Download Property Activity Aggressive offers and surging lot prices in eastern

Aggressive offers and surging lot prices in eastern China
Beijing North Star buys US$1.2 billion site in Changsha
Beijing North Star on the move
Poly Real Estate Group buys 5 sites in 3 cities for over
US$810mn
Builders bank land as supply tightens
Property Activity China Merchants Prop Dev & Wharf Holdings jointly acquire
land in Suzhou
Sino Land-led consortium secures Chongqing site for
US$558mn
Sino Group is increasing its landstock in Southwest China
Guangdong housing prices surge 20%
KWG Property Holding acquires 3 sites in Chengdu
Guangzhou reclaims unused land to boost housing supply
Zendai joins Shan Shan in bid to build China Silicon Valley
Luxury fashion retailer, Lane Crawford to tap market in Beijing
Olympics heat up Beijing hotel industry
Jin Jiang Hotel sells Jiulong hotel stake
Greenland Group acquires Jin Jiang’s Jiu Long Hotel
CapitaLand sets up new funds to tap China and India
China's Franshion Properties launches roadshow
Shui On Land unit to buy remaining 30 pct of Shanghai project
Economimics & for US$115mn
Retail
Poly Real Estate Group targets up to US$2.6bn in A-share sale
Harvest Fund Management wins approval to invest overseas
under QDII
Morgan Stanley, others continue China fund JV quest
Symbolic deal sets tectonic shift in Asian real estate market
China June consumer confidence 97.5 pts, up from 96.7 pts in
May - Stats
Flush with overseas cash, China gets a ratings boost
China's short-term foreign debt hits new high
Rural minimum living subsidy system to be established
throughout China
Top leadership warns on overheated economy
Economist: Chinese economy still flying high and looking
good
China central bank hikes reserve requirement ratio by 50 basis
points
Illegal government charges fuelling China's soaring house
prices
Policies
& Regulation
Expert: more curbs possible for real estate
Anti-money laundering screws tightened
China state planner reins in local Gov’t price rises
New rule to protect historical legacies
Regulator tells banks to limit new loans
Hong Kong trails Singapore amid unfavorable conditions for
REITs
Shanghai to blacklist office buildings with poor air quality
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allegations
Foreign banks offer new mortgage loans to compete
Chinese police cracks down on fake investment cases
Saving energy with ‘Casual Friday’ well received
RBS, Grosvenor trade first Japan property swap
Ambition, vision, insight, timing, and……personal charm.
Property Activity
Aggressive offers and surging lot prices in eastern China
Aggressive offers and surging lot prices in eastern China presage costlier homes
On June 21, Hong Kong and foreign developers bidding in an auction at Shanghai's Housing and
Land Bureau were stunned when a residential site in Yangpu district was knocked down at a 90
per cent premium to the price of a nearby site sold seven months earlier.
The 59,253 square metre site in New Jiangwan City, a newly developed area in Yangpu, triggered
a fierce bidding war between 14 mainland rivals, before it was eventually sold to Hong Kong-listed
mainland developer Greentown China Holdings (SEHK: 3900) for 1.26 billion yuan.
The price tag represented an accommodation value (the land price in terms of total planned floor
area) of 12,500 yuan per square metre, compared with the 6,600 yuan per square metre paid by
China Resources (SEHK: 0291) Land late last year for a nearby site.
"[Mainland developers] are very aggressive. I didn't even have a chance to raise my hand,"
commented a rueful senior executive of a Hong Kong developer who requested not to be
identified.
"We had planned to make a bid of 900 million yuan, which was about 75 per cent higher than the
opening bid of 516 million yuan and which we thought was very aggressive."
But mainland developers continued to make higher bids, with Longhu Group from Chongqing and
Greentown fighting for the site after the bid had exceeded 1.2 billion yuan.
The auction result was a typical outcome of the frenzied bidding and surging land prices in the
mainland. But there was more to come.
Four days later, on June 25, Hangzhou Tourism Estate, a developer in Hangzhou, the capital of
Zhejiang province, bought a residential site in Gongshu district for an accommodation value of
12,245 yuan per square metre.
Once again the outcome set a new benchmark for a development site in the district, as the selling
prices of existing residential projects near the auctioned property averaged 10,500 yuan per
square metre before the deal was done.
And, two weeks ago, Zhejiang Youngor Group, a developer in Zhejiang, outbid Singapore
developer CapitaLand in a land auction and acquired a residential site on Xueyuan Road in Xihu
District in Hangzhou for a land premium equivalent to 15,712 yuan per square metre.
Yesterday, Beijing North Star, in a joint venture with Beijing Urban Development Group, paid 9.2
billion yuan for a site in Changsha, Hunan province - the most expensive mainland site in terms of
total lump sum.
New benchmarks are likely when a 13,709 square metre prime office-commercial development in
central Shanghai comes up for sale next month. It is expected to be sold at an accommodation
value of more than 30,000 yuan and set a new record price for a public land sale in the city.
Andrew Ness, executive director of CBRE Research, a unit of CB Richard Ellis, attributed the
rising land prices to the fast expansion of a new breed of developers in eastern China, especially
in Zhejiang province.
Having accumulated years of experience and establishing a relatively stable market position, the
developers had begun to target a somewhat higher market segment, he said.
Several were also preparing to move on to the international stage by listing their companies
abroad and therefore repositioning themselves as new brand names in mainland property
development, he said.
"Their development strategies do not necessarily anticipate huge profits from the projects acquired
recently. Rather, their priority is to establish their brands as major players in the mainland
development market," he said.
"Once they have established the credibility and desirability of their brands - and prices in the
high-end residential market segment have risen further - they would expect to make much larger
profits by gradually marking up prices in later phases of these same projects."
DTZ (Shanghai) investment director Jim Yip Kin-shing described the situation of rising land costs
as similar to Hong Kong in 1996-1997.
"Flour costs higher than bread," said Mr Yip, meaning land costs were higher than the selling
prices of completed units in the same areas. In Hong Kong at the time, developers were
overoptimistic about the outlook for property prices and were left to rue their enthusiasm when the
property bubble burst during the regional financial crisis that followed in 1997-1998.
Could a rerun of these events be under way in the mainland's red-hot property market?
Not so, said Solo Cheung Wing-shun, the general manager for sales of Orient Overseas Real
Estate Group. He said the big difference between the two situations was that in the mainland
today, demand remained strong and buyers were plentiful and wealthy enough to support the
property market.
Mr Ness agreed. Hong Kong, despite the political uncertainty at the time, was a very mature
market in 1997, he said.
In the mainland, by contrast, the property market had only gradually evolved over the past 20
years and the growth potential remained huge because of the robust economy and a continued
inflow of overseas investments, he said.
The current surge in land prices would inevitably affect housing prices, said Mr Ness. But this
could serve to underpin buyers' confidence about selling their properties at a profit, he added.
For developers, a period of tighter margins lies ahead, but once the rise in land prices triggers a
rise in property prices, margins would return to normal, suggesting that over the medium term
there would be no slow-down in the appreciation of housing prices in Shanghai, he said.
Will rising prices attract more tightening measures?
Mr Ness said the mainland government would not be motivated by any attempt to re-introduce a
socialist spirit of egalitarianism to the country's property development sector and was unlikely to
crack down on the launching of luxury or high-end residential projects. Rather, it might aim to curb
speculative activities that had a distorting effect on mainland residential property prices.
Beijing North Star buys US$1.2 billion site in Changsha
Beijing North Star Co., a real estate arm of the municipal government, said its venture with another
developer agreed to buy a building site in Changsha, China, for 9.2 billion yuan (US$1.2 billion).
The acquisition is the first step to expand the development business outside China's capital,
Beijing North Star said yesterday in a statement to Hong Kong's stock exchange. Its shares
surged as much 12 percent to HK$6.91, and traded at a record HK$6.39, up 3.9 percent, at 12:30
p.m. in Hong Kong. That values the company at HK$43.5 billion ($5.6 billion.
Beijing North Star's purchase comes as larger Chinese developers expand land reserves because
government measures to cool a real estate bubble threaten to force smaller developers out of
business, reducing competition. Beijing had the third- highest gain among Chinese cities for home
prices last month and Changsha the seventh-highest, the National Development and Reform
Commission, China's top planning body, said this week.
Beijing North Star will own 80 percent of the venture in Changsha, the capital of the central
province of Hunan, with Beijing City Development taking 20 percent, according to the statement.
The city of 6 million people, according to the 2003 census, is where Mao Zedong attended high
school and teaching college in 1913-1918.
The 785,198-square-meter (8.5-million-square-foot) site will be developed for both residential and
commercial use, with a maximum of 3.8 million square feet of completed floor space, Beijing North
Star said in the statement.
Shares of Beijing North Star have surged 86 percent this year, outpacing the 17 percent gain in
the Hang Seng Index. The stock resumed trading this morning after being suspended yesterday.
Beijing North Star on the move
Beijing North Star Co, a real-estate arm of the municipal government, said its venture with another
developer agreed to buy a building site in Changsha, China, for 9.2 billion yuan (US$1.2 billion).
The acquisition is the first step to expand the development business outside China's capital,
Beijing North Star said on Wednesday in a statement to Hong Kong's stock exchange.
Its shares surged as much 12 percent to HK$6.91 (88 US cents), and traded at a record HK$6.39,
up 3.9 percent, at 12:30pm in Hong Kong on Wednesday. That values the company at HK$43.5
billion, Bloomberg News reported.
Beijing North Star's purchase comes as larger Chinese developers expand land reserves because
government measures to cool a real-estate bubble threaten to force smaller developers out of
business, reducing competition.
Beijing had the third-highest gain among Chinese cities for home prices last month and Changsha
the seventh-highest, the National Development and Reform Commission, China's top planning
body, said this week.
Poly Real Estate Group buys 5 sites in 3 cities for over US$810mn
Guangzhou-based developer Poly Real Estate Group said they have acquired new sites despite
government measures to deter builders from boosting their land banks.
Shanghai-listed Poly said it had bought five sites in three cities for more than 6.1 billion yuan
(US$810mn). It was unclear whether some or all of the new plots were included in the list of nine
property projects cited on Friday by the company as the reason for its plan to raise as much as
19.4 billion yuan from a share placement.
The five properties, with a combined area of more than 1.2 million square metres, are in Shanghai,
Hangzhou and Changchun.
The Shanghai sites, with a combined area of 408,373 sqm, will house residential towers, the
289,666 sqm Hangzhou plot will be a mixed residential and commercial project and the 502,645
sqm Changchun property - in which the company has a 51 per cent stake - will become a
residential development.
The National Development and Reform Commission last week proposed a ban on the pre-sale of
unfinished flats, hoping to force out speculators.
After the announcement, Poly shares rose 1.78 per cent to close at 69.16 yuan.
Builders bank land as supply tightens
China’s big developers are expanding their land reserves across the country in anticipation of a
surge in the real estate market.
Poly Real Estate Group Co acquired four land parcels with a combined site area of about 700,000
square meters in Shanghai and Hangzhou in Zhejiang Province on Tuesday and Wednesday.
Beijing North Star Co, together with Beijing City Development, announced yesterday it has bought
a 785,198-square-meter plot in Changsha in central China's Hunan Province.
The current implementation of the so-called "bidding, listing and auction" mechanism governing
public land transfers has led to fiercer competition among the country's developers and increased
land costs. Those factors are prompting domestic real estate companies to enlarge their land
banks at a faster pace, industry sources said.
Among the latest deals, Poly, China's largest state-owned developer, acquired three adjacent land
parcels covering a total 400,000 square meters in Shanghai's suburban Baoshan District for 3.24
billion yuan (US$420.7 million), or an average 5,877 yuan per square meter in terms of gross floor
area. Poly said it plans to build high-end residential properties on the sites.
Just a day after the deal, Poly secured another land plot in Hangzhou's Xiasha Township after
paying 2.28 billion yuan, or an average 3,326 yuan per square meter. The 289,666-square-meter
parcel is designated for commercial and residential use.
