their appetite to hunt for upscale or even mid- tier housing estates rather than traditional luxury units in Island South and The Peak.
South Korean fund Mirae Asset started the ball rolling in mid-October, when it paid HK$1.85 billion for one block of Bel-Air No 8, the last phase of the residential project of Cyberport in Pok Fu Lam, held by Richard Li Tzar-kai's PCCW (0008).

The purchase of 102 apartments works out at about HK$12,500 per square foot, a 16.6 percent discount on the target selling price of developer Pacific Century Premium Development (0432), the property arm of the local telecom giant.

Since then, more foreign funds have joined in the buying frenzy, especially as more new projects are released. Their interest is not confined to flats on Hong Kong Island, but also mid-tier projects in less favorable areas.

A US-based fund bought 42 units of The Long Beach in Tai Kok Tsui from Hang Lung Properties (0101) for HK$400 million, according to media reports. Henderson Land Development (0012), meanwhile, gained HK$500 million by selling 96 units in The Sparkle to the same fund. The Sparkle is located in Cheung Sha Wan, an old industrial district in Kowloon.

Simon Lo Wing-fai, research and consultancy director at property consultant Colliers International, said the institutions' interest in the property market is tied to rental levels.

Quality e
states are attractive as overall rents have risen sharply. "Rents have picked up at a higher-than-expected speed," Lo noted. Rising inflation and decreasing mortgage rates translate into low financing cost, which is boosting demand, he said, adding that though the leasing market for luxury units has grown, those stately homes are "simply out of stock."

He said: "Funds are switching to the mass market because the yield is still good."

Property agents said the traditional luxury market is changing as top homes are increasingly being snapped up by the Chinese new rich, who are pushing prices to the limit.

Alibaba.com's (1688) Jack Ma Yun spent HK$300 million for a penthouse duplex in the Mid-Levels. The price tag set a record as the most expensive apartment in Asia.

Hang Lung Properties chairman Ronnie Chan Chi-chung said liquidity has been accumulating in nontraditional economies, such as Middle East, because high oil prices are driving up the trading surplus. "But there are few investment opportunities there so they go elsewhere."

Tony Tse Wai-chuen, general manager for sales at Henderson Land, said institutional investors choose Hong Kong as they are optimistic about Asia. They are worried about buying US homes because of the subprime crisis, while growth in the UK market has been slowing down after years of thriving on foreign investment.

"Funds will commit to real estate in Hong Kong because of its political and economic stability, and it being a gateway to China," Tse said.

The sustained weak trend of the US dollar, and thus, the Hong Kong currency too, is also causing the city's homes to become cheaper. Financial institutions prefer to buy whole blocks. When supply is short, as in today's market, they choose new apartments. Chan said unlike investing in stocks, institutions will not easily pull out when the market turns around. "It's difficult to sell dozens of flats at one go."

Tse said these investors usually do not speculate but hold the investment medium to long term, say for three to five years. He believes the phenomenon will continue as long as fundamentals for the Hong Kong property market remains strong. Henderson is in talks with more than one institution interested in buying the whole of the high-rise City 18 in Jordan, which consists of 94 units mainly of 372 sq ft to 647 sq ft.

Is it visible any sign of distress on global markets on HK property market?

http://www.theaustralian.news.com.au/story/0,25197,23209297-25658,00.html

Hong Kong market becomes even hotter
Jonathan Cheng | February 14, 2008
FOR months, Fion Lau, a 25-year-old marketing assistant, and her boyfriend have been eyeing a small apartment in Hong Kong. With property prices climbing at double-digit percentage rates since last northern summer, she has held off buying, waiting for the market to cool.

It hasn't. But two weeks ago, the US Federal Reserve cut interest rates again, hoping to stimulate an economy dragged down by a housing sector in disarray. Hong Kong pegs its dollar to the US currency, so it followed the Fed's lead, knocking the city's base rate down twice in less than two weeks for a total of 1.25 percentage points.

The unintended result is that home loan rates are so cheap that they are throwing more fuel on a hot property market that looks set to get even hotter.

