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14 July 2015DBS Group Research . Equity
www.dbsvickers.com
ed-JS & TH/ sa- AH & MH
Hong Kong – great place to make
money, not spend
• Stable residential prices on solid local demand
•
Central to lead the pack in the office market upturn;
the worst for retail scene is yet to be seen
• Developers are attractively valued; prefer office
landlords to retail counterparts
• Top picks: Cheung Kong Property, SHKP and
Hongkong Land
Market view. Local homebuyers are supporting theresidential market where prices have reached new highs.
Despite our expectations of stable prices, potential interest
rate hikes and local economic slowdown could push up the
real interest rate and exert the pressure on home prices. The
office market is exhibiting improving rental growth
momentum, especially Central, thanks to rising demand
from Mainland Chinese firms. On the back of tight vacancy
and limited new supply, Central should continue to lead thepack. The challenging retail scene is expected to persist
given worsening inbound tourism led by the strong local
currency.
Stock recommendation. Developers are attractively valuedwith new project launches as a key sector catalyst. Our top
picks are Cheung Kong Property and SHKP for their
compelling valuations and strong execution. Potential index
inclusion should further add to the former’s investment
appeal. Other preferred developers include Sino Land and
New World. Among landlords, we prefer office plays -
Hongkong Land and Swire Properties. Yield movement will
determine the performance of the REIT sector.
HSI: 23,517
ANALYST
Jeff YAU CFA, +852 2820 4912 jeff_yau@hk.dbsvickers.com
Allen CHAN +852 2971 1932allen_chan@hk.dbsvickers.com
Recommendation and valuation
Code Price Mkt 12-m Recom
8- J ul Cap target
HK HK bn HK
Property Developers
Cheung Kong Property 1113 HK 57.95 224 81.10 Buy
Hang Lung Props 101 HK 20.55 92 25.05 Buy
Henderson Land 12 HK 49.00 162 55.25 Buy
K Wah Int'l 173 HK 3.80 11 5.47 Buy
Kerry Props 683 HK 27.20 39 34.00 Buy
Lai Sun Dev 488 HK 0.150 3 0.263 Buy
MTR Corp 66 HK 34.05 199 36.20 Hold
New World Dev 17 HK 8.83 79 11.74 Buy
Sino Land 83 HK 11.68 71 15.14 Buy
SHKP 16 HK 115.10 331 150.00 Buy
Tai Cheung 88 HK 6.59 4 8.65 Buy
Wheelock & Co. 20 HK 37.55 76 42.35 BuyWing Tai Props 369 HK 4.61 6 6.05 Buy
Property Inv estors
Great Eagle 41 HK 27.65 18 30.50 Hold
HK Land @ HKL SP 7.70 18 9.32 Buy
Hysan Dev 14 HK 31.90 34 38.15 Buy
Swire Props 1972 HK 23.35 137 30.20 Buy
Wharf 4 HK 49.20 149 53.85 Hold
REITs
Champion REIT 2778 HK 4.03 23 4.68 Buy
Fortune REIT 778 HK 7.48 14 9.15 Buy
Prosperity REIT 808 HK 2.67 4 3.00 Buy
Sunlight REIT 435 HK 3.71 6 4.22 Buy
The Link REIT 823 HK 45.10 103 49.10 Buy@ denominated in USD
Source: Thomson Reuters, DBS Vickers
China / Hong Kong Industry Focus
HK Property SectorRefer to important disclosures at the end of this report
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Note: Prices used as of 8 July 2015
Covered photo (from left):Hemera (CK Property & Nan Fung);Harbour City (Wharf Holdings);Citibank Plaza (Champion REIT)
Analyst
Hong Kong Property
Jeff Yau, CFA (852) 2820 4912 jeff_yau@hk.dbsvickers.com
Allen Chan (852) 2971 1932allen_chan@hk.dbsvickers.com
Table of Contents
Investment summary 3
Residential 4
Office 13
Retail 20
Property developers 26
Property Investors 39
REITs 44
Appendix: Asset breakdown 49
Appendix: NAV sensitivities 51
Stock Profiles 54
Cheung Kong Property (1113 HK) 54
Hang Lung Properties (101 HK) 56
Henderson Land (12 HK) 58
K. Wah International (173 HK) 60
Kerry Properties (683 HK) 62
Lai Sun Development (488 HK) 64
MTR Corporation (66 HK) 66
New World Development (17 HK) 68
Sino Land (83 HK) 70
Sun Hung Kai Properties (16 HK) 72
Tai Cheung (88 HK) 74
Wheelock & Co (20 HK) 76
Wing Tai Properties (369 HK) 78
Great Eagle (41 HK) 80
Hongkong Land (HKL SP) 82
Hysan Development (14 HK) 84
Swire Properties (1972 HK) 86
Wharf Holdings (4 HK) 88
Champion REIT (2778 HK) 90
Fortune REIT (778 HK) 92
Prosperity REIT (808 HK) 94
Sunlight REIT (435 HK) 96
The Link REIT (823 HK) 98
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Investment summary
Residential
Despite tighter mortgage lending rules for mass-market
projects introduced by the Hong Kong Monetary Authority in
late Feb, residential prices remain on an uptrend to hit a new
high, supported by solid housing demand from local end-
users/first-time buyers. There was a revival of primary market
activities in late Mar after a short-lived consolidation phase.
Developers’ close-to-market pricing strategy stimulated buying
interest. The secondary market, however, remained relatively
quiet. Barring any external shocks that may trigger forced
selling among existing home owners, residential prices should
remain stable in the coming twelve months. Any interest rate
hikes would make housing less affordable but household
income growth could partially neutralise the impact. If localeconomic growth loses momentum with deflationary pressure
emerging, real interest rates would turn positive and dent
residential demand. This remains the key risk for the residential
sector in our view.
Office
Office leasing market growth, particularly in Central, has been
gaining momentum, especially from 2Q15. Supported by
growing office demand from Mainland Chinese corporates,
vacancy in Central has hit a six-year low. New financial
liberalisation measures between Hong Kong and China such as
mutual fund recognition scheme and the upcoming Shenzhen-Hong Kong Stock Connect should augur well for office
demand, especially in CBD, over the medium term. Coupled
with tight new supply, we are positive on Central office market.
We forecast Central office rents to lead the pack and rise 10-
12% in 2015. Rental growth for decentralised offices should
be modest at 5% except for strata-titled units in Kowloon East
where market competition has been increasing.
Retail
The retail scene is challenging with the worst yet to come.
Retail sales have been falling, primarily led by slowing inbound
tourism. The strong local currency is encouraging tourists to
spend overseas instead of in Hong Kong. Sales of expensive
luxury goods have been consistently falling, while sales of
medicine and cosmetic items have stopped rising. By the same
token, outbound tourism in Hong Kong is growing remarkably
which is dragging local consumption. Multiple entry
arrangements for Shenzhen residents have tightened since Apr
15, and this would reduce Mainland Chinese tourist arrivals.
Street shops near the border with retail offerings tailor-made
for grey goods traders/day trippers should be hit the most.
Overall, we project that retail sales value will decline 2-4% in
2015. Rents for high-street shops should fall 10-20% in 2015
while those for shopping centres with diversified retail offering
should rise 0-3%.
Property Developers
Property developers we cover are trading at 14-82% discounts
to our assessed current NAVs, with an average for the sector at
36%, which still compares favourably its 10-year average of
21%. Sector valuation is attractive with new project launches
as catalyst to narrow the NAV discounts. Within the sector, our
top picks are Cheung Kong Property and SHKP for their
appealing valuations, encouraging project sales performanceand solid recurrent income. Potential index inclusion could
further add to Cheung Kong Property’s investment appeal.
Other preferred developers include Sino Land and New World
Development. Among small-to-mid cap developers, Tai
Cheung is unlocking its NAV through strata-titled disposal of
Metropole Square and has the potential to be re-rated.