Meanwhile, Beijing North Star said yesterday that its venture with industry counterpart Beijing City
Developer has agreed to purchase a parcel in Changsha for 9.2 billion yuan.
China Merchants Prop Dev & Wharf Holdings jointly acquire land in Suzhou
China Merchants Property Development and HK’s Wharf Holdings jointly acquired an
183,600-sq-m residential site in Suzhou for RMB1.01 billion.
The two companies each hold a 50 percent stake in the project.
Currently, Wharf Holdings has several projects in Shanghai, including 3 luxury residential projects
(e.g. Willington Garden) and 1 Grade A office project on 1717 Nanjing West Road.
Sino Land-led consortium secures Chongqing site for US$558mn
A consortium led by HK developer Sino Land Co has bought a residential site in the mainland
China city of Chongqing for 4.18 bln yuan (US$558mn), the developer said in a statement.
Sino Land will own 50 pct of the site, while Chinese Estates Holdings and CC Land Holdings will
each take 25 pct.
The site, with a gross floor area of 1.03 mln square meters, will be developed into a high-end
residential project, the company said.
Sino Group is increasing its landstock in Southwest China
Tsim Sha Tsui Properties Limited, one of the listed companies of Sino Group, Hong Kong won a
new prime land in Chongqing for RMB 4.18 billion in auction on 30 July 2007. The land was
originally occupied by the Third Iron and Steel Factory of Chongqing, covering an area of 307.6
mu (about 205,086 m2).
With Jialing River in between, the land is northwest to Yuzhong peninsula, which is central
business area of the city. Guanyinqiao pedestrian street—the most popular and prosperous
commercial street of Jiangbei District to which the land belongs is right on the other side of it.
Location indicates great profit potential of the land, which can account for fierce competition
among developers both home and abroad. In addition to Sino Group, such local giants as Longhu
Real Estate, Jinke Group, Huayu Group Inc. along with Hutchison Whampoa Limited, Wharf
(Holdings) Limited and other well-known real estate corporations took part in the auction.
With rapid development of Chongqing, more and more investors and developers rush into the city.
According to a professional in this industry, hot transaction of properties nowadays means value of
the city has been aware of. However, worries come right after. As per GFA above ground reaches
RMB 3,390, selling price would possibly range from RMB 8,000 to 10,000.
Company Profile:
Sino Group is one of the leading property companies in Hong Kong. Widely diversified, the Group
comprises private holding companies owned by the Ng family, along with three publicly listed
companies:
•
Tsim Sha Tsui Properties Limited
•
Sino Land Company Limited
•
Sino Hotels (Holdings) Limited
Sino Group's core business is developing residential, office, industrial and retail properties for sale
and investment. It is also a major player in hotel investment, as well as hotel and club
management.
The Sino Group is proud to employ more than 8,000 highly motivated individuals dedicated to
"Building You a Better Hong Kong." Working hand in hand with a skilled, forward-looking
management team, they have earned the Sino Group an international reputation for distinctive
development projects, stringent quality standards and consistently high levels of customer
satisfaction.
The Sino Group also has a significant presence in Singapore, where its sister company, Far East
Organization, is the island nation's largest private property developer. Over the years, Far East
has brought more than 500 properties to life in Singapore. The company has won international real
estate's coveted FIABCI Prix d'Excellence in 1999, 2001, 2002 and 2003.
Yeo Hiap Seng, another sister company, specializes in the food and beverage industry in the
Asia-Pacific region and has established a profitable bridgehead in China's huge beverage market.
Yeo Hiap Seng has also diversified into real estate development in Singapore and elsewhere.
Guangdong housing prices surge 20%
Housing prices in southern China's Guangdong Province surged 20 percent from a year earlier in
the first half of this year.
Prices hit an average of 5,557 yuan (US$734) per square meter in the province, representing a
gain of 20 percent from a year ago, the Statistics Bureau of Guangdong said in a real estate
industry report released yesterday.
Prices in Shenzhen soared 42.1 percent in the first half to 13,178 yuan per square meter. Housing
prices in the city jumped 18.94 percent in the first half of 2006.
A report released by the country's National Development and Reform Commission on Sunday said
Shenzhen's housing price jumped 15.9 percent in June, with new apartments increasing 13.9
percent and second-hand homes climbing 16.1 percent.
Prices in the provincial capital Guangzhou also increased rapidly at 25.8 percent to 7,743 yuan per
square meter in the period, the bureau said.
In the first half, total sales of houses reached 148.75 billion yuan from January to June this year,
35.7 percent higher than a year ago.
Investment flowing into the sector topped almost 100.12 billion yuan, a year-on-year gain of 32.1
percent.
Housing prices in China's 70 major cities surged an average of 7.1 percent in June from a year
earlier, led by strong gains in Beijing and Shenzhen, according to the National Development and
Reform Commission's Sunday report.
Property prices in Beijing rose 9.5 percent in the month from a year earlier. New property prices
surged 10 percent and second-hand homes were up 9.4 percent, the report said.
Shanghai reported a mild year-on-year growth of 1.2 percent in June, and second-hand
apartments in the city were priced 1.5 percent higher from a year earlier, the commission said.
China last Friday announced it raised the one-year benchmark lending rates by 0.27 percentage
points to 6.84 percent from Saturday and raised deposit rates from 3.06 percent to 3.33 percent.
KWG Property Holding acquires 3 sites in Chengdu
Guangzhou-based developer KWG Property Holding said they have acquired new sites despite
government measures to deter builders from boosting their land banks.
KWG, which raised HK$4.55 billion in a Hong Kong initial public offering this month, said
yesterday it had acquired three sites in Chengdu for 3.6 billion yuan through an auction.
It plans to turn one of the sites into a high-end residential complex and merge the other two into a
mixed residential-commercial development. Total gross floor area is 497300 sqm.
The National Development and Reform Commission last week proposed a ban on the pre-sale of
unfinished flats, hoping to force out speculators.
KWG's stock closed up 3.2 per cent at HK$9.97.
Guangzhou reclaims unused land to boost housing supply
South China's Guangzhou City decided to reclaim 80 sites to stop land waste and increase
housing supply, Nanfang City News reported today.
The 80 plots cover a combined area of 1.39 square kilometers and are among 96 sites that the
government discovered during a citywide survey in the first half of this year, the report said.
The government urged developers to start construction at the other 16 plots within a year, the
report said. It added that construction delays at these sites were not caused by the developers.
The Statistics Bureau of Guangdong said last week that housing prices in Guangzhou increased
25.8 percent in the first half of this year to an average of 7,743 yuan (US$1,024) per square meter.
Guangzhou, the capital of Guangdong Province, has retrieved 24.46 square kilometers of unused
land since 2003. According to the report, many developers had left acquired land vacant at the
same time the city faces a potential shortage of homes.
Su Zequn, a vice mayor of Guangzhou, said the move can help regulate the real estate market
and speed up construction to ease the supply strain.
Su said local authorities will use satellites to ensure land is used.
Zendai joins Shan Shan in bid to build China Silicon Valley
Shanghai Zendai Properties Limited announced yesterday one of its subsidiaries has entered into
a partnership with Shan Shan Investment to jointly develop a technology valley in China's northern
Hebei Province.
Under a framework agreement signed last week, Zendai Land will acquire 30 percent of the
registered capital of Zhongke Langfang Technology Valley Co Ltd from Shan Shan for 90 million
yuan (US$11.69 million).
Following the acquisition, registered capital of the company will be increased to 550 million yuan in
which Zendai will contribute 157.5 million yuan.
The two sides will also form a new joint venture company to develop commercial properties in the
Zhongke Langfang Technology Valley in Langfang, a city about 40 kilometers from Beijing, Zendai
said in a statement to the Hong Kong stock exchange yesterday.
Zendai will own 70 percent of the joint venture with Shan Shan taking the balance.
The joint venture will have an initial registered capital of 200 million yuan which will be increased
by stages to 550 million yuan, according to the statement.
Zendai Properties, a diversified property development company specialized in development,
investment and management of residential and commercial properties in Shanghai, its
neighboring Zhejiang and Jiangsu provinces as well as northeast China, said the deal will enable
the company to establish its presence in the Bohai Bay Rim in north China and possibly help it
increase land reserves by about one million square meters in gross floor area.
Covering a total site area of about 3.3 million square meters, the technology valley, aimed to be
developed into China's Silicon Valley by its operator, will have about 30 percent of area
designated for commercial property development, according to the statement.
Shan Shan Investment is a privately owned conglomerate principally engaged in fashion and
apparel, science and technology development, trading, biotechnology and metallurgy.
Luxury fashion retailer, Lane Crawford to tap market in Beijing
Hong Kong fashion retailer Lane Crawford said today it will open a three-story shop in Beijing that
sells more than 600 designer brands like Prada and Stella McCartney, tapping the growing
demand for luxury goods in China.
The 300 million Hong Kong dollars (US$38.3 million) store, encompassing 7,200 square meters,
will open in October, Lane Crawford President Jennifer Woo said at a press conference.
"With the ever increasing number of high net worth individuals and affluent customers supported
by an inspirational market of approximately 4 million in Beijing, we believe there are exciting
opportunities for Lane Crawford in this market," she said.
The number of affluent Chinese customers is growing by 19 percent a year, said Bonnie Brooks,
president of Lane Crawford Joyce Group, the parent company of Lane Crawford owned by
property tycoon Peter Woo.
The parent company operates more than 450 stores in the Asian region, including 233 stores in
China. The group forecasts sales in 2007-08 to exceed HK$7.8 billion.
"The customers in China, in terms of our experience, are more and more fashion-conscious,"
Brooks said.
Lane Crawford, the group's key business driver, is currently the leading designer fashion store in
Hong Kong, with four outlets in the territory.
Woo said Lane Crawford also expects to add stores in Shanghai and the southern Chinese
gambling enclave Macau within five years. She declined to provide details.
Olympics heat up Beijing hotel industry
With the Olympics fast approaching, Beijing has become the hot spot for all types of hotels
The Sun Dong An Plaza, located at the center of Beijing's "Golden Street"- Wangfujing, is
undergoing an overall renovation with a budget of 200 million yuan (US$26 million). In May, a
budget hotel Motel 168, across the street from the plaza, opened its doors.
In Beijing's central business district (CBD), three of the four golden triangle properties under the
Guomao Bridge are now fully occupied. The Beijing Yintai Center, standing 250 meters high and
located in the southwestern corner of the area, has been under around-the-clock construction for
months. Thus far, the work has progressed smoothly and the facility is on track to open later in
2007.
Park Hyatt, one of the world's premium hotel brands, has only 19 hotels around the world. The one
in the Beijing Yintai Center is the first Park Hyatt in China and its room rate is even higher than the
Grand Hyatt Shanghai. Both Grand Hyatt and Park Hyatt belong to Hyatt Hotels Corp., the world's
largest private hotel management company. Park Hyatt is their premium brand.
The Beijing Tourism Administration estimates that the average daily tourist volume in Beijing will
reach 500,000 during the 17 days of the Olympics, and demand for accommodation will peak at
this time.
Currently there are over 130 budget hotels in Beijing, providing a total of 13,000 rooms with an
average room rate of 240 yuan ($32). In 2007, budget hotel brands such as Home Inn, Jinjiang
Inn, Super 8, Motel 168 and 7 Days Inn will all open around 20 hotels each in Beijing. By the end
of 2007, the total number of budget hotels in Beijing is expected to exceed 200.
High-end hotels are also joining the Olympic frenzy. Prior to the 2008 Olympic Games, nine new
five-star hotels in Beijing will open, including the Hilton, Ritz-Carlton-Marriott, Sofitel,
InterContinental, Hyatt, Park Hyatt, Grand Hyatt, Shangri-La and Westin. These hotels are all
world-renowned brands and most are located in the CBD area and on the financial street.
Cao Nianguo, from the real estate advisor DTZ, estimated that during the Olympic preparation
period, the number of hotels in Beijing will increase from 700 at the end of 2006, to over 800. It is
estimated that the number of three-star to five-star hotel rooms will increase from 85,000 to
100,000 by mid 2008.