A typical mortgage here now carries interest of about 3.1 per cent. But compared with Hong Kong's inflation rate of about 3.8per cent, which now hovers at a more than nine-year high, that looks inviting, creating a so-called negative real interest rate.

For many potential home buyers in Hong Kong, mortgage payments are now effectively cheaper than rents, which are slower to adjust to rate changes.

Within hours of the Fed's latest rate cut, Lau was on the phone with the owner of the apartment, in the Kowloon district of Hong Kong, and signed a contract to buy it that night.

She says she plans to rent the flat out to tenants for two years to make money on the mortgage/rent spread and then may move in herself.

Real interest rates have been in negative territory before here in China's international finance hub. During the early 1990s, cheap home loans helped inflate a property bubble that set records before bursting with devastating effect during the Asian financial crisis of 1997-98. Prices have only now begun to touch those levels again and further gains could be on the cards.

Andrew Fung, head of investment and insurance for Hang Seng Bank in Hong Kong, calls the property market here one of two "certain investments" -- along with the appreciation of China's currency, the yuan -- in an uncertain economy.

Underlying the property buying enthusiasm are wage increases, unemployment near its record low and bank deposits growing at about 20 per cent a year.

Then there is the weakness of Hong Kong's dollar, which is tracking the US dollar's decline. Fung credits the cheap currency with making properties even more attractive to foreign private equity funds.

"A couple of years ago, lots of funds were pouring their money into Singapore's residential market, and now we're seeing them buying in Hong Kong," says Keith Yeung, a senior director and head of greater China property for Merrill Lynch in Hong Kong. Speculators from mainland China looking for new places to put their money are also pushing up the market, Yeung says.

Finally, new supply is tighter than ever before. According to property broker CB Richard Ellis, home prices in 2008 will rise another 20 per cent or so in both the luxury and mass markets. The number of new units in the luxury residential market fell from 1055 units in 2005 to 70 in 2007. In the mass residential market, new supply was down 44 per cent in 2007 from the year before to more than 8700 units.

That tight supply has already helped push prices for luxury properties up 38 per cent in the past year alone, with reports of eye-popping transactions grabbing headlines every few months last year. In November, one 7000 square foot penthouse apartment fetched $US36 million, or about $US5140 a square foot. A few months earlier, a luxury house on Hong Kong's Victoria Peak sold for $US27 million, or about $US5270 a square foot. Prices in the mass market rose quickly as well in 2007, though at a more modest rate of 14 per cent -- a sign, analysts say, that even more growth lies ahead.

Now, with inflation eating away at bank deposit returns and volatility hitting the stock market, interest rates are giving Hong Kong residents another incentive for putting their cash into real estate, a classic hedge against inflation.

"With so many favourable factors in place, the housing sector is likely to heat up further," says Gordon Tse, corporate development director at Midland Realty in Hong Kong, a big local brokerage firm. But, he adds, "exactly how hot it will get is difficult to predict".

Does that mean a bubble is in the offing? Analysts urge home buyers to be cautious because interest rates may continue to fall.

A bubble is "absolutely possible", says Nicholas Kwan, regional head of research for Standard Chartered Bank. If rates drop even more sharply in 2008, which Kwan says is possible, the market could at some point begin to overheat.

"But it's so hard to say where that point is," he says.

London most expensive location for office hire in 2007: survey

LONDON, Feb 14, 2008 (AFP) - The British capital was the most expensive place in the world for office rental in 2007, with central London beating competition from Hong Kong, Tokyo and Paris, a survey showed this week.

A report published Wednesday found that the most expensive office space in the capital cost about 2,227 euros (3,248 dollars) per square metre.

That was considerably higher than second place Hong Kong, parts of which cost as much as 1,745 euros per square metre.

In third place was Tokyo, with sought-after offices costing 1,536 euros per square metre.

The annual survey, produced by commercial real estate services firm Cushman & Wakefield, studied office hire costs at 203 locations across 58 countries.

Office rental in the top ten most expensive places have increased by about 40 percent in value in 2007, compared with the previous year, the survey found. London, meanwhile, was also the most expensive in 2006.