Property Investors
Property investors are trading at 38% discount to our
appraised current NAVs on a weighted average basis, against
its 10-year average of 27%. Within the sector, we prefer office
landlords - Hongkong Land and Swire Properties - given ourpositive stance on the office market. Even after a strong share
price rally YTD, Hongkong Land should have scope for further
share price appreciation. Swire Properties remains attractively
valued. Low valuations for Hysan Development could lend
support to its share price. The challenging retail scene may
increase uncertainty on Wharf’s earnings and hence we rate
the counter as a HOLD. However, parent Wheelock has been
raising its stake in Wharf which could limit further downside
risk on stock price.
REITs
REITs under our coverage are trading at prospective distributionyields of 4.4-6.4% or 4.7% on a weighted average basis.
However, the yield of Hong Kong 10-year Exchange Fund Note
has recovered to 1.8% amid growing expectations of US Fed
rate hike, and the current yield spread currently stands at 2.9%,
in line with its historical average of 2.9%. Yield movement
should determine the near-term performance of the REIT sector.
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Residential
Tighter mortgage lending rules for mass market projects. In
late Feb15, the Hong Kong Monetary Authority furthertightened mortgage lending rules in response to continued
spiralling home prices and rising indebtedness of Hong
Kong households to a historical high of >64% of GDP. The
maximum loan-to-value (LTV) ratio for self-use residential
properties valued at HK$7m or below was lowered to 60%
from 60-70%. These properties are usually mass market
projects targeting mainly local end-users/first-time buyers
which were not affected by cooling measures introduced by
the government in earlier years. In addition, the maximum
debt servicing ratio (DSR) for mortgage applicants seeking
additional financing for these units which led to LTV ratio
rising to >80%, was lowered to 45% from 50% withstressed-DSR cap lowered to 55% from 60%. The more
stringent mortgage lending rules inevitably made it more
difficult for prospective buyers to meet the down-payment
requirement.
Difficult to meet the down-payment requirement. Since the
recovery from the global financial crisis in 2009, home prices
have been rising consistently. With the appreciation in home
prices outstripping household income growth, the ratio of
home prices to median household annual income surged to
15x, which is almost the highest seen in the past twenty
years. Based on LTV ratio of 60%, the down-payment
required to purchase a home would represent c.6 years ofhousehold income. However, the housing affordability ratio,
which measures the percentage of monthly household
income used to service mortgage repayments remain far
below the levels seen in 1997, thanks to the favourable
interest rate environment. To sum it up, we see that
meeting the down-payment requirement, rather than the
ability to service monthly mortgage repayments, is a major
challenge for potential homebuyers.
Ratio of housing price to household income (privatehousehold)
4
6
8
10
12
14
16
18
20
M a
r - 9 4
M a
r - 9 5
M a
r - 9 6
M a
r - 9 7
M a
r - 9 8
M a
r - 9 9
M a
r - 0 0
M a
r - 0 1
M a
r - 0 2
M a
r - 0 3
M a
r - 0 4
M a
r - 0 5
M a
r - 0 6
M a
r - 0 7
M a
r - 0 8
M a
r - 0 9
M a
r - 1 0
M a
r - 1 1
M a
r - 1 2
M a
r - 1 3
M a
r - 1 4
M a
r - 1 5
x
Source: Centaline Property Agency, Census and Statistics Department,DBS Vickers
Housing affordability ratio
0%
20%
40%
60%
80%
100%
120%
J a n - 9 4
J a n - 9 5
J a n - 9 6
J a n - 9 7
J a n - 9 8
J a n - 9 9
J a n - 0 0
J a n - 0 1
J a n - 0 2
J a n - 0 3
J a n - 0 4
J a n - 0 5
J a n - 0 6
J a n - 0 7
J a n - 0 8
J a n - 0 9
J a n - 1 0
J a n - 1 1
J a n - 1 2
J a n - 1 3
J a n - 1 4
J a n - 1 5
Prime base HIBOR base
Prime base HIBOR base
Jun-15
May-15 54.3%
55.1%
53.2%
54.1%
Source: Centaline Property Agency
Primary market picked up quickly. The stricter down-
payment requirement should inevitably drive marginal
homebuyers out of the market. And, prospective
homebuyers had adopted a "wait and see" approach for a
short period of time after the new rule took effect. But the
market lull was short-lived. The primary market staged a
revival in late Mar when new projects such as Hemera drew
strong buying interest with close-to-market pricing. This
reflects that underlying residential demand remains solid.
Rising marriage and divorce rates lead to higher demand for
accommodation. In recent years, number of marriages in
Hong Kong has been on an uptrend, and contributed to
solid housing demand. On the other hand, divorce rates arealso rising, and may explain why small-sized units are
becoming more popular than before.
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Number of Registered Marriage in Hong Kong
0
10,000
20,000
30,000
40,000
50,000
60,000
70,000
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
Person
Source: CEIC
Number of Divorce Decrees Granted in Hong Kong
0
5,000
10,000
15,000
20,000
25,000
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
Person
Source: CEIC
Parental support. Nowadays, it is increasingly common for
parents to help bridge the funding gap for down-payment
when their children purchase homes. This would in turn
support local housing demand.
Overall, transaction volume in the primary market rose 25%
to c.8,500 units in 1H15, and transaction value totalled
HK$90bn, representing 43% y-o-y growth.
Yearly primary market transactions – volume
0
5,000
10,000
15,000
20,000
25,000
30,000
35,000
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
1H 2HNo. of units
Source: Centaline Property Agency
Yearly primary market transactions – value
0
20,000
40,00060,000
80,000
100,000
120,000
140,000
160,000
180,000
200,000
1 9 9 6
1 9 9 7
1 9 9 8
1 9 9 9
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
2 0 1 5
1H 2HHK$m
Source: Centaline Property Agency
Monthly primary market transactions – volume
0
500
1,000
1,500
2,000
2,500
3,000
J a n - 0 9
A p r - 0 9
J u l - 0 9
O c t - 0 9
J a n - 1 0
A p r - 1 0
J u l - 1 0
O c t - 1 0
J a n - 1 1
A p r - 1 1
J u l - 1 1
O c t - 1 1
J a n - 1 2
A r - 1 2
J u l - 1 2
O c t - 1 2
J a n - 1 3
A p r - 1 3
J u l - 1 3
O c t - 1 3
J a n - 1 4
A p r - 1 4
J u l - 1 4
O c t - 1 4
J a n - 1 5
A p r - 1 5
No of unitsJun 5
-15.5% m-o-m11.2% y-o-y
6M 5
24.5% y-o-y
Source: Centaline Property Agency
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Mass market projects continued to sell well in 1H15, despite
tighter mortgage lending rule squeezing some marginal
buyers out of the market. Tseung Kwan O was the focus of
the primary market, with four projects launched for sale
after the tighter mortgage lending rules for mass market
projects took effect. In early Apr, K.Wah International
launched Twin Peaks in Tseung Kwan O with >360 units (or
97% of total) sold for c.HK$2.9bn or HK$12,500psf. CK
Property tapped the strong demand with the launch of
Hemera and The Beaumount II. Market response was
overwhelming and both projects were completely sold
within a short period of time. Thereafter, Sino Land also sold
c.515 units at Corinthia by the Sea, a jv with K.Wah,
generating revenue of c.HK$5bn. Overall, c.3,400 new units
in Tseung Kwan O were sold for c.HK$26bn, with sell-
through rate of 99%.
CK Property was the best-selling developer in 1H15,generating c.HK$21bn revenue from property sales, with
the bulk from Hemera and The Beaumount II in Tseung
Kwan O. La Lumiere in Hung Hom, launched in late Feb, has
been substantially taken up since its initial launch in late Feb.
In our view, reasonable pricing is the key to a successful
launch.