Best booked & rates increased
Although the opening ceremony of the 2008 Olympics is still more than a year away, bookings are
already heavy. Customers who have a reservation are, in many cases, required to pay the full
amount three months or even six months prior to the commencement of the Olympics.
According to news released by the Beijing Olympic organizer--BOCOG--on April 19, all of the best
hotels within the fourth ring road are nearly fully booked. Over 30,000 rooms in the 122 three-star,
four-star and five-star hotels that have signed contracts with BOCOG have been reserved by
BOCOG officials, international VIPs, sponsors and media organizations, accounting for over 70
percent of their total capacity. These hotel locations have a distinct geographical advantage as
they are all close to competition venues.
The large number of business travelers and tourists attracted to Beijing by its booming economy
continues to boost the demand for luxury hotels. According to statistics from real estate services
firm Jones Lang LaSalle, with the exception of the 2003 SARS epidemic, hotel room rates in
Beijing have been steadily growing at over 10 percent per year for five consecutive years.
However, the problem of a supply shortage in the Beijing hotel market still exists. By 2008, there
will be 300 hotels short of supply in Beijing, as the main focus at present is upgrading existing
hotels rather than constructing new ones.
The hotel industry has a great opportunity to cash in on the Olympics. Of the hotels that the
BOCOG has signed contracts with in Beijing, 38 five-star hotels charge a room rate of $353; 40
four-star hotels charge $272; and 34 three-star hotels charge $176 per night. These rates are
three to four times above the current corresponding rates in Beijing.
Officials from the Beijing Municipal Government and the Beijing Municipal Commission of
Development and Reform have already announced that they will not restrict hotel room rates
during the Olympics. Three-star hotel rates are expected to be around $350 and luxury five-star
hotel rates are set to range from $500-$800. For a normal bed in youth hotels, the rate will be
increased to 600-800 yuan ($80-$105), from the current 80-100 yuan ($11-$13).
Budget hotels highlight growth
Cao estimated that the hotel occupancy rate in Beijing in 2007 will increase to 72-75 percent from
the current level of 69 percent. Post-Olympics prospects, however, are less than promising. It is
estimated that by the commencement of the Olympics, there will be 6,500 five-star hotel rooms
within 4 km of the CBD. How to increase the post-Olympics occupancy rate of these rooms is
definitely an issue for hotel managers to consider.
At present, the proportion of luxury to mid-range to budget hotels in developed countries is 1:4:5,
whereas China's existing proportion seems unreasonable. There is a serious shortage of budget
hotels, and therefore, the increase of this type of hotel has become the focus of growth. There has
been little change in the return on investment for luxury hotels, which still require an extended
period to generate a decent return.
In summarizing the development trend of the hotel industry in Beijing, Cao pointed out:
Operational costs are continuing to increase. Average staff salary growth is higher than room rate
growth. If occupancy rates remain the same, profitability will continue to decrease.
Management and facilities are localized. Most of the hotel facilities are localized. The number of
foreign staff in five-star hotels has decreased to three to four people from the previous 20 to 30
people. Costs for foreign management, maintenance and upgrading have decreased.
Hotel customers are mainly Chinese. Attention should be paid to the change, in which the majority
of customers in star-rated hotels will be locals instead of foreign tourists.
A graph of the hotel industry appears like a dumbbell. On one side, five-star and six-star hotels are
emerging one after another; on the other side, budget hotels with a room rate of 200 yuan ($26)
are popping up everywhere.
According to Andreas Flaig, Executive Vice President of Jones Lang LaSalle Hotels, the cost of
building hotels in the Beijing metro area is very high and if hotels are not positioned in the
super-luxury category, they will find it hard to operate. Some existing small residential buildings
and company dormitories can be converted to budget hotels in order to harvest a profit with low
costs and a high occupancy rate.
Capital accelerates to occupy the market. By acquiring small-mid brands, large international
groups can quickly enter the hotel industry of Beijing.
Sharing the pie
Customers prefer renovated old hotels. Cao believes that investing tens of millions or even
hundreds of millions of yuan in renovating old hotels improves efficiency and profitability equally.
The Crown Plaza Hotel and Resort, located in Wangfujing, reopened in 2007 after a complete
overhaul. Its overall room rate has increased by 35 percent, its occupancy rate has reached 80
percent and the ballroom rental rate has increased by 30 percent.
Taking advantage of the surrounding environment to improve supporting facilities is also another
trend. In the past, hotels used to occupy stand-alone buildings. Now, hotels usually reside in an
integrated commercial complex so that they can take advantage of facilities in the surrounding
shopping centers and tourist destinations to provide comprehensive services and improve their
overall competitiveness.
The Oriental Plaza, standing on Chang'anjie Avenue, is home to the longest indoor shopping
street in Asia, eight 5-A office buildings and dozens of Fortune 500 companies, all of which have
provided stable high-end business and tourist customers for the Grand Hyatt Beijing. Beijing China
Central Place, completed in 2007, contains a dozen of the world's top businesses, a gigantic
shopping mall and two five-star hotels--the Ritz-Carlton and JW Marriott.
Increased Olympic themes and local cultural themes are something hoteliers are latching onto.
Chinese restaurants are currently the most expensive and most luxurious restaurants in most
hotels, and their turnover is higher than that of Western restaurants. Chen Jian, Chairman of the
Beijing Olympic Economy Research Association, suggested that the focus should be on themes
creating Olympic cuisine, providing traditional Chinese food, Chinese local cultural exhibitions and
promotions. Efforts such as these will greatly benefit any hotel.
Trying to obtain the qualification for receiving Olympic guests is key. The qualification for receiving
Olympic guests will undoubtedly generate the most profit during the Olympics. Xiang Ping, Vice
Director of BOCOG's Games Services Department, stated that the current 112 star-rated hotels
that have obtained qualification are mainly located to the north of Chang'anjie Avenue, close to the
competition venues and Beijing's luxury shopping district. However, there is still a large gap in
guest accommodation capacity. The first group of 253 non-star-rated hotels have passed
inspection and obtained the qualification for receiving Olympic guests. Xiong Yumei, Deputy
Director of the Beijing Tourism Administration, estimated that by 2008 there will be 1,000 qualified
hotels. These hotels will provide over 50,000 rooms, with more than 100,000 beds, in 2008.
Utilizing environment-friendly facilities and those for the disabled is important. Xiang suggested
that hotels should use environment-friendly construction materials and paint for renovations, and
pay attention to details including reclaimed water, waste recycling, and water- and
electricity-saving. Facilities also should be offered for disabled people.
Pre-heating the exhibition economy is important to surviving in the post-Olympic era. Luxury hotel
revenue comes mainly from conferences and exhibitions. According to Cao, historically, each
Olympic hosting city's post-Olympic turnover in hotels, office buildings and commerce declined
significantly. However, the exhibition industry experienced growth instead. Many international
conferences tend to be held in cities that were recent Olympic hosts.
The Beijing Municipal Government has won the hosting right for a dozen international conferences
during 2008-09. Over 10 hotels, including the China World Hotel, have completed an overhaul of
their conference facilities.
Jin Jiang Hotel sells Jiulong hotel stake
Jin Jiang Hotel has signed a transfer agreement with Greenland Business to sell 44% of the stake it holds in Shanghai
Jiulong Hotel's stake to the latter for RMB112 million in cash.
According to local media sources, after the transfer Jin Jiang will only hold 11% of the stake at Jiulong Hotel, while
Greenland Business' stake at the hotel will increase to 89%.
In addition, Jin Jiang Hotel has signed a sponsorship agreement with Greenland Business and Greenland Group,
consigning Greenland Group, the parent company of Greenland Business, to provide payment sponsorship for the transfer
agreement.
Jin Jiang Hotel says that by the end of June 2006, Jiulong Hotel's shareholder stake value reached an estimated RMB255
million and the hotel's net profit in the year 2005 and 2006 reached RMB888,000 and RMB1.065 million, respectively.
Jin Jiang Hotel estimates in local media that by selling 44% of the Jiulong Hotel's stake, it will achieve a pre-tax income of
RMB81.878 million.
Greenland Group acquires Jin Jiang’s Jiu Long Hotel
Jin Jiang International Hotels Group yesterday announced it will transfer its 44% equity stake (out
of its 55% equity stake) in Jiu Long Hotel to Greenland Commercial for a cash consideration of
RMB112 million.
Following the transaction, Jin Jiang International’s equity interest in Jiu Long Hotel will be reduced
to 11%, while that of Greenland Commercial will be increased to 89%.
Located in Hongkou district, the 25-storey Jiu Long Hotel building has a total GFA of 32,000 sq m
with 364 rooms.
Economics & Retail
CapitaLand sets up new funds to tap China and India
CAPITALAND Limited said yesterday it has earmarked US$1.2 billion to establish two new retail
property funds to exploit the abundant investment opportunities in China and India.
CapitaRetail China Development Fund II and CapitaRetail India Development Fund will each be
valued at US$600 million, Southeast Asia's largest developer said in a statement to the Singapore
stock exchange yesterday.
CapitaLand plans to put in about 45 percent of the investment in CapitaRetail China II and 40
percent in CapitaRetail India, with remaining stakes coming from insurance companies, pension
funds and corporations, according to the statement.
The two funds will allow the company to further strengthen its position as a major retail real estate
player in China and expand its retail and fund management footprint in India.
CapitaRetail China II, like the previous CapitaRetail China I which has a similar fund size of
US$600 million, will also invest in retail mall development projects on the Chinese mainland. In
addition, the new fund will invest in retail assets from CapitaLand's joint ventures in China.
Earlier this month, CapitaLand Retail Ltd, the retail property arm of CapitaLand, signed an
agreement with China Vanke Co to jointly build shopping malls in Vanke's residential projects in
the country.
CapitaRetail India is the first fund of its kind launched by the Singapore developer to invest in retail
mall projects in India.
CapitaLand, which has 14 private property funds and five listed real estate investment trusts under
its wings, hopes to manage assets totaling S$18 billion (US$11.9 billion) by the year's end.
China's Franshion Properties launches roadshow
Franshion Properties, the Sinochem subsidiary, aims to raise US$424 million via an IPO in Hong
Kong to fund further real estate projects and proposed acquisitions.
Chinese real estate developer and investor, Franshion Properties (China), has launched a
roadshow for its Hong Kong initial public offering this week, in an attempt to raise up to HK$3.3
billion ($424 million) primarily for project development and acquisitions.
Franshion is offering 1.41 billion new shares, or 30% of the enlarged share capital, at a price
ranging from HK$1.85 to HK$2.35. It has a typical structure, with 90% of the deal sold to
institutional investors and cornerstones, while the balance of 10% is earmarked for the retail
tranche. A 15% greenshoe could increase the deal size to $487 million.
“The company owns a portfolio of high-quality assets, which include properties located in prime
locations in China,” says a source. “In addition, it has a close relationship with the Sinochem
Corporation.” advertisement
The company is currently a 100% subsidiary of Sinochem Corporation, a state-owned enterprise
in China, which is under the direct control of the State-owned Assets Supervision and
Administration Commission of the State Council. It focuses on the development, sale, leasing and
management of commercial and residential properties, which are located in Shanghai, Beijing and
Zhuhai.
Estimates suggest the developer will reach a net profit of HK$419 million by the end of 2007. In
2006, Franshion grew net profit by 6.7% to HK$169.5 million.
It is noteworthy that up until now Franshion’s income has not included the rental, hotel operation
and property management fee income and potential income from a string of acquisitions, which
are expected to be completed by year end.
Before the IPO, Franshion agreed to acquire 75% of both Sinochem Property Management and
Wangfujing Hotel Management from Sinochem for HK$826 million. The company will also buy a
50% share of Chemsunny for HK$1.4 billion. When the acquisitions are complete, the company
will fully own Sinochem Tower, Wangfujing Grand Hotel and Chemsunny Plaza, which are all
located in Beijing.