"Last year saw the fastest level of growth in office occupancy costs in many of the world's top locations since ... 2001, with the strongest demand coming from the financial sector," said Elaine Rossall at Cushman & Wakefield.

Looking ahead, she added: "We are unlikely to know the full effects of the current credit squeeze on the world's main office locations until further into 2008."

Top ten most expensive places to rent offices in 2007:

Rank City Country Occupancy cost (euros per square metre)

1 London Britain 2,277

2 Hong Kong China 1,745

3 Tokyo Japan 1,536

4 Mumbai India 1,214

5 Moscow Russia 1,160

6 Paris France 1,035

7 Singapore Singapore 954

8 Dubai UAE 921

9 Dublin Ireland 823

10 New York USA 733

Hong Kong has world's highest apartment rents: survey

SINGAPORE (AFP) — Hong Kong has the world's priciest apartment rents, with the lease for a three-bedroom unit costing more than 9,700 US dollars on average a month, a survey released Wednesday said.

Singapore, which positions itself as a Southeast Asian business hub, saw Asia's biggest year-on-year rental increase of more than 30 percent last year, the survey by human resources firm ECA International showed.

The survey covered 2007 and is based on lease prices for a three-bedroom apartment in popular expatriate areas, ECA International said.

Asian cities, led by Hong Kong, accounted for six out of the top 10 locations that have the world's most expensive rentals for three-bedroom apartments, it said.

Other Asian cities in the top 10 global list are Mumbai which ranked sixth, Seoul seventh, Singapore ninth, and Ho Chi Minh City 10th.

Monthly rentals in Asia were on average 3,820 dollars, well above the global level of 2,950 dollars, said ECA International.

Globally, Moscow ranked second, followed by New York City, Tokyo, and London in fifth spot, said ECA International.

"A robust economy and increased demand for high-end accommodation have been instrumental in driving rental prices up," said Lee Quane, ECA International's general manager in Hong Kong.

Hong Kong apartment rents of 9,734 dollars were more than double Asia's average and reflected the geographical advantage of the Chinese territory for foreign firms wanting to build a base in the region, ECA said.

"Particularly in the financial services industry, people are moving into Hong Kong so, in spite of its relative high cost, it still remains one of the prime locations for foreign companies to establish themselves," said Quane.

A three-bedroom apartment in Singapore rented for 4,460 dollars a month on average last year, compared with 3,364 in 2006, ECA said.

"The demand for high-end accommodation has risen, driving up rental prices, which can be partly explained by companies expanding their operations in Singapore together with government initiatives to attract skilled workers from overseas," said Quane.

At the same time, a number of factors limited the supply of property available in the city-state, he said.

Mumbai, India's financial hub, had the region's second-highest rental rise of 21 percent. A three-bedroom apartment there cost 5,991 dollars to lease, ECA said.

For other major Asian cities, Jakarta ranked 10th in Asia, Manila was 14th, Bangkok came in 15th followed by Kuala Lumpur in 16th spot.

According to the survey, Karachi is the cheapest city in the world to rent a three-bedroom apartment.

ECA says its annual survey of rentals compares lease prices in 92 global cities.

Office and luxury home markets boom
Despite recession jitters, analysts say strong demand and tight supply will boost sectors
23 April 2008
South China Morning Post

Despite concerns over the subprime mortgage crisis and a possible recession in the United States as well as an economic slowdown in Europe, property consultants remain bullish of the Hong Kong real estate market.

They point to record-breaking rental deals being clinched in the grade A office and luxury residential sectors to support their optimism.

Plans by some foreign real estate investment funds to quit their Hong Kong commercial property assets and take profit at current record rental levels may alter this positive take on the market.

However, analysts taking a positive view of the market said the first-quarter performance of the two sectors was far better than expected, thanks to surprisingly strong demand from multinational corporations and limited supply.

And with no change in either of these two positive drivers in sight, rentals were expected to rise further, they said.

"Earlier market expectations of a downturn in the office sector were overly pessimistic," said Gilbert Wan Pui-bun, an associate director of research at CB Richard Ellis. "Demand from financial institutions for expansion remains strong and the office supply is tight."