SHKP’s launch of Century Link in Tung Chung in Jan waswell received, with 97% of total units sold. The launches of
Wharf’s Peninsula East in Yau Tong and China Overseas
Land’s My Place in To Kwa Wan were also greeted with
enthusiastic response. These two mass market projects were
fully snapped up given attractive offer prices.
Sentiment in the luxury home market also seemed to be
improving. SHKP sold eight luxurious houses at 50 Stanley
Village Road on Island South and three at Twelve Peaks on
the Peak for c.HK$2.4bn in total. Henderson Land sold 9
units at 39 Conduit Road for c.HK$1.3bn or HK$48,800psf
on average on saleable area basis. Elsewhere, Sino Land sold
five houses at Botanica Bay in Cheung Sha on Lantau Island
at an ASP of c.HK$23,000psf.
New project launches since Jan 2015
Launch Projec t Locat ion Dev eloper T ot al Un it s Unit s so ld % sold A SP (HK psf )
J an-15 Century Link Ph 1 Tung Chung SHKP 1,407 1,370 97% 10,000
Jan-15 The Nova Sai Ying Pun COLI/URA 255 118 46% 19,900
Feb-15 J ones Hive Tai Hang Henderson Land/Soundwill 119 54 45% 21,400
Feb-15 One Kowloon Peak Ph 1 Tsuen Wan Cheuk Nang 49 13 27% 11,800
Mar-15 La Lumiere Hung Hom Cheung Kong Property 216 214 99% 16,000
Apr-15 Twin Peaks Tsueng Kwan O K.Wah 374 361 97% 12,500
Apr-15 Hemera Tseung Kwan O Cheung Kong Property 1,648 1,648 100% 9,000Apr-15 50 Stanley V illage Road Island South SHKP 12 8 67% 48,050
Apr-15 Peninsula East Yau Tong Wharf 256 256 100% 10,100
Apr-15 2 Cape Drive Island South COLI 7 2 29% 68,300
Apr-15 Botanica Bay Cheung Sha Sino Land 16 5 31% 23,000
May-15 My Place To Kwa Wan COLI/URA 168 168 100% 14,500
May-15 High Park Grand Prince Edward Henderson Land 41 2 5% 24,400
May-15 Eden Gate Kowloon Tong Chinacem 38 1 3% 36,000
May-15 Regent Hill Happy V alley Private developer 82 46 56% 23,000
May-15 AXIS Hung Hom Henderson Land 120 42 35% 19,000
May-15 The Beaumount II Tseung Kwan O Cheung Kong Property 872 872 100% 10,000
Jun-15 Domus Yuen Long Paliburg/Regal Hotels 134 134 100% 11,800
Jun-15 Corinthia by the sea Tseung Kwan O Sino Land/K.Wah 536 515 96% 14,300
Jun-15 Ultima Ph 1 Ho Man Tin SHKP 256 76 30% 32,000Jun-15 V IVA Ma Tau Wai Cheung Kong Property 75 61 81% 16,000
Jul-15 Skypark Mong Kok New World/URA 439 40 9% 18,300
Source: Companies, Local press, DBS Vickers
Thanks to the buoyant primary market, we estimate that
there c. 13,200 new units scheduled for completion in
2015-16 have been pre-sold. This represents 43% of the
total projected supply during these two years.
Secondary market however appeared less buoyant. Unlike
developers, existing homeowners are unable to provide
price incentives or top-up mortgage loans to lure
homebuyers. But they have strong holding power due to the
prevailing low interest rates. This resulted in a relatively
quiet secondary market. During Mar-Jun 15, transaction
volume in the secondary market averaged c.3,300units per
month, well below the 20-year average of 5,400 units.
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Monthly secondary market transactions
0
2,000
4,000
6,000
8,000
10,000
12,000
14,000
J a n - 0 9
A p r - 0 9
J u l - 0 9
O c t - 0 9
J a n - 1 0
A p r - 1 0
J u l - 1 0
O c t - 1 0
J a n - 1 1
A p r - 1 1
J u l - 1 1
O c t - 1 1
J a n - 1 2
A p r - 1 2
J u l - 1 2
O c t - 1 2
J a n - 1 3
A p r - 1 3
J u l - 1 3
O c t - 1 3
J a n - 1 4
A p r - 1 4
J u l - 1 4
O c t - 1 4
J a n - 1 5
A p r - 1 5
No of unitsJun 5
25.9% m-o-m
-7.4% y-o-y
6M 5
19.6% y-o-y
Source: Centaline Property Agency
Residential prices remain on upward trajectory. Home price
growth has not derailed even with the implementation of
stricter mortgage lending rules. According to Centa-City
Leading Index, residential prices rose by a further c.4% after
the HKMA tightened the mortgage lending policy.YTD,
overall home prices grew c.8%, with mass market projects
registering slightly higher growth of c.9%. During the same
period, prices for small-to-medium sized units grew c.9%,
outperforming those for large-sized units by c.4%.
Centa-City Leading Index (overall)
45
65
85
105
125
145
165
J a n 0 7
J u l 0 7
J a n 0 8
J u l 0 8
J a n 0 9
J u l 0 9
J a n 1 0
J u l 1 0
J a n 1 1
J u l 1 1
J a n 1 2
J u l 1 2
J a n 1 3
J u l 1 3
J a n 1 4
J u l 1 4
J a n 1 5
Home price growth
YTD 2015: +8%2014: +11%2013: +3%2012: +21%2011: +8%2010: +19%2009: +30%2008: -15%
Source: Centaline Property Agency
Centa-City Leading Index (mass)
40
60
80
100
120
140
160
J a n 0 7
J u l 0 7
J a n 0 8
J u l 0 8
J a n 0 9
J u l 0 9
J a n 1 0
J u l 1 0
J a n 1 1
J u l 1 1
J a n 1 2
J u l 1 2
J a n 1 3
J u l 1 3
J a n 1 4
J u l 1 4
J a n 1 5
Home price growthYTD 2015: +9%2014: +14%
2013: +3%2012: +24%2011: +8%2010: +19%2009: +31%2008: -16%2007: +22%
Source: Centaline Property Agency
Centa-City Leading Index (small/medium-sized units)
40
60
80
100
120
140
160
J a n 0 7
J u l 0 7
J a n 0 8
J u l 0 8
J a n 0 9
J u l 0 9
J a n 1 0
J u l 1 0
J a n 1 1
J u l 1 1
J a n 1 2
J u l 1 2
J a n 1 3
J u l 1 3
J a n 1 4
J u l 1 4
J a n 1 5
Home price growthYTD 2015: +9%2014: +12%2013: +3%2012: +24%2011: +7%2010: +19%2009: +31%2008: -16%2007: +24%
Source: Centaline Property Agency
Centa-City Leading Index (large-sized units)
60
70
80
90
100
110
120
130
140
150
J
a n 0 7
J u l 0 7
J
a n 0 8
J u l 0 8
J
a n 0 9
J u l 0 9
J
a n 1 0
J u l 1 0
J
a n 1 1
J u l 1 1
J
a n 1 2
J u l 1 2
J
a n 1 3
J u l 1 3
J
a n 1 4
J u l 1 4
J
a n 1 5
Home price growth
YTD 2015: +5%2014: +6%2013: +1%2012: +14%2011: +5%2010: +21%2009: +27%2008: -16%2007: +27%
Source: Centaline Property Agency
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Yuen Long projects to take centre stage. SHKP's project
launches in 2H15 are skewed towards the mass market
segment. The company has obtained pre-sale consent for
Century Link Ph 2 in Tung Chung. Other projects scheduled
for sale include Twin Regency, Grand YOHO Development
and Accapella Ph 1 in Yuen Long.
CK Property plans to launch two upmarket projects in
Kowloon - Stars by the Harbour in Hung Hom and The
Zumurud in Ho Man Tin - for pre-sale in 2H15. These two
developments consist of mostly large-sized units targeting
affluent upgraders. Besides, the company is applying for
pre-sale consent for two projects in Yuen Long, including a
house project and a large-scale development near Long Ping
Station.