In addition, Franshion can exercise an option offered by Sinochem to acquire its indirect interests
in Jin Mao, Shimao Investment and Shanghai Yin Hui, which hold shares in various properties and
property development projects in China.
“I think the attractiveness of the company lies in the options offered by its parent company to
acquire key assets (Jin Mao, Shimao Investment and Shanghai Yin Hui), but therein also lies the
risk,” says an analyst close to the deal. “The prices for those acquisitions haven’t been set yet and
uncertainties remain. That’s why I think the offer is expensive if it prices at the top.”
The price range values the company at a 15%-30% discount of its net asset value pre-IPO,
according to the source.
There are no real comparables for Franshion as all the listed Chinese developers have different
property portfolios, according to the source, but China Resources Land may give investors some
idea about the valuation as both companies are backed by strong parent companies. China
Resources Land is currently trading around 2.9 times its 2006 NAV, according to another analyst.
The stock price of China Resources Land has surged by 50% since June to hit a high of HK$14.98
on July 24, but it dropped 7.8% in the following four trading days, after the Hang Seng Index shed
more than 700 points during the same period. It bounced back 3.7% yesterday to close at
HK$14.42
Irrespective of whether or not the offering is richly priced, a number of cornerstone investors have
already reserved around 28% of the deal. Chow Tai Fook owned by Cheng Yu Tung, the chairman
of the Hong Kong-listed New World Development, will purchase around 4.6% of the deal. Hong
Kong-listed New World China, in which the Cheng’s family owns a majority stake, will buy another
4.6% of the total shares issued. In addition, the government of Singapore Investment Corporation,
Stark Master Fund and Stark Asia Master Fund will purchase 9.2%, 7.4% and 1.8% respectively.
According to the preliminary prospectus, Sinochem will still own 70% of the company after the
offering. The proceeds raised will be used for funding acquisitions as well as for developing further
real estate projects. Deutsche Bank is the sole bookrunner.
The final price is expected to be set on August 10 and the trading debut is scheduled on August
17.
Shui On Land unit to buy remaining 30 pct of Shanghai project for
US$115mn
Shui On Land Ltd said its wholly-owned unit Shui On Development (Holding) Ltd has agreed to
acquire the remaining 30 pct stake that it does not own in a property development project in
Shanghai, for 892 mln hkd.
The company said in a statement that Shui On Development will buy the stake in Profitstock
Holdings Ltd, developer of the Shanghai project, from two partners Equity Millennium Ltd and
Shun Hing China Investment Ltd.
Profitstock's sole asset is a project in Taipingqiao in Shanghai's Lu Wan district.
Under the deal, Shui On Development will also assume Profitstock's loans worth 124.8 mln hkd.
Profitstock posted a net profit of 1.58 bln yuan last year. The company's unaudited net asset value
stood at 1.66 bln yuan as of end-2006.
At 11.29 am, Shui On Land shares was trading down 0.07 hkd or 0.85 pct at 8.14.
Poly Real Estate Group targets up to US$2.6bn in A-share sale
Poly Real Estate Group, the mainland's third largest property developer by market value, plans to
raise 19.4 billion yuan (about US$2.6bn) from a share sale to fund nine property projects.
In a statement to the Shanghai Stock Exchange yesterday, Poly said that it would issue as many
as 350 million A shares at 55.48 yuan each.
The price represented an 11 per cent discount to the stock's closing price of 62.37 yuan on
Thursday. Shares of the Guangzhou-based property developer surged 9 per cent yesterday after
the announcement, closing at 67.95 yuan in Shanghai.
The nine projects, located in Guangzhou, Foshan, Beijing, Shanghai, Wuhan, Shenyang and
Chongqing, will provide a gross floor area of 1.61 million square metres on completion on a total
investment of 13.4 billion yuan.
The Wuhan project will be the biggest, requiring 2.3 billion yuan in investment. It would provide
gross floor area of 457,535 square metres.
Poly and other developers such as China Vanke, the mainland's largest publicly traded
development company, are adding more projects despite government efforts to crimp property
market growth.
Beijing imposed a land appreciation tax in February that ranges between 30 per cent and 60 per
cent of profit generated from property sales, depending on the development cost and the units'
selling price.
Developers are seeking funds from the mainland's surging stock market as interest rates have
risen three times this year, boosting borrowing costs.
Poly's profit jumped 61.9 per cent last year as property prices and sales rose in its Guangzhou
home base. First disclosed in February, the company said yesterday the share sale had been
approved by the China Securities Regulatory Commission.
This may be the mainland's third biggest stock offering this year, after Ping An Insurance (SEHK:
2318) raised more than US$5 billion in February.
Harvest Fund Management wins approval to invest overseas under QDII
Harvest Fund Management Co Ltd, a Deutsche Bank AG fund joint venture, said it has received
regulatory approval to invest overseas under China's Qualified Domestic Institutional Investor
(QDII) program.
It is the first China joint venture fund to obtain a QDII license.
Harvest, one of China's top four fund management companies, said its foreign shareholder,
Deutsche Asset Management, a Deutsche Bank unit, has been appointed as overseas investment
adviser.
The first QDII product will mainly invest in listed companies in Hong Kong, Singapore, the Nasdaq
and New York Stock Exchanges which have operations in China, it said.
Last week, China Southern Fund Management Co Ltd and China Asset Management Co Ltd said
they have obtained QDII licenses.
The China Securities Regulatory Commission issued new rules last month allowing domestic
brokerages and fund managers to use client funds to invest in overseas fixed-income products,
stocks and financial derivatives.
Harvest was among the first six fund managers chosen by the Chinese government in December
2002 to manage the National Social Security Fund, which provides basic pension and welfare
insurance to millions of Chinese people.
It currently manages two closed-end funds, eight mutual funds and four investment portfolios for
the National Social Security Fund.
It also provides direct and indirect fund management services to Enterprise Annuity funds and
supplementary pensions for some of China's biggest insurers including China Life Insurance Asset
Management Co Ltd and Ping An Insurance (Group) Co of China Ltd.
The joint venture, with registered capital of 100 mln yuan, was founded in March 1999 as one of
the first 10 fund management institutions authorized by the Chinese government.
China Credit Trust Co Ltd holds a 48 pct stake in the fund joint venture, Li Xin Investment Co Ltd
holds 32.5 pct and Deutsche Asset Management holds the remaining 19.5 pct.
(1 usd = 7.57 yuan)
Morgan Stanley, others continue China fund JV quest
Foreign entrants grow in China as its mutual funds industry hits Rmb2 trillion, on track to reach
Rmb3 trillion (US$397 billion) by year-end.
With 32 domestic fund houses still in play in China, more foreigner asset managers are buying
their way into the market. Dutch insurance company and pension fund manager Aegon is now
taking a 49% stake in Industry Capital Management, while Italy’s Eurizon Capital is buying a stake
in Shenzhen-based Penghua, a pioneer dating to early 1998 with a 3% market share and $7 billion
in capital (and which is developing QDII products with Goldman Sachs).
Now Morgan Stanley Investment Management is rumoured to be aligning with Jutian Fund
Management, a Shenzhen-based fund manager that is at present the industry’s second smallest,
ranked 57 out of 58 in terms of market share. Although MSIM executives in Hong Kong would not
comment, a Jutian representative in Beijing, Zhao Chunmei, says MSIM has approached the firm
about a relationship but that no deal has been finalised.
Such a strategy may reflect the tastes of MSIM’s new Asia-Pacific CEO, Blair Pickerell, who as
former CEO of HSBC Investments had guided it to partner with a tiny provincial entity, Shanxi
Investment Trust. Foreigners cannot own more than 49% of a funds JV but they can achieve a
level of de-facto control when dealing with weak domestic partners.
Driving this activity is the continued growth of the Chinese mutual funds industry, which is now
worth an estimated RMB2 trillion ($234 billion). Assets under management in mutual fund
companies grew at 58% in the latest quarter, says the latest report from Z-Ben Advisors, a
Shanghai-based industry watchdog group.
The last official figures out of the regulator, the China Securities Regulatory Commission, show the
industry’s assets hitting RMB1.8 billion as of the end of June. Combined with segregated portfolios
from the National Council for Social Security Fund and other corporate pension portfolios, the
aggregate AUM of the funds industry has reached RMB2 trillion, says Zhao Shengzhang, chief
compliance officer at China Merchants Fund Management in Shenzhen.
As the disintermediation of bank savings continues, Zhang How-How, a product analyst at Z-Ben,
says the growth of the industry is going to reach an even higher scale, notwithstanding fears by
many fund executives that A-share valuations have become unsustainably high.
Under the environment of high economic growth (GDP rose 11.9% last quarter) and rising inflation
at 4.4 %, alternatives to equity investment in Chinese stock markets are unpalatable – yuan
deposits currently provides a rate of 3.3%, while bonds on average a 4.2%, both providing
negative real returns. QDII programs to access overseas markets are embryonic (see
AsianInvestor magazine’s July edition for an in-depth look at QDII).
Moreover, government reforms have improved corporate earnings, transparency in reporting
corporate capital and led to higher credit ratings. Many companies, particularly big, listed
state-owned enterprises, are making plenty of money and providing healthy returns to
shareholders.
Demand for equities continues to grow with the addition of millions of novice investors eager for a
piece of the action. Fund distribution channels have expanded as commercial banks introduce
these products beyond the four tier-1 metropolises (Beijing, Guangzhou, Shanghai and Shenzhen)
to tier-2 cities such as Fuzhou, Nanjing, Tianjin and Xiamen.
Supply is matching that growth, with now 58 fund management companies registered with the
China Securities Regulatory Commission, including 26 Sino-foreign joint ventures that claim
around 40% of the market. Fund houses have parlayed successful track records against the
benchmark during the A-share market’s four long years of bear markets into convincing more
investors to entrust them with their money.
As a result of these factors, Zhang predicts bank savings will continue to flow into mutual funds for
several quarters. The past quarter saw 422 billion new fund units issued, which led to an increase
of 55% in total mutual fund shares in the market. Zhang estimates $45 billion of bank deposits
were directed into the fund industry in the second quarter of 2007, following $20 billion in the first
quarter. Based on these trends, Z-Ben expects the industry to hit RMB3 trillion ($397 billion) by the
end of this year.
And investors are paying attention. Performance, more than anything, counts. Better-performing
(often smaller, more nimble) competitors, such as Guangzhou’s E Fund and Shenzhen’s Yinhua,
have enjoyed big inflows – although many of the industry’s most established firms, members of the
‘old 10’ dating back to the industry’s founding in 1998, remain market leaders in AUM terms (see
Z-Ben’s top-10 rankings below).
In addition to the old 10, the other big winners are JVs, of which 10 sit in Z-Ben’s ranking of the top
20 fund companies by asset size. Deutsche Asset Management has a 19.5% stake in Harvest
(number three), while China International (number 10) is a JV between Shanghai International
Trust and JPMorgan Asset Management.
Invesco Great Wall, Fullgoal Fund Management (with Bank of Montreal), China Merchants (a JV
with ING Investment Managers), CCB-Principal, Fortune SGAM, Rongtong (a JV with Nikko Asset
Management), ICBC Credit Suisse and Fortis Haitong comprise eight of the second decade of
large fund houses.
Ranked by market share of the industry, Z-Ben Advisors ranks the current top 10 fund houses as
at June 30, 2007 as –
Top 10 Fund Houses in China as of June 30, 2007
Rank
1
2
3
Company
China Asset
Management
China Southern
Harvest Fund
Management
AUM RMB
AUM
Mkt
m
$m
share %
130149.85 17,215.0
7.23
127723.63 16,894.0
7.10
111830.69 14,791.9
6.22
Location Established
Beijing
Nature
March 1998
Domestic
Shenzhen March 1998
Domestic
Beijing
March 1999
Foreign
Invested
4
E-fund
110434.29 14,108.0
6.14
Guangzhou March 2001
Domestic
5
Bosera
100518.58 12,841.3
5.59
Shenzhen March 1998
Domestic
6
Dacheng
68017.23 8,689.21
3.78
Shenzhen April 1999
Domestic
7
Yinhua
67037.76 8,564.08
3.73
Shenzhen May 2001
Domestic
8
Hua-an
60436.32 7,720.75
3.36
Shanghai
May 1998
Domestic
9
Guangfa
57262.59 7,315.30
3.18
Zhuhai
July 2003
Domestic
10
China International
56888.80 7,267.55
3.16
Shanghai
April 2004
JV
Symbolic deal sets tectonic shift in Asian real estate market
The deal between Royal Bank of Scotland (RBS) and Grosvenor will come to be seen as a
milestone in the history of the Asian property market. It was a property transaction without any
property, and it happened quickly and cheaply, many thousands of miles away from the market the
two parties were interested in.