Grade A office rentals in Central continued to record double-digit growth in the first quarter, rising 14 per cent from the final quarter of last year, according to research by property consultancy Colliers International.

Simon Lo, a director at Colliers' research and consultancy department, said the sustained strong growth in Central office rents was due to limited supply.

Demand, meanwhile, saw the vacancy rate of Central offices drop to a historical low of 0.86 per cent by the end of last month from 1.4 per cent at the end of last year.

Mr Lo expects office rents in Central to rise a further 20 per cent by the end of this year if the global economy remains stable.

According to CB Richard Ellis, the average effective rents of grade A office space in Central rose 9.4 per cent to HK$124.05 per square foot in the first quarter. It expects rents in the prime location to rise a further 20 to 25 per cent in the next eight months.

Citing an example of that demand, a market source said Spain's BBVA Group had expanded from its 8,000 square foot office on the 33rd floor of Two IFC in Central to 22,000 sqft on the 43rd floor of the same building.

The source added that five private equity funds were looking for office space ranging from 3,000 sqft to 6,000 sqft at Two IFC, undeterred by rents that have now risen to about HK$170 per square foot.

Less well-heeled customers were showing some resistance to the rising rents, and a property agent said some medium-sized companies were reluctant to expand at present prices because they were concerned about the economic outlook.

But with office supply tight in Central, even a worst-case scenario would not see rents retreat by more than 5 per cent, the agent said.

Similarly buoyant sentiment is evident in the luxury residential leasing and serviced apartment markets, according to estate agents.

"Demand remains very strong," said Edina Wong, a senior director of Savills' residential leasing department. "There is no indication at this stage of any significant headcount reduction by investment banks."

With the business outlook for financial institutions remaining positive, Ms Wong says demand for high-end residential leasing is expected to stay strong.

The serviced apartment market remained buoyant in the first quarter with popular developments in core areas highly sought after by corporate clients from the US and Europe. "Occupancy rates of luxury serviced apartments reached 97 to 98 per cent," Ms Wong said.

Limited supply was the main driver of increased rents and occupancy levels, she said. On average, rents of luxury serviced apartments grew almost 9 per cent in the first quarter.

Anne-Marie Sage, the regional director for residential property at Jones Lang LaSalle, said serviced apartment rents on Hong Kong Island rose 19 per cent in the first quarter, compared with a year earlier.

"We believe this trend will continue due to demand and short supply," Ms Sage said. "We may see a slowdown towards the end of the year with the US subprime issue having an impact on people relocating to Hong Kong, but at this point we are not seeing signs of this."

Mr Wan said he did not expect top-end residential leasing to be affected by a global slump.

"Corporations are likely to continue deploying their best professionals or management to Asia, making sure the growth engine in the region remains at full speed," he said.

Sources said Sun Hung Kai Properties had leased two penthouse units at Four Seasons Place - of 2,800 sq ft and 3,600 sq ft - at about HK$170 per square foot.

Flat construction to rise



Homes, sweet homes: The Rating & Valuation Department says 10,980 residential flats are due to be completed this year.

This year 10,980 residential flats are due to be completed, up from last year's 10,470 units, according to the Rating & Valuation Department's Hong Kong Property Review 2008. The figure is expected to rise to 12,670 in 2009.



Last year the take-up was 19,850 units while the vacancy dropped to 52,470 units.



Prices in the secondary market achieved notable growth in the fourth quarter last year, with the overall price index up 21% over the same period a year earlier. The rental index also rose 15%.



Office completion

Overall private-office completions last year totalled 320,000 square metres, almost three times 2006's number. The department expected office completions this year to hit 342,200 square metres, but to drop to 187,200 square metres next year.



Non-core districts like Kwun Tong, Yau Ma Tei and Eastern District will contribute the bulk of Grade A office completions in the years to come. Prices for offices in last year's fourth quarter rose 31% while rentals grew 14%.



