LI, Tao @ Hong Kong

Auctioneer Graham Martin Ross (2nd right, top) gets ready to announce the winning bid of HK$10.4 billion ($1.34 billion) by bidder No 10 after three calls with no counter offers at a government land auction in Hong Kong Wednesday. Edmond Tang / China Daily

Finished units could sell at a staggering HK$70,000 per square foot

On Wednesday the Hong Kong government auctioned a prime residential site on the region’s prized Peak for HK$10.4 billion, a sky-high unit price of HK$32,000 per square foot of gross floor area. The transaction added considerable steam to the local residential property market.

The project could end up including units for sale at HK$40,000 per square foot of finished gross floor area, if its proprietors develop it into high-rise apartments. It could even end up selling units for HK$60,000 to HK$70,000 per square foot, if the proprietors develop the project into individual houses, estimates Alvin Lam, executive director of Midland Surveyors Ltd.

The 251,000-square-feet site on Mount Nicholson Road, one of the most exclusive residential areas in Hong Kong, could be developed into a project holding a maximum gross floor area of 325,000 square feet.

The winning bid of HK$10.4 billion is consistent with analysts’ price estimates of HK$8.9 billion to HK$11.5 billion, which rose as the auction date approached.

Privately-held developer Nan Fung Group bought the site after a 45-minute competition with blue-chip developers New World Development Co and Sino Land Co. Developers, such as Cheung Kong (Holdings) Ltd, kept a low profile, even though before the auction they had shown interest in acquiring the plot.

Nan Fung will develop the site with Wharf (Holdings) Ltd in a 50-50 venture, said Donald Choi, the firm’s managing director, who described the winning price as “reasonable”, citing the “uniqueness” of the site in a “very rare” location.

He said that the two companies will use 30 percent of the gross floor area to build townhouses, and the rest for apartments.

Surveyors and analysts cheered the “favorable” result of the latest public land auction.

The “upbeat” land auction result affirms the positive outlook for the luxury residential market, which is supported by strong demand from local and mainland buyers, said a property consultant from CB Richard Ellis.

“We expect to see the luxury residential property price continue to follow an upward trajectory, in the short-term at least, and that the average luxury residential price in Hong Kong will have another 10 percent uplift over the second half of 2010,” said Craig Shute, senior managing director for Hong Kong, Macao and Taiwan at CB Richard Ellis.

“Many expect this price because there is no cheap land left in Hong Kong,” said Wong Leung-sing, associate director of research at Centaline.

Wong declined to estimate the selling price of the apartments that will be built on the Peak site, but said that the prices will be “very expensive” because land supply on the Peak is limited, and most Peak apartments now sell at around HK$40,000 per square foot.

Wong expects home prices in the city to continue to rise, at least until September, when the government introduces more measures to control rising property prices.

The nearly 38 percent rise in local property prices since the beginning of 2009 has prompted the government to introduce measures to curb speculation in the housing market.

China Daily

(HK Edition 07/29/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-07/29/content_11063560.htm

Almost two weeks have passed since Zijin Mining Group Co, China’s largest gold producer, was caught delaying (for up to nine days) the disclosure of information that could sway its share price. Despite the blatant breach of listing rules, the Hong Kong Exchanges and Clearing Ltd (HKEx) has yet to issue a comment.

The “HKEx could issue a private reprimand, a public statement involving criticism, or even suspend or cancel a listing if our Listing Committee finds that there has been a breach of listing rules, but we do not usually comment on any individual company,” a staff member from the HKEx corporate communication department, who asked not to be identified, told China Daily in a telephone interview last Wednesday.

On July 13 Zijin Mining’s share price plunged as much as 12 percent (to its lowest recorded in more than one year), after the Group announced that a toxic chemical leak at its Fujian plant had poisoned thousands of fish and contaminated a reservoir.

Mainland authorities have since arrested three executives overseeing the plant. The China Securities Regulatory Commission has reportedly begun to investigate the copper producer for possibly violating disclosure rules.

“But it is always difficult for Hong Kong regulators to investigate the misconduct of mainland-based listing companies,” said Joseph Fan, Chairman of the Department of Finance at the Chinese University of Hong Kong.

“As Hong Kong is confined by jurisdiction, the city’s regulators will have to wait for the findings by the mainland authorities before they make a decision,” Fan added.

The Hong Kong government has been trying to implement reforms in the local stock market to reinforce disclosure regulations, particularly since the occurrence of corporate scandals. It has also tried to do so on account of the fact that the HKEx has little authority to handle those found guilty of violating regulations.