The deal was structured as a total return swap, based on the performance of the Japanese
commercial real estate market, as measured by the Investment Property Databank monthly index
for Japan.
Its significance is that it is the first property derivative transaction in Japan and the first trade on
commercial property in Asia. The only other activity in the region has been on residential property
in Hong Kong. How does this new trade work? RBS and Grosvenor agree to pay each other a
return calculated on the basis of an agreed nominal investment, though the capital amount never
actually changes hands.
One party agrees to pay the other a sum based on the total return of the index over a two-year
period from December 31 last year, while the other will pay a market interest rate plus a negotiated
premium (or spread) that reflects current expectations for the index value at the end of the
contract. The two payments cancel out and only the difference is actually paid.
The party that is selling the index is the bear. They believe the consensus expectation is too high
and they are happy to bet that the actual index value on December 31 next year will be less. The
other party is the bull. They believe the market will perform better than current expectations.
Property derivatives are one of the most exciting developments in commercial real estate for many
decades, and the market has grown rapidly in Europe. In Britain, where the market started three
years ago, transactions like the one in Japan have grown from a standing start to over £7.6 billion
(HK$120.46 billion). Trades have also been done in France and Germany and there are at least
five other European markets where trades are said to be imminent.
In the United States, where there was initial confusion about the availability of indices, the market
has lined up behind the NCREIF index and the volume of trades has started to grow. The NCREIF
is an association of institutional real estate professionals.
The excitement comes from their flexibility, and the way derivatives can bypass many of the
traditional limitations of direct property. They allow investors to increase or decrease their
exposure to real estate markets rapidly without having to buy or sell assets in the underlying
market.
They can change the balance of their portfolios quickly, in advance of a physical transaction. They
give managers greater appreciation of risk and a tool for controlling it. They avoid many of the
transaction costs of physical property, and trades on a market can be done on in any jurisdiction.
Moreover, the benefits apply equally to property investors, developers and lenders, and others,
like hedge funds, with no physical exposure to the underlying market. It is not hard to see a world
in the not too far distant future in which investors might create entirely synthetic portfolios,
matching short trades in a sector in one country with long trades on another sector in a different
country, and safe in the knowledge that the indices on which the trades are based mean the same
thing in both places. That's very exciting.
In itself, the transaction was largely symbolic, just a gentle tremor. But the tectonic shift it has set
in motion will bring changes to the practice and dynamics of the investment market in Asia that are
of truly seismic proportions.
By Kevin Swaddle, Asia director of Investment Property Databank
China June consumer confidence 97.5 pts, up from 96.7 pts in May - Stats
Consumer confidence increased in June, rising to 97. 5 points from 96.7 points in May, the
National Bureau of Statistics said on its website.
The index stood at 96.2 in April, 95.2 in March, 95.8 in February and 96. 3 in January, the agency
said.
A sub-index measuring consumer satisfaction stood at 94.5 points in June, compared with 93.0
points in May, 92.4 in April, 91.8 in March, 91.7 points in February and 92.1 in January.
A second sub-index measuring consumers' future expectations rose to 100.0 points, after reaching
99.1 points in May, 98.8 points in April, 97.4 points in March, 98.6 points in February and 99.1 in
January.
Flush with overseas cash, China gets a ratings boost
China yesterday received its highest-ever debt rating from Moody's Investors Service, fortified by
more than US$1 trillion in foreign reserves that help protect the economy from overseas slumps.
China's long-term foreign-currency debt rating rose one level from A2 to A1, the fifth-highest
ranking, Moody's said yesterday in a statement. The ratings agency also assessed China's
domestic-currency debt for the first time, assigning it the same level.
"Foreign exchange reserves continue to grow and now exceed US$1.3 trillion, and external
obligations of the government and state-owned banks are a small fraction of that sum," said
Moody's Senior Vice President Tom Byrne.
China's foreign debt stood at US$323 billion at the end of 2006.
Financial turbulence would not likely damage the government's credit worthiness, the ratings firm
said.
China's huge trade surplus translates into mounting forex reserves.
The country's trade surplus climbed 84 percent from a year earlier in the first half to US$112.5
billion. Moody's said the performance of the export sector was "formidable."
The strong export growth also helped the economy grow 11.9 percent in the second quarter, the
fastest pace in more than a decade.
The fifth ratings upgrade in nine years puts China alongside Greece and the Czech Republic.
Standard & Poor's yesterday also affirmed China's A rating, its sixth-highest ranking, and revised
its outlook from stable to positive. Issues, including China's reforms in bankruptcy, property and
labor laws this year, motivated the revision of the ratings outlook, Standard & Poor's said.
Meanwhile, seven major Chinese banks also received upgraded ratings from Moody's on their
long-term deposit and debt outlook, reflecting strong government support.
China's short-term foreign debt hits new high
China's short-term foreign borrowing as a proportion of its total outstanding foreign debt has hit a
record 57.5 percent by the end of March.
At the same time, the country's total outstanding foreign debt increased by 8.57 billion U.S. dollars
to 331.56 billion U.S. dollars, according to the State Administration of Foreign Exchange (SAFE).
Meanwhile, China's short-term foreign borrowing jumped by seven billion U.S. dollars to 190.63
billion U.S. dollars, rising as a proportion of total debt by 0.65 of a percentage point in three
months.
Experts warned the short-term debt growth and the proportion growth indicated an active
trans-border capital flow and may bring more pressure to bear China's fast-growing economy.
The country's gross domestic product (GDP) rose 11.5 percent in the first half, after it grew 11.9
percent in the second quarter.
Despite a series of measures to curb excess liquidity, such as interest rate hikes and reserve
requirement ratio rises, China's benchmark Shanghai Composite Index on the Shanghai Stock
Exchange continues to surge.
Due to the yuan's continuous appreciation and the booming stock and property markets,
speculators were pouring cash in, said Ding Zhijie, vice director of the School of Banking and
Finance of the University of International Business and Economics.
By the end of March, trade credit, a channel speculators prefer to use to maneuver trans-border
capital flow, amounted to 108.6 billion U.S. dollars, a rise of 4.6 billion U.S. dollars from the end of
last year.
"It is difficult to identify how much idle capital has come in, but there's no doubt that speculative
funds remain unabated in entering China," said Ding.
His concern was shared by Deng Xianhong, vice director of the SAFE who warned that some
speculative funds had entered the market under the guise of trade or investment and flowed into
stock and the property markets.
Ding said market expectations of a rising yuan had aggravated the risk as local exporters tended
to settle payments for goods in advance to avoid foreign exchange losses.
"Normally, the payment will be advanced by only six months. In extreme cases, it can be two years
ahead of schedule which raises the possibility of the inflow of speculative funds through trade
credits," Ding said.
The SAFE has drawn a list of companies "deserving special attention" and issued regulations to
lower the ceiling on outstanding short-term foreign debt held by financial institutions.
SAFE figures showed a total of 5,303 local enterprises have been put under surveillance last
November after being suspected of using their capital for speculation. Another 472 companies
have been added to the list by the end of April.
However, Yi Xianrong, researcher of the Institute of Finance and Banking of the Chinese Academy
of Social Sciences, said the government could ward off speculative funds by prohibiting suspect
enterprises from converting short-term foreign loans into yuan.
The country's short-term foreign bond issue was equivalent to just 14.3 percent of China's foreign
exchange reserve, much lower than the world warning line of 1:1, insiders said.
Rural minimum living subsidy system to be established throughout China
A minimum living subsidy has been established in rural areas of all 31 provinces, autonomous
regions and municipalities of China, the Civil Affairs Ministry revealed on Tuesday.
The system covered 20.68 million rural people by the end of June, Li Liguo, Vice Minister of Civil
Affairs, said in an interview on the central government website.
Local governments at all levels had established their own rural minimum living subsidy standard in
line with standard of local economic development and financial abilities.
"The rural minimum living subsidies are a foundation for a nationwide social security system," Li
said. "It is possible to cover all rural poor people by the end of this year."
He also urged local governments to allocate finances to ensure the subsidies have enough
funding.
All subsidies should be given to the farmers no later than the end of the year, he added.
Top leadership warns on overheated economy
The economy has to be stopped from becoming overheated and to ensure that officials at all levels
will implement the central government's policies, the country's highest leadership said yesterday.
The Political Bureau of the Communist Party of China (CPC) gave the call after central
government inspection teams found some local governments are ignoring the State Council's
decision to save energy and cut greenhouse gas emission, and are still investing heavily in high
resource-consuming sectors.
"All the local governments, especially leading officials, should implement the central government's
measures to the letter," the Political Bureau said at its meeting, chaired by President Hu Jintao.
It told all local governments to understand the consequences of the blistering economic growth:
11.9 percent in the second quarter, and 11.5 percent in the first half of the year.
Fixed-asset investment in urban areas jumped 26.7 percent in the first half year-on-year and a
large part of the money went into industries that consume huge amounts of energy.
"The priority now is to prevent the economy from overheating," the meeting said.
Hu emphasized the importance of seeing the ever-changing domestic and international economic
environment in the right perspective, and called for continual effort to tackle issues such as
excessive liquidity and overcapacity.
Agricultural production, especially grain output, should be increased and the development of
agricultural infrastructure accelerated, he said.
Efforts to save energy and reduce greenhouse gas emission should be intensified, Hu said.
People's lives should be improved by tackling problems that concern them, such as those
associated with education, employment, healthcare, housing, and work safety.
The "commitment" to cutting energy consumption per unit of GDP by 20 percent during the 11th
Five-Year Plan (2006-10) is a "challenge", the CPC Political Bureau said.
Experts said some local governments don't have enough funds to meet the goal.
Huang Shengchu, president of the China Coal Information Institute, said the current situation is not
because of difference in thinking but because some local governments lack funds.
Economist: Chinese economy still flying high and looking good
The overall picture of the Chinese economy in the first six months is quite encouraging: It is
heading forward speedily, its structure has been further optimized and public welfare has been
boosted.
GDP growth has seen continuous acceleration in the first six months and the consumer price
index (CPI) has remained high. From March to June, each monthly rise of the CPI broke the 3
percent ceiling set by the central bank for the year.
In the first half, the GDP figure was 10.677 trillion yuan (1.41 trillion U.S. dollars), up 11.5 percent
on the same period last year and 0.5 percentage points higher than the growth speed achieved in
that period. The GDP grew by 11.9 percent in the second quarter, the quickest since 1994.
The economy is blistering, but the high rate does not necessarily indicate overheating, as the
boom is supported by substantial improvement in the economy's potential for further expansion.
In recent years, there has been a solid advance in the basic industries, like coal mining, electricity
generation, petroleum refining and transport. Consequently, the supply of production factors is
relatively adequate for an economic speedup.
The country also has plenty of funds to forward the economy due to the accumulation of private
wealth and the inflow of foreign investment.
In addition, demand, both domestic and foreign, is robust and is a major engine for growth.
Domestic demand used to be weak. Between 1997 and 2001, the value of sales of consumer
goods grew by 8.7 percent a year, far less than the annual rises of GDP and investment during the
same period.
Vigor was injected into domestic consumption after the government initiated policies to motivate
spending, reallocate income in urban areas and lift farmers' incomes in 2002.
In 2005, the value of consumer goods rose 12.9 percent; in 2006, by 13.7 percent; and in the first
half of 2007, by 15.4 percent, the fastest since 1997.
