Hong Kong Properties Group 5 Ka Wang Leung Lin Chen Joey Mak Bertina Lu Siesta Jin Agenda Overview of Hong Kong Market Overview of China Market Sun Hung Kai Cheung Kong Sino Land Hong Kong Overview Hong Kong Special Administrative Region of the People’s Republic of China Southern coast of China The Central Business District Hong Kong Overview Hong Kong dollar, the eighth most traded currency in the world. Highly developed capitalist economy Important center for international finance and trade HK Stock Exchange 6th largest in the world One of the greatest concentrations of corporate headquarters in the Asia-Pacific region. Currency pegged at 1 USD: 7.75 HKD Low Tax Rates: Corporate 16.5%; Individual 0-15% Index of Economic Freedom Ranked the freest by the Index of Economic Freedom since 1995 Land Distribution 3 Regions with 18 districts Population: 7,285,442 Land area: 1,104 2 Density: 6581.8 people/ 2 (Canada: 3.6 people/ ) 2 Land Development 1970’s Until Present Land Utilization Developed Lands Residential Commercial/Retail Office Industry/Factory Hong Kong Lands Department Main functions: Land disposal for development purposes Valuation of land and property Acquisition of private land for public projects Land control and lease enforcement How is land traded? Land auction Oral bidding Most land in metropolitan area sold using this method Tenders Sealed bidding Users strictly defined The government examines detailed proposals Private Treaty Sales to non-profit organizations Land Auction Land Auction New leases Generally 50 years from date of grant Annual rent of 3% of value of property adjusted for any changes in value Non-renewable leases Some leases do not have automatic right of renewal Renewability decided solely by government If land is being misused, underutilized or needed for public projects, government may choose not to renew Examples: Sept. 3, 2014 - Henderson won commercial lot for HK$4.7 billion Feb 25, 2014 – 3 residential lots auctioned for HK$9.8 billion, won by Poly Property, K Wah International and K&K Property Holdings $ / m² $ / m² Factors Affecting Property Markets Government Regulations Interest Rates Economy Risk of Bubble Government Regulations Government controls the supply of land Government determines when and how much new land will be put on the market as well as the uses allowed on this land Government leases land to private developers, land for non- institutional uses is generally leased to the highest bidder at a public auction Affordable Housing Initiatives developed for low-income residents Spending on public sector land development outgrew private sector in 2010 Public Housing Introduced in 1961 Major component of Housing in Hong Kong Mainly built by the Hong Kong Housing Authority and the Hong Kong Housing Society Application must be approved before eligible Benefit Government provides affordable housing for low-income residents Rents and prices are significantly lower than private housing Almost half of population utilize Policies New policies on October 26, 2012: Buyer’s Stamp Duty (BSD) Extra 15% tax on property purchases made by foreign investors Special Transaction Tax 20% on properties sold within 3 years of their purchase, extended from 2 years previously Aimed at reducing speculation in an overheating market Residential property transactions in the following weekend: 43% ↓ Cheung Kong Ltd: 4.7% ↓ Sino Land Co Ltd: 8.1% ↓ Sun Hung Kai Properties: 5.1% ↓ Policies Another new policy on February 22, 2013: “Double” Stamp Duty - adjust the ad valorem stamp duty (AVD) rates Increased 1.5% tax on the properties that value less than HK$ 2,000,000 ~ US$ 250,000 Doubled the tax on the properties that value more than HK$ 2,000,000 Exception for first purchase made by local residents Cheung Kong Ltd: 0.6% ↓ Sun Hung Kai Properties: 1.3% ↓ Tax Rates Before February 22, 2013 Tax Rates After February 22, 2013 Policies Load Ratio Limitation policy introduced in February 27, 2015 Loan-to-value ratio for residential properties under HK$7 million would be capped from 70% 60% Buyers must pay higher down payment Lower the maximum debt-service ratio (DSR) from 50% 40% for second-home buyers and non self-use properties Amount of mortgage payments + other debts must not exceed gross income Makes it harder for buyers to borrow Cheung Kong Ltd: 2.3% ↓ Sino Land Co Ltd: 4.1% ↓ Sun Hung Kai Properties: 1% ↓ Interest Rates 6.00% 5.00% 4.00% 3.00% 2.00% 1.00% 0.00% 2010 2011 2012 2013 2014 2015 Federal Funds Rate HK Best Lending Rate Average Mortgage Rates Average Mortgage Rates GDP Growth & Unemployment Rates 8.00 6.00 4.00 2.00 0.00 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 -2.00 -4.00 GDP Growth Unemployment