In the public consultation that took place in March, the government proposed to give the SFC more power to apprehend companies who fail to immediately disclose price-sensitive information. It also proposed heavier penalties, including fines of up to HK$8 million, for those who violate regulations. However, it weakened the consultation when it did not address a proposal to make non-disclosure violations a criminal act. The government’s reluctance to address the proposal was supposedly influenced by the business sector.

“Since the matter is still in consultation, a company’s failure to disclose information does not yet fall under our jurisdiction. Currently we only examine possible fictitious disclosure in the stock market,” an SFC spokesman said when asked to comment on the Zijin case.

Some have criticized the March consultation as overly compromising. Its critics compare it with previous consultations, such as one that took place in 2003, in which some suggested a maximum 10-year prison term and a fine of HK$10 million for those found guilty of violations.

Fan believes that, in practice, it is not so easy to lay a severe criminal charge on those found guilty of non-disclosure. This is evident from the consultations of 2003 and 2004, all of which encountered firm opposition from the business sector.

“Hong Kong’s economy, although it is traditionally flexible, it is in fact rooted in syndicated business groups. The government might have to cede to listing companies on such matters, given that their interests are interrelated,” said Fan.

Secretary for Financial Services and the Treasury Chan Ka-keung, said earlier that the new proposals agree with practices observed in the European Union and Britain, which impose civil penalties on only those who fail to disclose price-sensitive information.

Chan also rejected allegations that the government has given in to pressure from business groups.

China Daily

(HK Edition 07/27/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-07/27/content_11051619.htm

Credit rating agency Standard & Poor’s warns that increasing non-performing loans (NPL) could cripple the credit health of mainland banks; but CLSA believes that mainland lenders are at a turning point for business growth, as bad loans remain manageable.

“Mainland banks are probably safer than Western banks, and the balance sheet of the Chinese government is much stronger than that of Western governments,” Francis Cheung, managing director of CLSA Asia Pacific Markets, said at a Thursday briefing.

Some worry that mainland banks are under pressure from the impact of more bad loans, which follow the credit boom of 2009. Cheung, however, believes that the non-performing loan ratios of big mainland lenders will remain manageable because the lenders reserved higher-than-usual loan loss provisions. The Central Government has also been active in creating preventive measures and conducting audits to control credit risks.

“We feel certain about mainland banks because new loan growth will turn positive in the second half of 2010, contrasting the 37 percent decline witnessed in the first half of the year,” Cheung said.

He said stock prices of big mainland banks are also trading relatively cheap: Bank of China trades at 1.4 times its book value; and Agricultural Bank of China, which raised as much as $53.5 billion in its dual listings in Hong Kong and Shanghai earlier this month, trades at 1.6 times its book value.

Standard & Poor’s reported Thursday that mainland banks are facing rising credit risks and their NPL ratios will likely climb in the medium term. The agency expects the sector’s NPL ratio to stay flat at about 3 to 4 percent until the end of 2010, because of the current economy and the long tenor of loans for government vehicles.

The ratio is likely to rise as economic growth slows and project loans mature, but it should still stay below 10 percent until the end of 2012, the rating agency reported.

“It’s highly likely that some of these loans (to local government financing vehicles) will turn bad over the next few years, given the questionable credit quality of many of the borrowers,” said S&P’s, adding that these vehicles have taken 18 to 20 percent of total loans in the banking system.

“But we also recognize the sector’s structural strengths and we believe these strengths will continue to shield the sector from any foreseeable crises. As such, we stand by our stable outlook for the sector,” said S&P’s credit analyst Liao Qiang.

Liao agrees that top-tier banks should be able to manage the impact, given their strong credit risk controls. Still, he warns, smaller lenders could struggle because of their proportionally-heavier exposure to local government vehicles and lower profitability.

At the end of June, the NPL ratio for mainland banks was 1.3 percent, down 0.28 percent from the beginning of the year. At the end of June NPLs totaled 455 billion yuan; the bad loan coverage ratio was 186 percent, according to the China Banking Regulatory Commission.

China Daily

(HK Edition 07/23/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-07/23/content_11038413.htm

Trading in derivative warrants has outweighed that of callable bull/bear contracts (CBBC) in Hong Kong so far this year, a reverse from 2009, as the low implied volatility amid a sluggish stock market makes warrants more attractive, according to Victor Chan, Manager of Listed Products Sales and Marketing at HSBC Global Markets.