After manufacturing bases from around the world moved here, China saw a huge rise in its
processing trade. Products labeled "Made in China" now take a big share of the international
market.
The trade dependency ratio - the percentage of exports and imports against GDP - was 71.7
percent in the first six months.
The strong upward momentum in CPI, 3.2 percent in the first half of the year, has triggered
concerns over inflation among the public, but runaway inflation is unlikely in the short term.
CPI growth has been driven by increases in the prices of grain, poultry produces, meat and other
foods.
Figures show food prices jumped 11.3 percent last month while non-food commodities climbed
just 1 percent. The food price contributed 2.5 percentage points to the index's 3.2 percentage point
rise between January and June. Other items included in the CPI calculation contributed the
remaining 0.7 percentage points.
With the summer grains to be harvested soon and a bountiful autumn harvest in sight, the price of
grain and agricultural produce should move to a more reasonable level later this year. The CPI will
hopefully drop to its normal growth pace when the food price is no longer flying high.
The price soar did not affect producer goods though. The ex-factory price of industrial products
saw a 2.8 percent rise in the first six months, almost identical to the rise over the same period last
year. The cost of raw materials and fuel rose by 3.8 percent, 2.3 percentage points less than last
year.
Of course, the price increase has gone beyond people's expectations, but the economy has also
grown 11.5 percent, way above the 8 percent official forecast.
A buoyant economy usually is better at containing the influences of high price rises. It would only
be worrisome if the economy grew quickly but prices remained dormant.
Hopefully, the economy will be up by 11 percent this year. A price rise between 3 and 5 percent is
quite acceptable under such circumstances.
As mentioned above, the economic growth is propped up by strong demand in investment and
exports. But different from in previous years, in 2007, China owes its growth more to mounting
consumption.
Consumer confidence is enhanced by the continuous economic boom, with spending on housing
and medical care on the increase and the rural market is especially active since the turn of the
year.
The enhanced role of consumption in the economy indicates it is growing in a more sustainable
manner, which has always been the policy goal.
Another heartening signal from the economic indicators is that people are enjoying a larger slice of
the economic development cake. The incomes of both urban and rural citizens has risen rapidly in
recent years.
The average disposable income of urban residents was 7,052 yuan in the first half, up 14.2
percent year on year and 4 percentage points more than the growth achieved in the same period
last year. Rural citizens had an average cash income of 2,111 yuan, up 13.3 percent year on year
and 1.4 percentage points more than last year.
The increases are a direct result of government's efforts to improve living standards for workers
and pensioners by reforming the income distribution scheme and giving higher priority to public
welfare.
(The author Qi Jingmei is an economist with the State Information Center)
Policies & Regulations
China central bank hikes reserve requirement ratio by 50 basis points
China's central bank is to hike the reserve requirement ratio for banks by 50 basis points to curb
overly fast credit growth and further strengthen their liquidity management.
In a statement on its website, the central bank said the hike will be effective from Aug 15.
It is the sixth hike this year, bringing the ratio to 12 pct for most banks.
"The hike is aimed at strengthening banks' liquidity management and to curb overly fast credit
growth," the central bank statement said.
China has used reserve requirement hikes in an effort to curb liquidity and cool rapid economic
growth.
But the moves have had little impact so far, with China posting year-on-year gross domestic
product (GDP) growth of 11.9 pct in the second quarter and 11.5 pct growth in the first half of
2007.
A report last week by the National Development and Reform Commission (NDRC), the country's
state planner, said excess liquidity and undisciplined investment by local governments was still
causing overheating despite strengthened macroeconomic controls from Beijing.
In the first half, urban fixed-asset investment rose 26.7 pct year-on-year to 4.608 trln yuan.
Meanwhile, the consumer price index expanded 4.4 pct year-on-year in June, taking first-half
growth to 3.2 pct. That prompted the central bank to raise benchmark one-year lending and
deposit rates by 27 basis points on July 20.
In a note last week, Citigroup economist Shen Minggao said he expected one more rate hike and
two further increases in the banks' reserve requirement ratio this year.
The NDRC report, meanwhile, said that interest rates could be hiked several more times in the
second half, but in smaller increments than the July 20 increase.
Illegal government charges fuelling China's soaring house prices
Land authorities in six Chinese cities including Beijing have illegally charged 1.1 billion yuan
(146.7 million U.S. dollars) on enterprises so far this year, adding fuel to the nation's soaring
housing prices.
This was discovered by the National Development and Reform Commission, China's top planning
body, during examinations of charges on businesses in Beijing, Shijiazhuang, Jinan, Guangzhou,
Chengdu and Xi'an, the Beijing News said Saturday.
The amount was well beyond the total illegal charges collected by eight departments for the whole
year of 2006, said Li Lei, headof NDRC's Price Supervision Department.
Quoting estimates by the land authorities, which say land costs account for 20 percent to 50
percent of the housing prices, Li said the behavior of these authorities has made the runaway
housing prices worse.
Despite by rounds after rounds of government curbs including restrictions on housing ownership
by foreigners, housing prices have rocketed in China over the last few years, to the agony of
ordinary people.
Land authorities are not alone in overcharging enterprises. The commission found in May that
urban construction departments have overcharged 216 million yuan (28.8 million U.S. dollars)
from construction firms.
"The illegal charges have added fuel to the rising house price," Li said.
The housing prices in 70 large- and medium-sized cities in China went up by 7.1 percent in June
over the same period last year, according to official statistics.
Colliers Market Commentary: China moves on Savings, Loan Rates
The People’s Bank of China (PBOC) has raised interest rates and the State Council will slash the
withholding tax on interest income in its latest efforts to rein in runaway inflation and curb
above-target growth.
The one-year benchmark deposit and lending interest rates rose 27 basis points to 3.33% and
6.84% respectively from July 21.
All deposit rates will rise by 27 basis points. Lending rates over terms longer than five years or less
than six months will rise 18 basis points, while other gauges will go up 27 basis points.
Meanwhile, the State Council announced that the tax on interest income would be cut from 20% to
5% from August 15, a move that will make holding savings more attractive than investing in the
booming stock market.
The PBOC also raised the interest rate on sight deposits (current deposits) to 0.81% from 0.72%,
the first change since February 2002. Public housing loan rates will also rise 9 basis points from
July 21.
Background
The third interest-rate rise this year and the fifth since April 2006, plus the tax cut, came the day
after China announced its fastest economic growth in 11 years and the highest inflation since
October 2004.
China’s economy grew 11.9% in the second quarter, from 11.1% in the first quarter. Consumer
prices, the main gauge of inflation, surged 4.4% in June from a year earlier, the highest pace since
October 2004. The figure pushed the first-half consumer price index to 3.2%, outpacing the 2.7%
rise in the first quarter. The figure, buoyed by rising food prices, is beyond the central bank’s 3%
annual target. The high inflation puts deposit rates well into negative territory, giving savers an
incentive to withdraw money from the bank to bet on the sizzling stock and property markets.
Colliers View
1) Impact on the Real Estate Sector
Financing for property developments in China has been harder to come by over the past half year,
as the PBOC has been encouraging local banks to tighten their scrutiny on such borrowers’
projects.
This has limited the financing channel for smaller developers and/or projects that would have
resulted in too much new supply.
Chinese banks will continue to scrutinize developers and property-related companies.
On the other hand, sound developers with good projects in hand will see relatively limited impact
to their operational plans. The current rate increase does not affect their financing channels, but
will increase future interest expenses for both project financing and top-up payments for home
buyers, which is currently at a reasonable level.
2) Possible psychological barrier to potential new homebuyers
The impact of the interest rate increase on the residential sector will most likely be a psychological
one.
There could also be concerns about future rate hikes, resulting in higher debt servicing. The
immediate impact to the market should be limited.
Overall, demand for residential property will remain healthy on the back of the growing economy
and rising income.
3) Retail sector may see some pull back in spending
With a possible increase in mortgage repayments, the propensity to spend will likely be affected.
Anecdotal evidence suggests borrowers are currently committing between 40% to- 60% of their
monthly income to mortgage repayments. Nonetheless, the tax cut on interest income is mildly
expansionary, since it will stimulate household consumption.
In summary, the market has widely expected the latest round of interest rate rises after the latest
economic gauges. We expect that the market will exercise some caution but that the new hike will
have limited immediate impact, as can be seen from the rally of the China stock market in the past
few days. Nonetheless, the rate rise would be more effective than the other tools the central bank
had in hand, as it was aimed at reining in aggregate demand and guiding the reasonable growth of
credit and investment. Looking forward, Colliers expect more cooling measures to be announced
in the second half of this year.
About Colliers International
Colliers Macaulay Nicolls Inc. (CMN), operating as Colliers International, is a leading international
real estate services company that provides a full range of services to commercial real estate
users, owners and investors worldwide. These services include brokerage, property management,
hotel investment sales and consulting, corporate services, valuation, consulting and appraisal
services, mortgage banking and research. Through greater knowledge and specialization, CMN
strives to accelerate the success of all its clients, partners, professionals, management and staff.
CMN is a FirstService Company (NASDAQasdaq: FSRV; TSX: FSV.SV). CMN is the largest
member firm of Colliers International, one of the world's top commercial real estate services
organizations, with revenues of over US$1.6 billion and 267 offices in 57 countries. CMN can be
found on the web at http://www.colliersmn.com.
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Expert: more curbs possible for real estate
Expectations are that there will be more restraining policies on the property sector over the next
half-year due to spiraling property prices and investment despite government efforts to rein in the
sector.
Although implementation of policies adopted last year remains the focus of 2007, soaring property
prices could continue to pose a risk in the next six months, raising the possibility that further
cooling measures could be on the horizon, said Zhu Zhongyi, secretary-general of the China Real
Estate Association.
"The government may launch measures targeting some key cities if property markets there get out
of control. Or it could release uniform policies covering the entire country," Zhu told China Daily.
According to the National Development and Reform Commission (NDRC), property prices in
China's 70 large- and medium-sized cities climbed by 7.1 percent year-on-year in June, the
highest since 2006.
Real estate investment also jumped by 28.5 percent year-on-year, topping 988.7 billion yuan in the
first six months. The growth rate was 4.3 percentage points higher than the same period of 2006
and 1.6 percentage points more than the first quarter of the year.
"Given the accelerating growth in prices, the government's attitude on restraining foreign
investment in the property market shows no signs of loosening in the next half-year," said Zhu.
Although foreign investors are not the major driving force in increasing property prices, their
overall impact cannot be overlooked, Zhu said.
With strong capital backing, foreign investors usually offer higher prices when bidding for land,
potentially boosting property prices around the region.
As early as last March, a source with the Ministry of Commerce told China Daily that the ministry
would be more rigorous in its approval process for real estate projects by foreign investors.
According to Yang Hongxu, an expert with E-house China R&D Institute, there may be stronger
policies in the pipeline. Foreign acquisition of entire buildings might be prohibited or more
restrictive measures may put on foreign-funded development of high-end properties, he said.
Experts suggest that taxation on buying and selling property should be reduced or even cancelled.
"A less-developed pre-owned house market, curbed by too much taxation on transactions, is the
crux of the imbalanced market," said Pan Shiyi, chairman of SOHO China, a Beijing-based
property developer.
The government's real estate tax policies, such as the value-added tax and personal income tax
on capital gains from the sale of pre-owned houses, are all levied in the transaction process,
potentially increasing the cost to buyers when the market's demand far exceeds supply, said Liu
Futan, ex-director of the macroeconomy institute of the NDRC.
While advocating a cancellation on transfer taxes, Liu also called for the levy of a property tax as
soon as possible.
"As a tax levied on the ownership of property, it helps to reduce speculative investment into the
real estate market," Liu said.
Though Li Wenjie, general manager of Centaline China (North China region), believed the
inception of a property tax should be accelerated, he said he does not think the property tax will
come out within the year.
"It involves the interests of so many people and its legislation is a very complicated process," Li
said.
Li voiced his concerns on a property tax. "Should the tax only be imposed on the second or third
apartments or also cover the first one? How about low-income families?"