New World Development has a strong project launch
pipeline in 2H15. After Skypark in Mongkok, the company
plans to sell The Parkhill in Yuen Long next followed by The
Clearwater Bay in Sai Kung towards the end of the year. We
note that The Clearwater Bay will be the largest residential
project in the area in more than a decade.
Double Cove Ph 4 in Ma On Shan will be Henderson Land's
major project for sale in 2H15. The recent encouraging
tender results for nearby sites should facilitate the launch of
this project. The company will launch its urban
redevelopment projects in Sai Wan Ho and Tai Kok Tsui at
appropriate times.
After Corinthia by the Sea in Tseung Wan O is substantially
sold, Sino Land plans to launch The Fairmont in Mid-levels
subject to obtaining pre-sale consent. This upmarket projectcontains twenty-seven large-sized units with panoramic
harbour views.
Kerry Properties’ planned launch of 1,100-unit Tuen Mun
project will be in the spotlight in 2H15. One of its attraction
lies with its close proximity to the renowned Harrow
International School.
Wharf will focus on selling its Mount Nicholson project on
the Peak, a 50/50 JV with unlisted Nan Fung. The 19 villas
will be offered for sale first, followed by the apartments.
The distinguished address would make this luxury
development well sought after by wealthy buyers. Parent
Wheelock & Co will launch a redevelopment project in Shau
Kei Wan, followed by a project in Tseung Kwan O.
Overall, the projects in Yuen Long are anticipated to take
centre stage in the primary market in 2H15. Property
developers are expected to maintain their close-to-market
pricing strategy to push sales, which may cap upside on
home prices. Overall, we expect c.17,000 primary units to
be sold in 2015.
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Expected major project launches in 2H15 and 2016
Pro jec t / L o t n o L o c at io n L o c at io n St ak e
(% )
T o t a l n o .
o f u n i t s
Remark
Cheung K ong P rope r t y
Stars by the Harbour Kln Hung Hom 100 321 Presale consent obtained in F eb 15
The Zumurud Kln Kow loon City 80 228 Presale consent pending approv alLot 2129 in DD121 NT Yuen Long 100 41 Presale consent pending approv al
YLTL 518 NT Yuen Long 100 1,129 Presale consent pending approv al
S H K P
Ultima Ph 1 Kln Ho Man T in 100 256 On sale
Century Link Ph 2 NT Tuen Mun 100 932 Presale consent obtained in Apr 15
Grand YOHO Dev elopment Ph 1 NT Yuen Long 100 1,114 Presale consent pending approv al
A cappella Dev elopment Ph 1A NT Yuen Long 100 499 Presale consent pending approv al
A cappella Dev elopment Ph 1B NT Yuen Long 100 362 Presale consent pending approv al
A cappella Dev elopment Ph 1C NT Yuen Long 100 166 Presale consent pending approv al
Tw in Regency NT Yuen Long 100 523 Presale consent pending approv al
S ino L and
The F airmont HK Mid-Lev els 100 27 Presale consent pending approv al
YLTL 513 NT Yuen Long 40 912 J V w ith K. Wah
New W or ld Dev e lopment
Skypark Kln Mongkok 100 439 On sale
The Parkhill NT Yuen Long 100 141 Presale consent pending approv al
The Clearwater Bay NT Sai Kung 63 680 Presale consent pending approv al
Des Voeux Road West project HK Western District 80 191 Old lease
Double Cov e Ph 4 NT Ma On Shan 32 474 J V w ith Henderson Land
Double Cov e Ph 5 NT Ma On Shan 32 178 J V w ith Henderson Land
Hende r son L and
Double Cov e Ph 4 NT Ma On Shan 59 474 Presale consent pending approv al
Double Cov e Ph 5 NT Ma On Shan 59 178 J V w ith New World
33 Shing O n Street HK Sai Wan Ho 100 234 Old lease
50-64 Mau Tau Kok Road Kln To Kw a Wan 100 300 Old lease
11-33 Li Tak Street K ln Tai Kok Tsui 100 448 Old lease
K er ry P roper t ie s
KIL 11227 Kln Ho Man T in 100 1,425 Presale consent pending approv al
TMTL 423 NT Tuen Mun 100 1,100 Presale consent pending approv al
Whee loc k
Island Residence HK Shau Kei Wan 100 170 Old lease NT Tseung Kw an O 100 800 Presale consent pending approv al NT Tseung Kw an O 100 428 Presale consent pending approv al
Ch ina Ov e r sea s L and & Inv e s tment
Marina South HK Ap Lei Chau 100 114 Presale consent pending approv al
No. 62 Begonia Road Kln Kow loon Tong 100 10 Presale consent pending approv al
Hong Kong Hous ing Soc i e t y
Hey a Cry stal K ln Cheung Sha Wan 100 350 F or sale soon
Hey a Aqua Kln Cheung Sha Wan 100 275 Presale consent pending approv al
Whar f
Mount Nicholson (Ph 1-3) HK The Peak 50 67 Presale consent obtained in Nov 14
Sw ire P roper t ie s
Lot 724 & 726 in DD332 NT Cheung Sha 100 28 Presale consent obtained in May 15
K. W ah In t e rna t iona l
YLTL 513 NT Yuen Long 60 912 Presale consent pending approv al
Chinachem (un l i s ted)
Inv erness Park Kln Kow loon Tong 100 134 Pre-sale consent obtained in Dec 14
Manha t t an Rea l t y ( un l i s t ed )
1 Tsing Lung Road NT Tuen Mun 100 75 Pre-sale consent obtained in F eb 14
CSI Propert ies
Lai Ping Road 39-77 NT Shatin 100 20 Presale consent obtained in J ul 14
Ry kadan Cap i t a l
The Paseo Kln J ordan 100 66 Presale consent pending approv al
U R A
De Nov o Kln Kai Tak 100 484 Presale consent pending approv al
Hans ion
The Grampian Kln Kow loon Tong 100 14 Presale consent pending approv al
Emperor In te rnat iona l
8 Kw un F at Street NT Tuen Mun 100 14 Presale consent pending approv al
K o w l o o n D e v e l o p me n t
South Coast HK Aberdeen 100 150
Source: Lands Department, Companies, Local press, DBS Vickers
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Real interest rates more important in determining home
prices. Potential interest rate hikes will be among the key
aspects to monitor for the residential market. The market is
expecting the US Fed fund rates to rise 25-50bps by end-
2015 and 250 bps by 4Q17. Given that the HK dollar is
pegged to the US dollar, Hong Kong interest rates should
follow suit. Assuming the effective mortgage rate increases
to 4.5% by end-2017 from the current 2%, we estimate
that the housing affordability ratio would deteriorate to
c.69%. This suggests that home prices should fall by c.20%
in order to bring down the affordability ratio to the current
c.55%. But, if household incomes improve by 3% p.a., a
14% correction in home prices is enough to neutralise the
impact of mortgage rate normalisation on housing
affordability. Hence, concerns over interest rate hikes
should not be overplayed. Indeed, from a historical
perspective, home prices in Hong Kong are negatively
correlated with real interest rates rather than nominalinterest rates. The current inflation in Hong Kong remains
higher than the mortgage rate, and hence, the negative real
interest rate is lending support to the housing market. The
retail market in Hong Kong has been slowing down of late,
which may have some repercussions on the overall economy.
If the local economy loses growth momentum with
substantial deflationary pressure as a result, residential
prices could see downward pressure as real interest rates
will surge rapidly, thus dampening local housing demand.