Rate HK Median Household Annual Income (2014) 12.0% Median = HKD $23,500 10.0% 8.0% 6.0% 4.0% 2.0% 0.0% Pricing Bubble HK Centa-City Leading Index Last bubble Hang Seng Properties Index Record and monitor daily changes of the largest companies of the Hong Kong stock market Main indicator of the overall market performance in Hong Kong Properties Index made up of 10 major property companies: 0016 Sun Hung Kai Properties Ltd 0001 Cheung Kong (Holdings) Ltd 0688 China Overseas Land & Investment Limited 0004 Wharf (Holdings) Ltd 0012 Henderson Land Development Co. Ltd 1109 China Resources Land Limited 0101 Hang Lung Properties Ltd 0017 New World Development Co. Ltd. 0083 Sino Land Co Ltd 0823 The Link REIT Hang Seng Properties Index (6m) Hang Seng Properties Index (1y) Hang Seng Properties Index (5y) Mainland China Overview People’s Republic of China Capital: Beijing Population: Over 1.35 billion Currency: Renminbi GDP China Property Market Housing Bubble Restrictions in China Property Market Between 2010 and 2011 ( High bubble Risk ) Down payments for first-time buyers’ mortgages was increased to 30% from 20% For Second homes down payment rose to 60% from 50% Limit purchasing quantity Property taxes Property Price Decline 7% rise in national property sales in April, 2014 was the first growth in 16 months. Average new home prices in China’s 70 major cities rose 9.6% year-on-year to January 2014, down from the previous month’s 9.9% rise. Policies Relaxation Central government is prepared to allow concessions, giving local governments the leeway to adjust their property control policies. Major real-estate firms said their agents in the city had been told that home buyers are now allowed to purchase multiple homes in certain parts of the city. The big four have offered 5% discounts for their mortgage rates, with their average mortgage rates for first-time house buyers falling to between 6% and 6.2%. Mainland Buyers Purchase HK property Impact of Mainland buyers Mainland buyers affected limited supply in HK housing market: Home prices in Hong Kong have surged more than 90% since early 2009 on a shortage of new supply Impact of Mainland buyers Mainland buyers accounted for almost 20% of the sales in two new private residential projects Market share of mainland buyers rose from about 10% in late 2009 to nearly 30% in 2011 For properties costing more than HK$12 million, mainlanders featured in 27.3% of the deals in the July to September quarter Hong Kong government response: new tax policies on foreign investors 1 Year Performance 5 Years Performance 10 Years Performance 1 Year Performance vs Hang Seng Index 5 Years Performance vs Hang Seng Index 10 Years Performance vs Hang Seng Index 1 Years Performance vs ADR 5 Years Performance vs ADR Max Years Performance vs ADR Founded in 1963, publicly listed in 1972 Lee, Shau-Kee(1928 – Present) Fung, King-Hay Kwok, Tak-Seng Founder and Chairman of (1922 – 1985) (1911 – 1990) Henderson Kwong Siu Hing Wife of Kwok, Tak-Seng Chairman since 2008 Retired in December 2011 Has large influence in the company because the Kwok brothers respects her Kwok Brothers Black: Jan 2014 Red: Now Raymond Walter Thomas 17.25% ~16% Kwok Kwok ~13.5% Kwok % of share that Directors have Kwok Ping-Sheung, Walter Eldest son Formerly Chairman and CEO until 2008 Was evicted from the company by his mother in an attempt to protect the family business from this mistress who had started to have an influential role in the company in 2008 Negotiated his departure completely from the family business in 2014 Kidnapping of Walter Kwok In 1997, Walter was kidnapped by Cheung. He was beaten, stripped to his underwear and kept for a week in a wooden box before his family negotiated his freedom Ida Tong Walter went back to her after the kidnap They knew each other when they were young Walter broke up with her because his father’s disapproval Tried to gain an influential role in the company and caused Walter to be evicted in 2008 Kwok Ping-Kwong, Thomas Middle son Formerly Co-Chairman of the company since 2011 Vice Chairman of the company for 21 years prior to becoming the Chairman Sentenced to 5 years of jail time for bribery in 2014 KWOK Ping-luen, Raymond Youngest son Co-Chairman of the company since 2011 Chairman since Dec, 2014 Managing Director and a member of the Executive Committee of the Company Vice Chairman of the company for 21 years prior to becoming the Chairman has been with the Group for 36 years Bribery in 2007 In 2007, a subsidiary of Sun Hung Kai bought a property in Tai Wai (New Territories). Sun Hung Kai paid $405 millions for a property that is only worth around $255 millions. Overpay $150 millions to Hui Si Yan.