Commercial flat completions last year totalled 48,000 square metres and take-up was 211,000 square metres. Higher completions are expected to rise to 97,800 square metres in 2008 and 100,200 square metres in 2009.

Fortis to expand Central offices
26 April 2008
South China Morning Post

The biggest landlord in Central has seen no adverse impact yet of subprime-sparked lay-offs on the demand for grade A offices in the core business district.

Hongkong Land Holdings yesterday said that banking and insurance group Fortis would increase from three floors to nine floors its office premises at Three Exchange Square. The gross floor area of 105,000 square feet to be taken up by Fortis is occupied currently by investment bank Morgan Stanley, which will relocate to the 118-storey International Commerce Centre in Kowloon to double its office space to 350,000 sq ft.

"About 50 per cent of the floor area to be vacated by Morgan Stanley has already secured tenants," said Raymond Chow Ming-joe, an executive director for Hongkong Land's commercial property division, adding that the remainder was under negotiation.

Mr Chow declined to disclose the rent for the latest deal except to say that the going rental rates, which range between HK$100 and HK$200 per square foot, have been on the rise.

According to property consultant CB Richard Ellis, the average effective rent of Central's grade A offices in the first quarter was HK$124.05 per square foot, up 9.4 per cent from last year-end.

Despite massive lay-off plans announced by some investment banks that got burnt in the subprime fallout - including Merrill Lynch, Citigroup and Credit Suisse - Mr Chow is positive on the market outlook: "There may be lay-offs in some financial services departments [of banks] but probably other departments such as wealth management are expanding."

Given that the supply of grade A premises in Central remains tight with no major new supply coming on stream until the Ritz-Carlton Hong Kong site completes its redevelopment in 2011, rental rates in the district will maintain a moderate uptrend, he said.

The vacancy rate of Hongkong Land's Central premises stands at below 2 per cent, which by international standards means fully leased.

Property outlook robust
Hong Kong Standard
Wednesday, July 02, 2008

Hong Kong's home prices and rents are expected to continue rising in the second half despite higher mortgage rates and other external factors.

Ricacorp Properties said yesterday that as of last Friday, there were 64,342 deals in the housing market in the first half - an 11-year high - driven by a 27 percent jump in sales in the secondary market to 56,468 units totaling HK$187.6 billion, a 48 percent increase over the previous year.

The primary residential market recorded 7,874 transactions worth HK$54.5 billion, down 12 percent and about 2 percent, respectively.

"Even though the rising mortgage rates are affecting consumer sentiment, the housing market will be flat from July to September, but will get better in October," said Ricacorp Properties research head Patrick Chow Moon-kit.

He forecasts an increase of 8 to 10 percent in prices for small and medium- sized projects, and a 5 percent rise at luxury projects in the second half.

The Cullinan, developed by Sun Hung Kai Properties (0016), and the Hanoi Road Project by New World Development (0017) and the Urban Renewal Authority, will be the market focus for the luxury market in the second half. Midland Realty chief analyst Buggle Lau Ka-fai said the market sentiment is temporarily overshadowed by the rising interest rates and expects the housing market to see a 10 percent decrease in the third quarter from the previous quarter.

Centaline Property Agency associate director for research Wong Leung- sing said: "We believe rents in the housing market will rise about 30 percent this year from a year ago, which is brought on by inflation."

Property agents said the primary market recorded about 10 deals yesterday on the handover anniversary break.

Hong Kong office rental market slows down
23 July 2008
South China Morning Post

Hong Kong's office leasing market activity is running out of steam and the weakening trend will continue amid the global slowdown and unstable stock markets, according to property consultant Knight Frank.

In its latest report, Knight Frank said leasing activity was sluggish, resulting in a decline in transaction volume. Overall rental growth slowed even though the uptrend in office rentals remained intact, it said.

Rental growth on Hong Kong island slowed to 1.7 per cent last month, down from 2.9 per cent in May and the slowdown was even more noticeable in Kowloon where rental growth in Tsim Sha Tsui, Cheung Sha Wan and Hung Hom ground to a halt. "Looking forward, with the world economy slowing and major stock markets around the globe entrenched in a 'bear' environment, demand for Grade A office space is likely to weaken. How the credit crisis in the US will unfold and where oil prices will head, are the key uncertainties," said Knight Frank.