Residential prices vs mortgage rate
0
20
40
60
80
100
120
140
160
0
1
2
3
4
5
6
7
J a n - 0 2
J u l - 0 2
J a n - 0 3
J u l - 0 3
J a n - 0 4
J u l - 0 4
J a n - 0 5
J u l - 0 5
J a n - 0 6
J u l - 0 6
J a n - 0 7
J u l - 0 7
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
Mortgage rate CCL (RHS)
% HK$psf
Source: Cen taline Property Agency, CEIC
Residential prices vs real interest rate
0
20
40
60
80
100
120140
160
(8)
(6)
(4)
(2)
0
2
46
8
J a n - 0 2
J u l - 0 2
J a n - 0 3
J u l - 0 3
J a n - 0 4
J u l - 0 4
J a n - 0 5
J u l - 0 5
J a n - 0 6
J u l - 0 6
J a n - 0 7
J u l - 0 7
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
Rea l inte rest rates (LHS) CCL (RHS)
%
Source: Centaline Property Agency, CEIC
Stable prices. Barring external shocks that may result in
forced selling among existing home owners, residential
prices should remain broadly stable over the next 12 months.
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YTD, the government has sold 12 residential and
residential/commercial sites through tender for a total of
HK$18.2bn. We estimate that these sites will provide 4,800
units when completed, with >50% coming from the Tuen
Mun area. YTD, the government sold three lots in Tuen Mun
for HK$8.77bn in total, with c.2,500 units expected to be
built on the sites.
Projects along railways form key supply. YTD, about half of
land supply for development purposes have come from MTRC
tenders. MTRC successfully tendered out Lohas Park Packages
6 & 7 and Tin Wing Stop project to Nan Fung, Wheelock &
SHKP respectively. These three developments are expected to
provide 5,150 residential units when completed in 2021-22.
MTRC will offer one to two more packages at Lohas Park and
Yuen Long Station site (it acts as an agent for the government)
for tender before end-2015.
Elsewhere, Urban Renewal Authority awarded the
development rights for its Fuk Wing Street project, which will
offer 92 units upon completion, to Emperor International. In
total, we estimate that about 10,100 units will be built on
sites sold through tender by the government, MTRC and URA
YTD. This has yet to include redevelopment of ageing
buildings. Judging from the average number of completions
and take-ups during 1996-2014, land supply has normalised.
SHKP continues to be active in the land market with the
acquisitions of three lots YTD. Beside the Tin Wing Stop
development, the company also bought two other
residential or residential/retail sites in Tai Po and Tuen Munrespectively. These three projects will provide residential
GFA of c.2.1m sf and are planned for small-to-medium sized
units. We note that most of the sites SHKP acquired since
2014 will be used to build small-to-medium sized units,
which are more affordable to locals.
SHKP’s land acquisition YTD
Date Locat ion Usage GF A L and Prem
(sf ) (HK m)
F eb-15 Tin Wing Stop Tin Shui Wai R/C 982,280 1,520
Mar-15 TPTL 225 Tai Po R 900,508 3,480
Jun-15 TMTL 539 Tuen Mun R/C 354,566 1,319
Project/ Lot
No
Source: Company, Lands Department
Henderson Land paid HK$3.63bn for a residential lot in
Tuen Mun in Jun 15. This translates into an accommodation
value of HK$4,621psf, 25-59% higher than two lots nearby
sold in 2012 and 2013 respectively, reflecting the rising
price of land in that location. Located close to Harrow
International School, the site is earmarked for low-density
development with total GFA of 0.79m sf. Most of the units
should enjoy seaviews.
More China-based developers joining the game. CITIC
Pacific acquired a residential lot in Ma On Shan through
government tender for HK$1.469bn in May 15, which
exceeded market expectations. This translates into an
accommodation value of HK$6,502psf, 18% higher than
the amount that China City Construction-led consortium
paid for a site nearby and also the highest ever in the area.
This reflects CITIC Pacific’s aggressiveness in raising its land
bank in Hong Kong. This is CITIC Pacific’s first acquisition inHong Kong in 17 years. Upon completion, this residential
project will provide GFA of 225,900sf. The encouraging
tender results should facilitate future launches of Henderson
Land's Double Cove Ph 4 and 5 located in the proximity.
Besides, China Vanke expanded its footprint in Hong Kong
market with the acquisition of a residential site in Tuen Mun
for HK$3.82bn in Jul 15.
Sino Land returns to expansion mode. Sino Land acquired a
site in Sai Kung for HK$609m or HK$11,804psf. This low
density project will provide GFA of 51,591sf upon
completion. This acquisition should further strengthen Sino
Land’s presence in Sai Kung’s housing market. Followingthis purchase, Sino Land now has three projects in Sai Kung
with combined GFA of 0.47m sf. Similarly, small developers
such as Wang On Group and Chuang’s Consortium have
also replenished their land bank, capitalising on the
government’s increased land supply.
Housing supply is rising but not excessive. With the
government's concerted effort in expediting land supply and
developers' intention of building more small-sized units in
recent years, our analysis suggests that future housing
supply will normalise gradually in the years to come. We
estimate that new residential unit completions will average17,000 p.a. between 2015-18. This represents a 49%
increase from the 5-year average completion of c.11,400
units in 2010-14. Hence, we believe the developers will
maintain their reasonable pricing strategy to move sales.
Nonetheless, supply is by no means excessive from a
historical perspective. Between 1996 and 2014, the number
of new unit completions and take-ups averaged 18,300.
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Residential land sales YTD 2015
Date Project /Lot No Locat ion Locat ion Usage GF A Land
Premium
Land
Premium
D ev e lo pers Es t. n o of
units
(sf ) (HK m) (HK psf )
Gov ernment t ender
Jan-15 STTL 587 Shatin NT R 148,057 773 5,221 Wang On Group 400
Jan-15 KCTL 518 Kwai Chung NT R/C 55,521 372 6,700 Global Convention 80
Feb-15 TMTL 514 Tuen Mun NT R/C 143,054 429 2,997 Chuang's Consortium 250
Feb-15 NKIL 6532 Kowloon Tong Kln R 116,379 2,390 20,535 Kerry Props 50
Mar-15 TPTL 225 Tai Po NT R 900,508 3,480 3,864 SHKP 1,300
Apr-15 Lot 1909 in DD 100 Sheung Shui NT R 33,110 302 9,127 CSI Properties 6
Apr-15 Lot 1181 in DD 215 Sai Kung NT R 51,591 609 11,804 Sino Land 25
May-15 STTL 605 Ma On Shan NT R 225,913 1,469 6,502 Citic Pacific 220
Jun-15 TMTL 539 Tuen Mun NT R/C 354,566 1,319 3,720 SHKP 300
Jun-15 TMTL 500 Tuen Mun NT R 785,334 3,629 4,621 Henderson Land 1,000
Jun-15 Lot 1872 in DD Cheung
Chau
Cheung Chau NT R 29,364 69 2,346 Private developer 15
Jul-15 TMTL 541 Tuen Mun NT R/C 841,737 3,822 4,541 China Vanke 1,200
MT RC tender
Jan-15 Lohas Park Package 6 Tseung Kwan O NT R 1,474,200 3,345 2,269 Nan Fung 2,400
Feb-15 Tin Wing Stop Tin Shui Wai NT R/C 982,280 1,520 1,547 SHKP 1,500
Jun-15 Lohas Park Package 7 Tseung Kwan O NT R/C 1,235,277 3,880 3,141 Wheelock & Co. 1,250
URA T ender
Mar-15 Fuk Wing Street project Sham Shui Po Kln R/C 54,142 Emperor International 92
Source: Lands Department, Local press, DBS Vickers
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Office
Central office market heating up. Leasing activities in
Central’s office market has been gaining momentum,
especially after Apr 15. This was fuelled by a sustained rise
in demand from Mainland China companies, banking and
financial institutions in particular. For example, Yunfeng
Capital, founded by Jack Ma, Chairman of Alibaba Group,
has leased 12,000sf at One Exchange Square while China
Merchant Capital has taken up 15,000sf at Three Pacific
Place. According to Jones Lang LaSalle, Mainland China
financial services and trading securities firms are an
increasingly important source of leasing demand in Central,
accounting for c.40% of net take-ups there in 1H15.
