Property downturn a test for Hysan
HYSAN Development Co has produced a solid performance in the interim period with a profit growth of 10.23 per cent, despite a sluggish property market.
Without any boost from exceptional items or property disposals, the investment property company relied largely on rental income, which accounted for about 70 per cent of its profits.
The other regular and major contributor was from capital market investment, which was somewhat difficult to predict.
Some analysts expected the treasury gains for the whole of this year to be as much as $300 million.
For the first half of this year, Hysan still managed to register positive rental revisions on renewal of leases for its portfolio despite the overall market's falling residential, commercial and office property rents.
This was because current property rentals, although having fallen dramatically in the past year, were still higher than the rates quoted in the company's leases signed two or three year ago.
But the bleak prospect for the various sectors with rents likely to fall further in the foreseeable future might give Hysan a difficult time next year.
Doubts are also raised whether the company could maintain a positive rental revision in the coming year.
Analysts are predicting a minimal earnings growth for Hysan while others suggest that the group may have to sell properties to boost profits.
The negative market sentiment now does not present a good time for property disposals. It is more likely Hysan will hold on to its prestige properties to wait for a better time for disposals, even if it chooses to inflate earnings by exceptional gains.
Optimists hold the views that the downside of commercial and office property rents would be limited.
Some suggested that if China's austerity programme was to be relaxed in the near term, it was possible to see hot money flowing into the territory.
Fortunately, Hysan's China investments may be able to start turning in contributions next year.
Although the company's earnings prospects are uncertain and less positive for the coming year, investors are pinning hopes on the completion of its massive Lee Gardens redevelopment in early 1997, which would significantly increase the group's rental income.