Over the past two years, Grade A offices in Hong Kong's core Central have been sought after by financial sector tenants such as hedge funds and private equity firms, which expanded aggressively amid the stock market bull run. However, with investors losing their appetite for risk, and financial institutions tightening lending, liquidity for private equity and hedge fund start-ups may dry up.

"While most of the existing funds are less likely to expand, there will also be fewer private equity and hedge fund launches, taking a toll on the demand for offices in Hong Kong's central business district," Knight Frank said.

Despite this a big fall in rents is not expected as the supply-side factor will help support office rentals. Vacancy rates of Grade A offices in Central and Admiralty stood at 1.1 per cent and 2.5 per cent, respectively.

Home and office double whammy hits developers
Hong Kong Standard
Monday, August 11, 2008

Hong Kong developers have been hit by the double whammy of weak buying sentiment in the residential property market and rental declines in commercial property.

Only 80 new flat sales are expected to be recorded in July - a drop of 80 percent from 400 units sold the previous month. Transactions of secondary homes are expected to slump 27 percent month- on-month to 5,300 units, said JPMorgan analyst Raymond Ngai. "The bad sentiment in the market prompted developers to delay [their launch plans]," he said.

Ngai also said office capital value and rents - especially in Central - are more susceptible to the current volatile stock market outlook. "We would prefer property stocks with less exposure on rental properties," Ngai said.

Meanwhile, the Shenzhen Municipal Bureau of Land Resources and Housing Management reported the average selling price of residential units in Shenzhen, excluding luxury properties, fell to 12,387 yuan (HK$14,121) per square meter in July from 15,080 yuan psm in January, a decline of 17.9 percent. For the first seven months, contracted sales area of newly-built flats dropped 53.17 percent year-on-year to 1.8 million square meters. Sales area of secondary flats in the same period plunged 69 percent from a year ago to two million sq m.

"The [mainland] property market is under correction ... while the stock market is expecting tightening measures to be eased by the government," said CLSA analyst Nicole Wong.

"Therefore, the upside and downside factors make the stocks swing."

Ngai said China property stocks may fall by another 5 percent to 10 percent before reaching bottom. "We expect the [property] sector to test the previous trough in June. This time round, we believe the selloff will be mainly triggered by earnings estimate downgrades after interim results."

Cash-rich developers 'can ride out market downturn'
18 August 2008
South China Morning Post

The global economic slowdown and a weak local stock market appear to be having a knock-on effect on the Hong Kong property market, which has seen transaction volumes falling in recent months. Nevertheless, industry watchers remain confident that Hong Kong developers are well placed to ride out any imminent downturn given their profitability in recent years.

"Hong Kong developers are generally cash rich, have a low borrowing ratio and are not under pressure to sell or discount their assets. They will be able to ride out the slowdown," said Piers Brunner, Colliers International chief operating officer in Asia and managing director in Hong Kong.

Interim results released by Hang Lung Properties last week provided the latest indication of just how well developers have been faring. The developer, which has a diversified portfolio, reported a record net underlying profit of HK$5.12 billion on the back of a strong rental market and sales of its residential properties.

Its parent company, Hang Lung Group, said its overall leasing turnover was up 24 per cent, with the rental market particularly strong in Shanghai. Operating profit for the Shanghai operations jumped 57 per cent, fuelled by the mainland's booming economy.

The developer sold nearly 800 local residential units in the first half of the year, pledging to continue with its strategy of releasing properties at the best time to maximise its profit margin.

Some 605 of its units sold for an average of HK$7,100 per sqft at The Long Beach, while more than 100 units were purchased for an average of HK$16,900 per sqft at The HarbourSide. Both properties are in West Kowloon.

Other developers, including Swire Properties and Hysan Development, have reported similarly positive interim results in recent weeks due to particularly strong rental growth for offices and retail properties.