Another significant factor is that multinational financial
services firms are seeking space for expansion. Bloomberg
leased an additional c.40,000sf at Citibank Plaza forexpansion purposes, in addition to its existing space at the
nearby Cheung Kong Center.
This saw office vacancy in Central tightening considerably
from 3.7% in Dec 14 to 2.3% in May 15, the lowest since
the onset of Global Financial Crisis in Nov 2008. Top grade
office buildings, One IFC and Two IFC, are virtually fully
leased. Citibank Plaza, with vacancy of c.25% in Dec 14,
successfully tapped on the growing demand in Central,
securing high-profile tenants. Besides Bloomberg, BlackRock
and Thomson Reuters also took up space at Citibank Plaza,
relocating from Cheung Kong Center and Island East
respectively. New tenants included a new set-up in HongKong. With net take-up of >180,000sf over the past six
months, Citibank Plaza sees its committed occupancy level
recovering to c.95%.
With Central office vacancy reaching a six-year low, office
rental growth accelerated, particularly from 2Q15.
According to Jones Lang LaSalle, Central office rents rose
7% in 1H15, which contributed to the overall office rental
growth of 4.7% during the period. But office rents in
Central are still 8-9% lower than the previous highs in mid-
2011, and 16% off its historical peak recorded in 3Q08.
Office vacancy rate – Central
0.0
1.0
2.0
3.0
4.0
5.0
6.0
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
%
May-15: 2.3%
Source: Jones Lang LaSalle
Office vacancy rate – Overall
2.3 2.5
1.2
0.6
6.2
3.7
2.5 2.6
1.1
0.6
7.1
3.9
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
C e n t r a l
W a n c h a i /
C a u s e w a y B a y
H K E a s t
T s i m s h a t s u i
K o w l o o n E a s t
O v e r a l l
May-15 Apr-15%
Source: Jones Lang LaSalle
Office rental growth in 1H15
7.0
2.3
1.2
4.3
1.6
4.7
0
1
2
3
4
5
6
7
8
C e n t r a l
W a n c h a i /
C a u s e w a y B a y
H o n g K o n g
E a s t
T s i m S h a
T s u i
K o w l o o n
E a s t
O v e r a l l
%
Source: Jones Lang LaSalle
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Other sub-markets also registered gradual improvement in
vacancy rates. Vacancy at Tsim Sha Tsui was the lowest
among major office submarkets, at only 0.6% in May 15,
down from Dec 14’s 1.1%. The improvement was
underpinned by leasing demand from banks. For example,
UBS leased c.23,000sf at One Peking to house their wealth
management staff. With the tight vacancy environment,
office rents in Tsim Sha Tsui grew 4.3% in 1H15, according
to Jones Lang LaSalle.
Office vacancy rate – Tsim Sha Tsui
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
%
May-15: 0.6%
Source: Jones Lang LaSalle
Vacancy in Island East remained low at 1.2% in May 15,
with key office buildings virtually fully let. The plannedTaikoo Place Redevelopment Ph 2 would reduce space
availability and tighten vacancy further in the medium term.
Office vacancy rate – Island East
0.0
0.5
1.0
1.5
2.02.5
3.0
3.5
4.0
4.5
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
%
May-15: 1.2%
Source: Jones Lang LaSalle
Overall, the fall in office vacancy was modest, declining to
3.7% in May 15, from Dec 14’s 4.2%. Office vacancy would
have been even tighter if not for the relatively highervacancy of 6.2% for Kowloon East partly due to the
completion of some new buildings such as 15 Chong Yip
Street.
Office vacancy rate – Overall
0.0
1.0
2.0
3.0
4.0
5.0
6.0
7.0
8.0
9.0
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
%
May-15: 3.7%
Source: Jones Lang LaSalle
Office vacancy rate – Kowloon East
0.0
5.0
10.0
15.0
20.0
25.0
30.0
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
%
May-15: 6.2%
Source: Jones Lang LaSalle
Positive demand outlook. New financial liberalisation
measures between China and Hong Kong should provide a
boost to the Hong Kong financial market and be the key
force driving office demand growth in Central in the
foreseeable future.
Hong Kong’s Securities and Future Commission and China
Securities Regulatory Commission announced the scheme of
Mainland-Hong Kong Mutual Recognition of Funds, which is
implemented in Jul 2015. This scheme allows funds
domiciled and operating in Hong Kong to be distributed in
China and vice versa. In other words, this represents
opportunities for offshore funds to tap the enormous retail
fund market in China. In order to tap on this uncharted
market, an increasing number of fund houses are expected
to establish or expand their footprint in Hong Kong. This
should stimulate office demand, particularly in Central, over
time.
The proposed Shenzhen-Hong Kong Stock Connect is
widely anticipated to be launched in 2H15. Like Shanghai-
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Hong Kong Stock Connect pilot scheme, this mutual market
access scheme should open up more business opportunities
for brokers and related financial service providers. This in
turn translates into more office space required.
Central to lead the pack. All factors considered, we areupbeat on the outlook of Central office market, which
should stand out among the various locations. We forecast
office rents in Central will rise 10-12% p.a. in 2015. Other
decentralised submarkets, excluding Kowloon East, should
stage 5% rental growth in 2015. Strata-titled office
buildings in Kowloon East should see marginally lower rents
in 2015 given increased market competition, but rents for
those with single landlords are expected to remain stable.
As such, the rental differential between Central and
decentralised locations should widen again in the coming
year.
Grade A office rental gap between Traditional Centraland selected districts
3040
5060708090
100110120
A u g - 0 7
F e b - 0 8
A u g - 0 8
F e b - 0 9
A u g - 0 9
F e b - 1 0
A u g - 1 0
F e b - 1 1
A u g - 1 1
F e b - 1 2
A u g - 1 2
F e b - 1 3
A u g - 1 3
F e b - 1 4
A u g - 1 4
F e b - 1 5
Wanchai Quarry Bay
Tsim Sha Tsui Kowloon East
HK$psf
Source: Knight Frank, DBS Vickers
Fit-out cost has been rising consistently in recent years.
According to Colliers, fit-out costs (excluding I.T. and
furniture) increased from HK$400-1,000psf in 2012 to
HK$470-1,200psf in 2014. This represents 2-year CAGR of
8-10%. The high cost may discourage tenants from
relocating offices unless there are substantial rental cost
savings or productivity gains. Hence, we expect relatively
high retention rates.
Fit-out costs (excl I.T. and furniture)
0
250
500
750
1,000
1,250
2012 2013 2014
HK$psf
Source: Colliers
In 1H15, office price in Central rose 1.8%. An entire floor at
9 Queen’s Road Central fetched HK$480m or
HK$34,860psf, which is a new high for office property in
the city. The overall office capital values grew 1.7% in 1H15,
mainly led by Kowloon East.
Office capital value growth (1H15)
1.8
1.1 1.1
1.5
2.6
1.7
0
1
2
3
C e n t r a l
W a n c h a i /
C
a u s e w a y B a y
H o n g K o n g
E a s t
T s i m S h a
T s u i
K o w l o o n
E a s t
O v e r a l l
%
Source: Jones Lang LaSalle
Billion Development a key player in office sales market.
Unlisted Billion Development is selling three newly built
office buildings in Kowloon East, including 10 Shing Yip
Street, 52 Tsun Yip Street and 15 Chong Yip Street, on a
strata-titled basis. The company also substantially pre-sold
its two commercial developments in Shatin (STTL 412 &
STTL 413) at an ASP of c.HK$7,000psf. These two projects
are close to each other near the Shek Mun MTR Station. Tai
Cheung also commenced the strata-titled sales of Metropole
Square in the area. This building was converted into officeuse under the government‘s revitalisation policy for
industrial buildings. Reportedly, four floors have been sold
for >HK$400m or HK$6,000psf so far.