As the supply and cost of land are also the catalysts for property price rises, experts are trying to
lower the prices from these directions.
"We are wondering about other ways of reining in property prices," Zhu Zhongyi said. "For
instance, the existing bidding mode could be applied only to high-end property projects, while
common residential buildings could choose another way, thus reducing the land cost and make
buildings more affordable for average residents."
Anti-money laundering screws tightened
The central bank has directed insurance and securities institutions to set up an anti-money
laundering mechanism this year, and is likely to ask some non-financial sectors to do the same.
"We need the insurance and securities sectors to set up an (internal) arm and devise rules against
money laundering this year," Tang Xu, head of the anti-money laundering department of the
People's Bank of China (PBOC), the country's central bank, said during a live Internet conference
yesterday.
This is PBOC's latest move to intensify its fight against money laundering. Earlier, it ordered the
banking industry to devise a system to monitor and report dubious money flow.
Some specific non-financial institutions such as law and accounting firms and auction houses are
the others that could be directed to set up similar mechanisms, Tang said.
"We will study these sectors one by one and map out reporting and inspection regimes for dubious
transactions."
Securities and insurance companies will have to send data on dubious deals to the anti-money
laundering monitoring center of the central bank from Oct. 1, he said.
China intensified efforts to improve its anti-money laundering regime by passing an anti-money
laundering law late last year and issuing rules on checking the possible flow of funds for terrorists
last month.
It has joined hands with the Ministry of Public Security to set up a network to check the identity of
banks' customers. The system went into force in late June, and all the country's banks have joined
it, PBOC deputy governor Su Ning told a press briefing yesterday.
If a bank official wants to check a customer's identity, he just needs to click a few times for the
computerized image of his ID to pop up on the screen, the PBOC official said.
China state planner reins in local Gov’t price rises
Local governments will not be allowed to make adjustments to government pricing policies this
year in areas where consumer price rises have sharply exceeded targeted levels, in a bid to
maintain basic price stability, the National Development and Reform Commission said.
The state planning agency said in a statement on its website that pricing policy changes aimed at
energy and environment conservation are exempt from the order.
China's consumer price index (CPI) rose 3.2 pct year-on-year in the first half and 4.4 pct in June,
while the central government has set a target of keeping the CPI increase this year within 3 pct.
New rule to protect historical legacies
The Legal Affairs Office of the State Council released the draft of a regulation on the protection of
historical cities, towns and villages on Thursday for public comment.
The draft aims at better conservation and management of these sites, which are part of China's
cultural heritage.
The State Council published its first list of 99 historical cities, towns and villages in 1982, and
another 28 sites have been added to the list in the past 25 years.
They are either ancient capitals, sites of major historical events or treasure houses of cultural
relics.
The draft demands that governments at all levels strengthen their protection of historical cities,
towns and villages, maintain their traditional layouts and styles, and preserve their integrity.
It said that there should not be any economic development at the expense of cultural heritage.
"The historical cities, towns and villages are under serious threat as some local governments are
demolishing old buildings on a large scale.
"It should become the focus of people from all walks to preserve historical neighborhoods, as well
as ancient villages amid rural construction," the Xinhua News Agency said on Friday.
According to the draft, the central and local governments will allocate funds for the preservation.
Any organization that has caused serious damage to historical buildings will be fined between
500,000 yuan and one million yuan (US$64,100 - US$128,200).
Regulator tells banks to limit new loans
China's banking regulator has urged commercial banks to cap loan growth at no more than 15
percent this year as part of the country's effort to curb its blistering economy.
Bank loans increased nearly 17 percent to 2.54 trillion yuan (US$336 billion) in the first half of this
year compared with a year ago, according to the People's Bank of China.
The loan spike is a clear sign that China's economy is overheated, that instability exists in the
financial sector, and it is becoming harder for banks to manage lending risks, Liu Mingkang,
chairman of the China Banking Regulatory Commission, was quoted as saying by the 21st
Century Business Herald.
China's economy rose 11.9 percent in the second quarter this year, lifting first-half growth to 11.5
percent, the National Bureau of Statistics reported on Thursday.
The CBRC said it will urge commercial banks to enhance the loan payment system to better track
how credits are used and prevent clients from misappropriating loans.
The CBRC said on June 18 that it had punished eight domestic banks for failing to prevent two
corporate clients from misappropriating 4.46 billion yuan in loans to invest in the equity market and
real estate projects.
Liu said the CBRC should redouble its efforts to curb growth in non-performing loans and prevent
criminal wrongdoing in the banking sector.
The number of criminal cases involving more than one million yuan each dropped by 76, or 60
percent, in the first six months, he said.
Other News
Hong Kong trails Singapore amid unfavorable conditions for REITs
Hong Kong, a city built by property tycoons as a financial gateway to the mainland, is losing the
mainland reit market to Singapore as cautious domestic regulators and unfavorable market
conditions prompt mainland property owners to look further afield for listing options.
Real estate investment trusts (reits), which bundle properties for sale to the public via an
exchange listing, are relatively new to Hong Kong. The Link Reit was the first to list here with some
success in late 2005 but before the market could gain momentum, new issuers turned to
Singapore which had listed its first reit three years earlier.
Property companies from across Asia, including those in the mainland that are planning to bring
reits to the market, say more flexible regulators and lower interest rates make Singapore the
preferred place to list.
"A lot of groups that are looking to list pan-Asian assets are thinking: ‘Where do I want to be?' And
at the moment it's more attractive to be a Singapore reit than a Hong Kong reit," said Alastair
Gillespie, co-head of Asian real estate research at UBS.
Singapore has so far amassed 16 reits with a market capitalisation of about US$19.3 billion
compared with Hong Kong's seven reits presently valued at US$8.8 billion and Singapore's appeal
becomes even more obvious when looking at forthcoming listing plans from mainland reits.
Hong Kong's stock exchange is home to two mainland reits: Rreef China Commercial Trust and
GZI Reit. Singapore so far has only one reit with mainland assets - CapitaLand's CapitaRetail
China Trust. But the next few deals in the pipeline are expected to go to Singapore.
Rreef, a spin-off from Deutsche Bank's property and infrastructure management arm, was the last
reit to list in Hong Kong when it debuted in June and many experts predict it will be the last for
some time to come.
"By the end of the year there will be more PRC [mainland] reits in Singapore than in Hong Kong,"
forecast Vivian Lam, a Hong Kong partner of Los Angeles-based law firm, Paul Hastings, and a
reit specialist.
Ms Lam said she expected 10 to 12 more reits to list in Singapore by the end of the year, of which
two to three could be mainland property plays.
There are a number of companies waiting to list reits in Hong Kong, including Far East Consortium
International (SEHK: 0035)'s 10-hotel portfolio which is predicted to raise up to HK$3 billion.
However, they remain on the sidelines, especially after witnessing Rreef's muted debut.
"The timing is just not right," Ms Lam said. "They're waiting for people to become interested in reits
again and in the current atmosphere no one appears very interested."
Rreef units slumped 10.1 per cent on their first day of trading. Of the seven reits listed in Hong
Kong since 2005, only Link Reit and GZI Reit are still trading above their offer prices while
Singapore reit prices have generally performed better.
The Hong Kong reit market's poor showing makes it hard to attract new listings; if plain domestic
offerings fail to build market momentum with local investors, it's hard to attract foreign money for
more exotic offerings.
"Global investors have become quite cautious over Hong Kong reits because of the performance
of the incumbents. In contrast, because the Singapore reits have traded strongly above their IPO
prices, it's been much easier to raise additional equity to make more acquisitions," Mr Gillespie
said.
One explanation for the poor showing of reits in Hong Kong might be that developer sponsors took
a short-term view and packaged reits primarily to divest real estate at the best prices they could
get, experts say.
Singaporean sponsors on the other hand have focused on creating acquisitive investment vehicles
with defined long-term growth plans. They have also transferred assets into the reits at more
attractive prices, creating value for investors.
"If the motivation is to get an asset off the balance sheet at a record price, reit investors pick up on
that and get turned off pretty quickly," said Mr Gillespie.
Bankers and lawyers who help bring reits to market also say that Hong Kong's Securities and
Futures Commission (SFC) has been overly cautious in authorising reits in the past, with the result
that the market has not been as innovative as Singapore.
"The regulations that Hong Kong has had have proven to be very prescriptive. Overly so," said JP
Morgan real estate head Anthony Ryan. "The SFC says its job is to protect small investors; the
MAS' job in Singapore is to create a viable financial system."
However, bankers said the SFC has become more accommodating with the last few reits brought
to market in Hong Kong, and the SFC itself says this is a new market with room to mature.
"The SFC regulates by use of a principle-based code, which allows for flexibility of approach
especially with regard to a new market and product such as reits," said an SFC spokesman.
There are several differences between the two markets that financiers say are larger, more
entrenched issues that regulators or reit sponsors can do little about.
Reits are viewed as income vehicles, similar to interest rate products such as bonds. Hong Kong's
interest rate regime closely tracks that of the US because its currency is pegged to the American
dollar. This has meant higher interest rates for Hong Kong, and higher benchmark yields in the
bond market, which means reits do not appear as attractive as they do in a lower interest rate
environment.
Hong Kong's 10-year treasury bond is yielding around 4.82 per cent, for example, versus a yield of
just 2.91 per cent on an equivalent issue in Singapore.
Singapore has also created tax breaks to encourage the listing of reits, while in Hong Kong reit
assets are taxed the same way as if they were owned by a company.
"The most significant benefit Singapore has is the waiver over tax on income generated by reits,
whereas Hong Kong reits are liable for profits tax. Singapore has been more aggressive on
general incentives to reit managers in order stay competitive," said Macquarie Securities Asia reit
analyst Matt Nacard.
Hong Kong's bullish retail investors have also played a role in the market shift. For a reit market to
flourish, it must first generate local interest in simple offerings and once investors have been
convinced they offer a good source of steady income, bankers can put other more exotic,
international offerings on the table.
In Hong Kong, reits lost the attention of investors at the first step.
A long-running share rally has raised expectations for capital returns among Hong Kong investors
and undermined interest in steadier, profit-generating investments.
One area in which Hong Kong regulators did let sponsors and bankers push the envelope was in
spicing up reits to attract the attention of jaded local investors. Hong Kong property prices are
relatively high compared with the rents they generate, therefore the assets acquired by reits are
unable to provide attractive enough returns from rental income alone.
Sponsors, however, have employed financial engineering that essentially allows borrowings from
future earnings to pay immediate returns by assuring investors that rents will rise in the future to
cover the difference.
"Trying to provide the sort of yields that investors want is very challenging" Mr Ryan said. "People
looked at various forms of financial engineering as ways to do that at the expense of some of the
future growth, and the market has generally shown a disliking for that."
While the size of the reit market pales in comparison to the billions of dollars in mainland equity
that has come to roost in Hong Kong, it's still a business that, if developed, would benefit the SAR
as it would create needed liquidity in the commercial property market.
"It is a big loss for Hong Kong. There's a lot of real estate here that I think owners would look to
monetise, but it's tricky to make it work in ways that are acceptable to the investor base" Mr Ryan
said.
Shanghai to blacklist office buildings with poor air quality
Shanghai plans to launch a survey of the indoor air quality in downtown office buildings and
publish a list of buildings where air doesn't meet health standards, according to a local
environment association.
The project aims to improve the general air quality of office buildings as a recent survey shows
that most professionals are not satisfied with the air quality in their offices.
"We want to promote public awareness of building a healthy working environment," said Wang
Fang, an official with the Shanghai Association of Environmental Protection Industries who is in
charge of the project.
During the survey, environmental experts from the association will use scientific devices to test the
density of harmful chemicals in the air within a batch of downtown office buildings. They will also
design a questionnaire to ask people working in office buildings about their health.
Wang said the association is currently picking the buildings it will study during the survey, which
will begin later this year.
The ultimate purpose of the survey is to stimulate building managers to improve the maintenance
of air-conditioning systems or to install air purifying equipment.