Swire's 22 per cent rise in its first-half profit can be attributed to the buoyant demand for office space in Hong Kong. Office rental income jumped 35 per cent, with occupancy at close to 100 per cent. Retail rental income also surged 12 per cent.

A similar story has been unfolding at Hysan Development, which recorded a 19 per cent hike in its first-half turnover, with revenue from its office sector showing the strongest gains. Revenue for the office segment was up 24 per cent, with occupancy at 98.3 per cent. Revenue for the retail sector also saw a boost, up 21 per cent, with occupancy at a similarly high level.

The luxury residential sector, however, showed slightly slower growth with rental revenue up only 8.5 per cent, and industry watchers are prudent about the future of the market.

"We remain cautiously optimistic about the Hong Kong investment property market. While there are continuing concerns over external risks, the fundamentals of the Hong Kong economy remain sound," said Peter Lee, Hysan's chairman.

The residential market is expected to bear the brunt of any eventual downturn with analysts already observing some slowdown in the second quarter.

"Developers with a more diversified portfolio, including properties in the commercial and industrial sectors, are likely to do better given the strong rental market," explained Kingston Lin, associate director at Prudential Brokerage, noting that developers are finding it increasingly difficult to sell their units at a favourable price.

Activity in Hong Kong's property sector has indeed lagged in the last quarter, according to Marcos Chan, Jones Lang LaSalle's head of research in Hong Kong. Total transaction volumes were 75,000 for the first half of the year in contrast to 82,000 in the second half of last year, he said.

"Increasing uncertainty in the global economy and financial market has affected the sentiment of potential buyers, although at this stage everything is still only a matter of sentiment," Mr Chan said.

Not even the mainland, a market which Hong Kong developers have gravitated towards in ever increasing numbers in recent years, can allay market uncertainties.

"With the China property market undergoing its own consolidation, developers really have to wait until market sentiment in both China and Hong Kong improves, given the difficulties of land replenishment," said Jeff Yau, an associate director at DBS Vickers Securities. Dwindling land banks have become a dilemma for almost every developer in the city as land application approvals by the government have decreased significantly in recent years.

"Developers are finding it increasingly difficult to trigger land sales from the government. They don't have big land banks now, and that is why some have slowed the launch of their properties. If the market is not good, they would rather hold back on new launches and wait for the good times to return," Mr Chan explained.

The impact of credit tightening has perhaps been most keenly felt by institutional investors who are finding it increasingly difficult to secure loans.

"There is a lot of money in the system but banks have become much more cautious about how they lend ..." Mr Brunner said. "We are at a tipping point right now. My bellwether is the financial services industry, particularly the investment banks. If the sector implodes, it will be a very different property market."

Equally resilient are Hong Kong's real estate investment trusts, many of which have benefited from improving rental performance in their commercial and retail portfolios.

Champion Reit (real estate investment trust), which focuses on gradeA commercial real estate in prime locations with its portfolio including properties such as Citibank Plaza and Langham Place, has reported an 84 per cent revenue jump in the first half of the year.

Eagle Asset Management, manager of Champion Reit, said rentals at Citibank Plaza had shown no signs of weakness nine months into the subprime mortgage crisis in the US. "In the first half of this year, the spot rental rate at Citibank Plaza increased by a further 25 per cent to HK$125 per sqft, more than the increase for the whole of last year," the company said.

港甲廈租全球第三貴
26/11/2008
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近年亞洲經濟起飛，帶動區內寫字樓整體開支亦上升。世邦魏理仕稱，上季度，亞太區寫字樓租務成本升速最快，平均錄得26%，其中香港商業核心區每方呎租賃成本超過150元，升幅達29%，位列全球最貴租城市排名第3位。另外，五個租賃成本升速最快的城市，以阿布扎比最為顯著，升幅達95%。

胡志明市上季貴五成
世邦魏理仕一份報告指出，過去一年，有172個城市的寫字樓租用成本錄8%增幅，幅度差不多高於環球通脹率一倍。而由於亞太區不少新興商業城市均缺乏優質辦公地點，需求帶動下，刺激租金上升；如區內另一寫字樓租務成本急增地