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One HarbourGate in the limelight. In 2H15, One
HarbourGate in Hung Hom should remain as the focus in
the investment sales market. This project contains primarily
twin office towers erected along the Hung Hom waterfront
with GFA of 0.6m sf. Superstructure works are in progress
with project completion scheduled in 2016. Wheelock
intends to sell this office development on en bloc basis.
When completed, One HarbourGate will be one of the
iconic office developments along the coastline of Victoria
Harbour, an ideal location for large corporates to showcase
their brands. We believe that this project should appeal
strongly to renowned Mainland Chinese firms.
One HarbourGate (Wheelock & Co)
Source: DBS Vickers
Despite the double stamp duty, a rising number of
companies are considering buying instead of renting office
premises as long-term real estate solutions as this would
allow them to consolidate their scattered business units
under the same roof to enhance efficiency. According to
Property Consultant Colliers, the proportion of sales
transactions for office premises of >8,000sf GFA that are for
owner occupation has grown substantially from 17% in
2012 to 62% in 2015 while that for investments has
dropped from 83% in 2012 to 38% in 2014.
Ratio of investors and owner occupiers for salestransaction (over 8,000sf GFA)
83%74%
38%
17%
26%
62%
0%
20%
40%
60%
80%
100%
2012 2013 2014
Investor Owner Occupier
Double stamp duty
Source: Colliers
Kowloon East to dominate new office supply. This year, the
government continues to supply land for office development
in Kowloon East as part of its plan to energize the area into
CBD2. Two commercial lots were sold via tender in 1H15,
and will provide GFA of 1.37m sf when completed. Since Jul
2011, the government has sold seven commercial sites in
Kowloon East. Upon scheduled completion in 2015-19,
these sites will offer a combined GFA of 4.8m sf or 0.96m sf
p.a. on average.
The Link REIT ventures into office sector. In Jan 15, a
consortium between The Link REIT and Nan Fung won the
tender for a commercial site (NKIL 6512) in Kwun Tong for
HK$5.86bn or HK$6,630psf. This acquisition came shortly
after The Link REIT obtained unitholders' approval to modify
its investment mandate to include property development,
and also marked its first foray in Hong Kong office market.
Nan Fung has development expertise and this should help
mitigate any execution risk. The consortium plans to develop
the site into an office project with some retail element, with
GFA of 883,888sf. The Link REIT has a 60% stake and Nan
Fung has 40% in this office development which will be
retained for long-term investment upon completion.
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NKIL 6512 (The Link REIT and Nan Fung)
Source: DBS Vickers
In May 15, a consortium comprising Billion Development,
CSI Properties and Sino Land defeated twelve developers to
secure a commercial site in Kowloon Bay through
government tender for HK$3.04bn. This translated into an
accommodation value of HK$6,199psf, 7% lower than the
neighbouring site acquired by The Link REIT/Nan Fung
consortium. Upon completion, this site will provide GFA of
490,188sf for office use. Unlisted Billion Development has a
40% stake in this project, with CSI Properties and Sino Land
each holding 30%. Billion Development has good
understanding of the Kowloon East office market. The
company just completed three office developments in KwunTong. Its two completed office developments, Billion Centre
and YHC Tower, are close to the newly acquired site. Sino
Land has also developed two office projects in Kowloon Bay,
namely Exchange Tower and Kowloon East 18. Despite their
strong development expertise, the joint venture
arrangement enables the developers to share investment
risks.
NKIL 6313 (Billion Development, Sino Land & CSI Props)
Source: DBS Vickers
Redevelopment of Wharf T&T Square has commenced, with
demolition work in progress. Wharf T&T Square is located in
close proximity to Wheelock's One Bay East and Mapletree
Investment's office project along the Kwun Tong waterfront.
Wharf will redevelop this building into a commercial tower
which offers office GFA of 513,000sf, with full completion
scheduled for 2019.
Wharf T&T Square Redevelopment
Source: DBS Vickers
In order to maximise the development potential, New World
Development plans to redevelop the Kut Cheong Mansion
in Quarry Bay into an office building with GFA of 487,500sf.
Kut Cheong Mansion is located adjacent to AIA's Stanhope
House and just 3 minute walk from Quarry Bay MTR Station.
New World has a 90% stake in this redevelopment after
acquiring 50% interest from its parent Chow Tai Fook
Enterprise in Jan 2015. Demolition of the existing building
has commenced with project completion expected in 2018.
This, coupled with Swire Properties’ large-scale Taikoo Place
Redevelopment, will dominate new office supply in Island
East.
Kut Cheong Mansion Redevelopment (New World Dev)
Source: DBS Vickers
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Island East offices to benefit from infrastructure
improvements. Currently, Central-Wan Chai Bypass and
Island Eastern Corridor Link are under construction. Upon
completion in late 2017, the project provides a 4.5km long
dual three-lane trunk road with a 3.7km long tunnel,
connecting Rumsey Street Flyover at Central with Island
Eastern Corridor at North Point near City Garden. Travelling
time will be shortened to 5 minutes from >15 minutes
currently. With improved transportation infrastructure,
Island East should hold stronger appeal to office tenants in
the medium term.
Central-Wanchai Bypass & Island East Corridor Link
Source: Highway Department
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Major office supply
Pro jec t L oc at ion G F A (sf ) Dev elopers Remark s
2015
Tower 535 Causeway Bay 130,000 Phoenix Property Inv estors
A IL 354, 41 Heung Yip Road Wong Chuk Hang 323,958 Cheung Kong Property Completely sold
W50 Wong Chuk Hang 120,000 SHKP Almost sold out
2-12 Observ atory Road T sim Sha Tsui 165,000* Henderson Land/ Lai Sun Dev elopment Preleasing in progress
One Bay East Kwun Tong 1,024,700 Wheelock & Co Completely sold
52-56 Tsun Yip Street Kwun Tong 371,176 Billion Dev elopment (Unlisted) On sale
15 Chong Yip Street Kwun Tong 266,447 Billion Dev elopment (Unlisted) On sale
2 Ng F ong Street San Po Kong 314,214 Billion Dev elopment (Unlisted) F or sale
2016
Shanghai Commercial Bank Building Central 114,000 Shanghai Commercial Bank Partly for own use
Chinachem Central I Central 81,700 Chinachem
One HarbourGate Hung Hom 590,000 Wheelock & Co Apply ing for pre-saleconsent
Goldin F inancial Global Centre Kowloon Bay 852,501 Goldin F inancial
STTL 463 Shatin 430,395 Billion Dev elopment (Unlisted) Largely sold
STTL 412 Shatin 351,980 Billion Dev elopment (Unlisted) Largely sold
2017
Chinachem Central II Central 90,000 Chinachem
NKIL 6311 Kowloon Bay 333,121 Priv ate dev eloper
NKIL 6312 Kowloon Bay 550,030 Swire Properties
KTIL 174 Kwun Tong 471,229 SHKP/Wong's International
2018 and beyond
Sunning Plaza/ Sunning Courtredevelopment Causeway Bay est.360,000 Hysan Dev elopment
Asian House redev elopment Wan Chai 314,000 Chinachem
Kut Cheong Mansion Redevelopment Quarry Bay 487,500 New World Dev elopment
Taikoo Place redev elopment (Ph1) Quarry Bay 1,020,000 Swire Properties
Taikoo Place redev elopment (Ph2) Quarry Bay 980,000 Swire Properties
8-10 Wong Chuk Hang Road Wong Chuk Hang 382,500 Swire Properties/China Motor Bus
34 Wong Chuk Hang Road Wong Chuk Hang 166,400 Priv ate dev eloper
A IL 309 Wong Chuk Hang 139,000 Priv ate dev eloper
New World Centre redevelopment Tsim Sha Tsui TBD New World Dev elopment
NKIL 6410 Cheung Sha Wan 193,535 F irst Group (Unlisted)
NKIL 6313 Kowloon Bay 490,188 Billion Dev / Sino/ CSI Props
KTIL 761 Kwun Tong 660,301 Mapletree Inv estment
Wharf T&T Square Redev elopment Kwun Tong 596,200 Wharf
NKIL 6512 Kwun Tong 883,888 The Link REIT/ Nan FungKCTL 495 Kwai Chung 228,033 Hon Kwok Land
* Include retail portionsSource: Company, Local presses, DBS Vickers
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Retail
Falling retail sales. In the first five months of 2015, overall
retail sales value in Hong Kong fell 1.8% y-o-y to HK$209bn,
led by a decline in sales for expensive hard luxuries. If not
for the 19% growth in other consumer durable goods from
sales of certain smartphone and smartwatch models, retail
sales value would have fallen by a larger 3%. In addition,
some department stores had brought forward the seasonal
sales promotion period, thus mitigating the decline in retail
sales.