Both warrants and CBBCs are a type of structured product that tracks the performance of an underlying financial asset without requiring investors to pay the full price required to own the actual asset, allowing investors to take bullish or bearish positions on the underlying asset. CBBCs can be called by the issuer when the price of the underlying asset reaches a preset level, the key difference between CBBCs and warrants.

According to a report compiled by HSBC and provided to China Daily, the average daily turnover in warrants as of end-June increased to HK$9.33 billion, up 37 percent from the daily average of HK$6.8 billion in 2009. In sharp contrast, daily turnover in CBBCs averaged only HK$4.8 billion, down 31.4 percent from HK$7.0 billion last year.

Total warrant trading represents 14.7 percent of total market turnover so far this year, compared with the 10.8 percent market ratio in 2009. CBBC turnover, by contrast, accounts for only 7 percent of the total market turnover in the same period, down significantly from last year’s 11 percent market share.

“The relatively cheaper warrant resulting from a lower implied volatility made it more attractive compared with CBBCs,” Chan said.

Chan said the highs and lows of implied volatility, which reflects the market expectation, stand for the anticipated fluctuation margins of a stock market rather than its good or bad performance.

Examples can be seen from the city’s benchmark Hang Seng Index, which soared 52 percent in 2009 and dropped 5 percent this year, while the implied volatility has generally remained low over the period.

“It means the market expects that the correction in the Hang Seng Index will continue to be smooth, rather than a steep one,” said Chan.

The total daily turnover of warrants and CBBCs averaged approximately HK$14.7 billion as of end-June, an increase of 6.5 percent over 2009.

If market sentiment improves in the second half of this year, the bank believes the total turnover of warrants and CBBCs this year will increase by 5 to 10 per cent compared to 2009.

Chan said the fact that the market share of warrants has increased this year while the amount of net fund inflow declined suggests that investors tend to take a short-term investment view.

The bull-to-bear turnover ratio so far remains at 45 to 55, a similar level to that in 2009, which suggests that investors continue to prefer bear contracts over bull contracts, said the HSBC report.

There are currently some 4,000 warrants and 1,000 CBBCs listed in the local bourse.

China Daily

(HK Edition 07/20/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-07/20/content_11021374.htm

Industry researcher expects rental rates to overtake in a year or two the high reached in September 1997

Rental rates in the private residential property market are fast approaching the record levels of 1997, when the city’s real estate market peaked, according to data compiled by leading property broker house Centaline.

Statistics from 73 residential properties across the city show average rental fees climbed to HK$17.4 per square foot in May, up from April’s HK$17.3, another increase for the past 14 consecutive months.

The rents have increased by 18.7 percent in 2009, and 5.5 percent as of May this year.

“Going up by 17.2 percent, the city’s rental (rates) will return to the historic high in September 1997,” said Wong Leung-sing, associate director of research at Centaline.

Hong Kong’s rental rates peaked in September 1997 at HK$20.4 per square foot. HK$17.4 is equivalent to the level in August 2008, before the city’s rental rates started sliding due to the breakout of the global financial crisis. It bottomed out in March 2009, at HK$13.2 per square foot.

“Lessees’ demands are not the main force driving rentals upward, although their ability to pay higher rents and desire to improve the living environment are strengthening as the city’s economy continues to pick up after the economic crisis,” said Wong.

Wong believes Hong Kong’s rental rates no longer reflect the real supply and demand situation – which he said has basically been balanced over the years. The rental fees have become a gauge that mirrors the city’s economic situation. Home price hikes driven by investment purposes have also been fueling the continuing increases in rental rates.

“Rents will eventually surpass the high posted in 1997 – definitely, probably in a year or two,” said Wong, adding that the city’s property prices will also maintain a stable uptrend in the future amid economic rebound and anticipated inflation.

According to another popular home price index compiled by Centaline and the City University of Hong Kong, the city’s home prices rose to a 12-year high this April, also close to the highest level in 1997, despite an increase in the supply of local flats in the first quarter.

The government has been concerned about a potential bubble in the property market due to low interest rates and ample liquidity and initiated a series of measures aimed at curbing speculative activities.

Government figures released earlier this month showed Hong Kong’s residential property sales transactions in May slid 17 percent from the previous month, the lowest this year.

China Daily

(HK Edition 07/16/2010 page3)

http://www.chinadaily.com.cn/hkedition/2010-07/16/content_10113499.htm