Wang said the project was inspired by Hong Kong's action during the outbreak of Severe Acute
Respiratory Syndrome in 2003. During that period, Hong Kong initiated a citywide survey of indoor
air quality in major office buildings.
According to a recent preliminary survey of 100 randomly selected professionals in office buildings
in Xujiahui and the Bund, some 70 respondents said they were not happy with the ventilation
system in their office and 60 respondents said they were victims of second hand smoke.
Poor air quality is caused by the use of substandard materials during construction, poor
maintenance of air-conditioning systems, and ineffective ventilation systems, experts said.
"I am very curious about the sanitation of our central air conditioning system as I never noticed our
property guys cleaning them," said Wang Jianqun, a professional working in a highrise office
building near People's Square.
Wife of Chinese tycoon sells stock shares after insider trading allegations
Wang Jiangsui, wife of Chinese real estate tycoon and Vanke chairman Wang Shi, has sold
46,900 Vanke shares to allay allegations of insider trading, sources with Shenzhen Stock
Exchange (SSE) have confirmed.
The shares bought on July 6 at 19.38 yuan (2.55 US dollars) each surged 36 percent to 26.36
yuan on Monday.
The purchase was "procedurally legal" as it had been reported to the board secretary of Vanke
and was published on the SSE website, while Vanke had provided the SSE with all the required
information, said SSE officials.
However, an official said, "We will follow up the investigation and impose penalties if any
wrongdoing is found."
Vanke chairman Wang Shi wrote in his blog on Friday that the stocks were bought by an agent in
the name of Wang Jiangsui without informing the couple in advance. All profits from the
transaction were handed over to Vanke Co. Ltd..
"It seems unimaginably strange to outsiders and very embarrassing for us," Wang wrote.
Wang Shi apologized to investors on his blog, but insisted that there was no insider trading and it
was only a "mistake" by the agent.
The SSE has been closely monitoring the executives of listed companies and their relatives who
buy stocks in their own companies. The SSE recorded 780 such transactions from May 9 to July
20.
Officials with the SSE advised "special investors" to be aware of the risks of insider trading and the
harsh penalties incurred.
In China, executives of listed companies are not allowed to sell or buy stocks of the companies
within six months of buying or selling the stocks, among many other restrictions.
Vanke, founded in 1984, is one of the first publicly listed Chinese mainland enterprises, with its
core business in residential property and development.
By the end of 2006, Vanke's assets totaled 47.7 billion yuan with net assets of 14.96 billion yuan.
Foreign banks offer new mortgage loans to compete
Overseas banks are gearing up to snatch a bigger share of the individual mortgage market from
domestic rivals.
Citibank in July launched its home refinancing program in Shanghai to target home buyers who
want to make better use of their assets as the city's property prices rise. It's the first offering of its
kind by an overseas bank in China.
"The purchase of property is a significant decision and the product is designed to provide our
customers with greater financial flexibility and additional working cash flow," said Anand Selva,
executive vice president of Citibank (China) Co.
Citibank's launch of the products also coincided with rising second-hand property prices in
Shanghai.
The average price for used apartments climbed again in June and so did the transaction volume,
said Website www.ehomeday.com, which compiles a monthly index. That jumped 4.16 percent to
1,751 in June. The index baseline of 1,000 reflected the average price for used apartments in
Shanghai in 2004.
Mortgage loans also grew in June. Domestic lenders increased their mortgages by 4.55 billion
yuan, up 3.69 billion yuan from May.
Rising property prices means home owners can refinance their property on a higher valuation.
Citibank is waiving commission, insurance, property valuation fees and legal fees until the end of
August on yuan-backed mortgage products to draw clients.
Home buyers can cut fees worth 11,250 yuan (US$1,486) on a mortgage valued at one million
yuan during the period, the lender said.
Overseas rivals like Standard Chartered Bank, HSBC and Bank of East Asia also launched
mortgage products soon after their local incorporation in April.
HSBC offers four payment options and three currency types for home buyers to cater to the needs
of different clients. BEA offers a mortgage up to 80 percent of the property's value, the highest
among the four overseas banks.
Analysts note that overseas banks' market share is still limited, as they were only allowed to solicit
Chinese clients in the second quarter of this year.
"While overseas banks are going all out in the market, it is still hard for overseas banks to
penetrate the market on the strong base made by domestic lenders," said Qiu Zhicheng, a Haitong
Securities Co analyst.
Some property developers have teamed up with local and overseas lenders to offer housing loans.
Chinese police cracks down on fake investment cases
Chinese police has retrieved 450 million yuan (59.29 million U.S. dollars) for investors in cracking
747 cases of fake investment projects in the first half of this year, the Ministry of Public Securities
(MPS) said in a press release Monday.
Most of the fund-raising projects, which mainly targeted individuals and did not have government
approval, lured investors with promises of high profits and quick return on investment, the ministry
said.
The police warned the public not to participate in illegal investment projects as they will ultimately
lead to fraud and "once participating, citizens have to bear everything they lose," it said.
"We strongly urge the public to invest in a rational way as opportunities to make high returns often
come with high risks," the statement said. "People should be more alert to any investment project
that sounds just too good."
The Chinese police has publicized a series of cases as warnings to the public, including the case
of Yilin Wood Company which swindled more than 1.6 billion yuan (206 million dollars) from about
20,000 people across the country from April 2004 to June last year. The company cheated
investors by promising them high returns on sales of woodland.
With fast economic growth, the disposable income of the Chinese people has increased, leading
them to explore new ways to invest besides the more conventional stock market and property
market.
Saving energy with ‘Casual Friday’ well received
Thousands of office workers in Lujiazhui yesterday slipped out of suits, business shirts, ties and
formal skirts to go casual and cool.
Property management departments in Lujiazhui, one of the city's key business sectors, tuned up
their central air-conditioning system by two degrees Celsius to keep the buildings' interior
temperatures at 26 degree or above.
The result was a saving in energy and a relaxed air in offices as the city tried its first "casual
Friday."
At 31 office buildings in the area, white collar workers were allowed to change T-shirts and jeans,
women donned colorful skirts.
Initiated by the Lujiazui Building Association, the "casual Friday" was a response to the city
government's call for a reduction in energy consumption.
Volunteers distributed handouts and little cartoon fans at the lobby of some buildings before 9am
as they asked office workers to save energy by cutting air-conditioning.
At the New Shanghai International Tower, one of the office buildings on Pudong Road S.,
volunteers collected more than 500 signatures within 45 minutes in support of "casual Fridays."
"It never occurred to me that this would be so well-received," said Lin Shufang, a building
association official, who added that they had thought some companies might oppose the idea.
Many of Lujiazui's banks, insurance companies and security firms enforce strict dress codes and
some association officials were concerned that the combination of casual dress and an increased
interior temperature might hinder production, Lin said.
Fang Qing, vice general manager of the New Shanghai International Tower's management
department, said that raising temperature by one single degree meant that the whole building can
cut electricity consumption by 5,000 kilowatts.
The energy consumed by air-conditioners and lighting forms the major expense for most building's
operating costs.
Office workers welcomed "casual Friday" as it gave them a chance to wear their own cooler
clothes in every sense.
Association officials said that they were planning to have a regular "casual Friday" and hoped to
spread it to other office buildings in downtown Luwan District and Jing'an District.
RBS, Grosvenor trade first Japan property swap
Royal Bank of Scotland (RBS) and private real estate group Grosvenor have traded the first
Japanese property derivative, according to Grosvenor and index compiler Investment Property
Databank (IPD).
RBS could not be reached for comment.
Grosvenor, which owns or manages property worth more than €11 billion (HK$117.7 billion)
including the estate of the Duke of Westminster, one of Britain's richest men, said the two-year
deal was small but declined to be more specific.
"It's another one of our test trades," said Nicholas Scarles, Grosvenor's group finance director,
after the company in May traded the first Australian property derivative and sold a three-year
US$250,000 United States property swap.
Grosvenor was comfortable with all its property derivative positions, Mr Scarles said, which
encouraged it to increase its exposure to the market and fitted in with long-term aims to raise
exposure to property in North America and the Asia-Pacific region.
"It's helped us to gain confidence to do something bigger," Mr Scarles said.
IPD, whose Japan monthly indicator property index was used as the basis of the trade, said it was
the first Asian commercial property derivatives trade, following the launch of a residential property
derivatives market in Hong Kong in February.
IPD said it had used data provided by Japanese real estate investment trusts (J-reits).
"The fact that J-reit properties are appraised twice a year and on a staggered basis has allowed us
to update the index series monthly," said Toshiro Nishioka, IPD's managing director in Japan.
"The regular flow of new information into the market every month should help maintain interest in
the market and help with the pricing of the contracts."
The property derivatives market mostly offers over-the-counter trading in swaps based on
benchmark total return property indices for fixed periods, in exchange for the London interbank
offered rate plus a spread.
Most of the activity is centred on IPD's benchmark British property indices.
The market reached a record volume of £2.9 billion (HK$45.97 billion) in the first quarter of this
year - a miniscule amount compared with other derivative markets but one that is rising fast.
Ambition, vision, insight, timing, and……personal charm.
What makes a successful real estate developer in New York, one of the United States' most
challenging and competitive cities?
Ambition, vision, insight, timing and, equally important, personal charm. At least this is the case
with Donald Trump, whose name appears on many of the most prestigious buildings in New York.
Gwenda Blair, author of "Donald Trump," tells a fascinating tale of the up and down career of
Donald Trump, the American business icon.
Blair provides insights about the family relationships and friendships that shaped Trump's
personality and his business.
Besides, there is also detailed description of the tactics and ploys Trump used to build his power
and fame.
Donald Trump was born in 1946, the fourth child of a rich family in New York. His father was a
successful residential real estate developer in the city.
Born with the instincts of a shrewd businessman, Trump showed at an early age the
characteristics that would help him thrive amid the competition.
Upon graduation, Trump worked as his father's apprentice and, thanks to his father's mentoring,
learned a great deal that prepared him for his future success.
Trump started with the acquisition of two Manhattan railroad yards and the former Commodore
Hotel at the best time and thus managed to settle the deals at the least possible cost - and that's
how he got his fame.
Then he continued with the construction of Trump Tower in New York City and several other
residential projects, many with Trump's name featured prominently on them.
Perhaps what impresses readers is Trump's skillful manipulation of all kinds of resources to woo
people into doing business with him.
In particular, Trump maintains strong ties with politicians and knows well how to make use of them.
When he planned to buy the Manhattan railroad yards from the Victor Palmieri Co, he tried every
means possible to court the company executives. When an executive casually said he would be
willing to meet the mayor in his office at 1:30, Trump managed to arrange the meeting at exactly
that time.
And Trump's extreme self-confidence - if not conceit - also contributed a lot to his personal charm.
As Blair observes: "In classic American huckster fashion, on every occasion he pronounced his
projects and himself as the best, the brightest, the greatest."
Paul Longo, an Atlantic City real estate broker, also says that when doing business, Trump "will
say things like 'Why don't we just remain friends and forget the deal.'"
He is able to make you believe this is the best deal you're going to get from him - if you don't like it,
talk to the next buyer - and he makes you wonder if there is going to be another buyer.
Such irresistible personal attractiveness did not fade away even when Trump made continuous
bad investments and was troubled by huge debt in the years followed.
Despite his missed interest payments to bond holders, banks and mortgage holders, no one ever
foreclosed on his properties, because creditors believed that his name could still draw tenants or
buyers.
Blair is right to the point in describing Trump's typical way of managing his business: "Keeping up
in the air some half a dozen elements, each of which requires all the others to be finished - having
the timing to pull separate irons in and out of the fire - yet keep everything going until the whole
thing is a done deal - he knew that is what real estate development is all about."
Detailed and informative, the book by Blair not only provides readers with the life story of Donald
Trump, but is also a careful study of the whole real estate development business and the way big
projects are got done in complex political and financial environments.
Therefore, besides satisfying the curiosity of people on the secrets to a business icon's success,
the book is also a good choice for those who are interested in business.