Monthly growth of total retail sales value
(20)
(10)
0
10
20
30
40
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
Yoy, % May-15: -0.1% y-o-y
5M15: -1.8% y-o-y
Source: CEIC
Yearly growth of total retail sales value
(5)
0
5
10
15
20
25
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
5 M 1 5
Yoy, %
Source: CEIC
Monthly retail sales value growth – Other consumerdurable goods
(50)
0
50
100
150
200
J a n - F e b 0 8
M a y - 0 8
A u g - 0 8
N o v - 0 8
M a r - 0 9
J u n - 0 9
S e p - 0 9
D e c - 0 9
A p r - 1 0
J u l - 1 0
O c t - 1 0
J a n - F e b 1 1
M a y - 1 1
A u - 1 1
N o v - 1 1
M a r - 1 2
J u n - 1 2
S e p - 1 2
D e c - 1 2
A p r - 1 3
J u l - 1 3
O c t - 1 3
J a n - F e b 1 4
M a y - 1 4
A u - 1 4
N o v - 1 4
M a r - 1 5
Yoy, % May-15: 62.3% y-o-y
5M15: 19.0% y-o-y
Source: CEIC
Slowing inbound tourism was the culprit. Jewellery, watches
& clocks and valuable gifts posted a 16.8% drop in sales
value in 5M15. The ongoing anti-corruption campaign in
China continued to weigh on demand for expensive luxury
goods. More importantly, foreign currency depreciation is
encouraging more tourists to spend overseas instead of
Hong Kong and this has taken a toll on sales of the above
items. In 1Q15, Mainland tourist arrivals to Japan more than
doubled in 5M15. On the other hand, the growth in the
number of Mainland Chinese visiting Hong Kong has been
moderating since the beginning of 2015 and even posted a10% decline in Mar 15. As growth in Mainland Chinese
tourist arrivals slowed to 5.9% in 5M15 from 2014’s 16%,
total visitor arrivals in Hong Kong grew by just 3.9% to 25m
in 5M15. Those under the Individual Visit Scheme recorded
declines of 4.8-15.7% y-o-y between Mar and May 2015.
As such, growth for 5M15 narrowed to a marginal 0.4%
against 2014’s 14.1%
Monthly retail sales value growth – jewelleries/watches
(40)
(20)
0
20
40
60
80
J a
n - F e b 0 8
M a y - 0 8
A u g - 0 8
N o v - 0 8
M a r - 0 9
J u n - 0 9
S e p - 0 9
D e c - 0 9
A p r - 1 0
J u l - 1 0
O c t - 1 0
J a
n - F e b 1 1
M a y - 1 1
A u g - 1 1
N o v - 1 1
M a r - 1 2
J u n - 1 2
S e p - 1 2
D e c - 1 2
A r - 1 3
J u l - 1 3
O c t - 1 3
J a
n - F e b 1 4
M a y - 1 4
A u g - 1 4
N o v - 1 4
M a r - 1 5
Yoy, % May-15: -15.0% y-o-y
5M15: -16.8% y-o-y
Source: CEIC
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Growth of visitor arrivals from China to Japan
0
500,000
1,000,000
1,500,000
2,000,000
2,500,000
2 0 0 0
2 0 0 1
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0 8
2 0 0 9
2 0 1 0
2 0 1 1
2 0 1 2
2 0 1 3
2 0 1 4
5 M 1 5
May-15: 134% y-o-y
5M15: 106% y-o-y
Persons
Source: Japan National Tourism Organisation
Visitor arrival growth - overall
(20)
(10)
0
10
20
30
40
50
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
Yoy, %May-15: 3.6% y-o-y
3.9% y-o-y5M15:
Source: CEIC
Visitor arrival growth - China
(20)
(10)
0
10
20
30
40
5060
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
Yoy, %May-15: 5% y-o-y
5.9% y-o-y5M15:
Source: CEIC
Visitor arrival growth – Individual Visit Scheme
(30)
(20)
(10)
0
10
20
30
40
50
60
70
80
J a n - 0 8
J u l - 0 8
J a n - 0 9
J u l - 0 9
J a n - 1 0
J u l - 1 0
J a n - 1 1
J u l - 1 1
J a n - 1 2
J u l - 1 2
J a n - 1 3
J u l - 1 3
J a n - 1 4
J u l - 1 4
J a n - 1 5
Yoy, %May-15: -4.8% y-o-y
0.4% y-o-y5M15:
Source: CEIC
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Value growth of total restaurant receipts
(1)
1
3
5
7
9
11
1 Q 0 9
2 Q 0 9
3 Q 0 9
4 Q 0 9
1 Q 1 0
2 Q 1 0
3 Q 1 0
4 Q 1 0
1 Q 1 1
2 Q 1 1
3 Q 1 1
4 Q 1 1
1 Q 1 2
2 Q 1 2
3 Q 1 2
4 Q 1 2
1 Q 1 3
2 Q 1 3
3 Q 1 3
4 Q 1 3
1 Q 1 4
2 Q 1 4
3 Q 1 4
4 Q 1 4
1 Q 1 5
Yoy, %
Source: CEIC
Multiple entry arrangements for Shenzhen residents
tightened. In view of rising public concerns over social
impact brought about by excessive growth in the number of
Mainland Visitors (especially in districts near the border),
the ”One Visa, Multiple Entry” arrangement was modified
in Apr 2015. Since the government has been reviewing the
multiple entry permit arrangement for almost a year, this
news was not a surprise to the market.
First introduced in 2009, the multiple entry permit
arrangement allows qualified Shenzhen residents to make
unlimited visits to Hong Kong. This boosted the growth of
day-trippers since then, with the number of Mainland
tourists visiting Hong Kong under the ”One Visa, Multiple
Entry” surging rapidly from 1.47m in 2009 to 14.85m in
2014, which represented 31.4% of total China tourist
arrivals.
Number of visitors under “ Multiple-entry endorsements”
0%
5%
10%
15%
20%
25%
30%
35%
0
3
6
9
12
15
2009* 2010 2011 2012 2013 2014
Visitors under Multiple-entry endorsements (LHS)
% of visitors from China (RHS)
m persons
Source: Hong Kong Tourism Broad
With the implementation of the modified multiple entry
permit arrangement, eligible Shenzhen permanent residents
are allowed to visit Hong Kong once a week. This should
crack down the activities of grey good traders from
Shenzhen. Some same-day visitors who currently travel to
Hong Kong frequently would also be impacted by new
policy. It is estimated that the modified policy will cut the
number of Mainland tourist arrivals by 4.6m p.a..
China day-trippers as a % of total China visitor arrivals
3 0 . 2
3 2 . 8 3
6 . 4
3 6 . 0
3 7 . 9 4
1 . 3 4
4 . 4
4 6 . 2
4 8 . 5 5
1 . 6 5
6 . 7
5 8 . 1
5 9 . 6 6
2 . 6
0
10
20
30
40
50
60
70
2 0 0 2
2 0 0 3
2 0 0 4
2 0 0 5
2 0 0 6
2 0 0 7
2 0 0