Hutchison's 4.6b yuan Shanghai project just the latest by HK property moguls The landmark 4.65 billion yuan Shanghai Lujiazui deal by Hutchison Whampoa offers encouraging evidence that the mainland property market may be becoming a more disciplined and level playing field for outsiders. While many local governments are criticised for favouring local interests in official land sale programmes, Shanghai is regarded as the best regulated and most transparent marketplace - although even this reputation has not extended to making tender details public. Hutchison this week said it had secured an 89,320 sq metre site on Century Avenue in Lujiazui, the financial area of Pudong, for 4.65 billion yuan. It proposes a 380,000 sq metre development on the site and beat off three other bidders to win the tender. 'For Hutchison, 4.65 billion yuan is not a big wager. Hong Kong property moguls are willing to throw big money in simply because the rules of the game are designed to make them feel more comfortable and confident,' said Adrian Ngan, executive director responsible for regional property research at BNP Peregrine. Better legal protection and transparent proceedings are certain to help in luring international investors to join the once unregulated party. But robust demand for housing and office space remains the main appeal for Hong Kong property developers to rush into China. While investment yields in Hong Kong's property market were squeezed to single digits due to slow demand and market saturation, yields in China are on the rise. Hang Lung's chairman Ronnie Chan, once known to be a cautious China investor, now says investment return in China is higher than in Hong Kong. Yolanda Liu, vice-director for research and consultancy at Centaline Shanghai, estimated average investment yields of Shanghai commercial projects were about 36 per cent. By contrast, yields for A-grade office space in Hong Kong's Central district are about 4 per cent. A quarterly research report released by Colliers International last month said the tight supply in Shanghai grade A offices led to higher rentals in the third quarter. Average monthly rentals increased 9 per cent from the same quarter last year to reach US$27.6 per square metre, compared with US$84.9 per square metre in Hong Kong, after the territory had recorded a robust increase of 42 per cent this year. Capital gains in Shanghai grade A offices were also up 9 per cent year on year in the third quarter, at US$3,688 per square metre. Ms Liu said the high price multinational corporations paid to gain a foothold in the local market would be worth meeting just for its promotional value. 'You may buy things at expensive prices here but you wouldn't make the wrong decision,' she said, adding that macro-economic policy restraints were in place for a short to medium period and had affected only residential market sentiment so far. This partly explained why the landmark site in Shanghai Lujiazui drew a majority of bidders from Hong Kong. Of the four bidders, three were from Hong Kong - Hutchison, Sun Hung Kai Properties and Swire Pacific. The other bidder, Bailian Group, is the biggest retailer in China. The strong contingent from Hong Kong came as no surprise to mainland analysts, since developers from Beijing and Shanghai have been hard hit by the central government's credit tightening measures. This had left Hong Kong property tycoons and institutional venture capital funds a golden chance to build up their China land banks, they said. Li Ka-shing's sister companies Cheung Kong and Hutchison Whampoa have made a series of aggressive land acquisitions on the mainland this year. Apart from the Shanghai project just secured, they have bought nine plots of land in Beijing, Shanghai, Changchun, Guangzhou and elsewhere, at a total cost expected to exceed seven billion yuan. In July, Sun Hung Kai Properties outbid its principal competitor, Hutchison, to secure a prime residential site in Shanghai's Pudong for 3.19 billion yuan after the Kwok brothers relaxed their limit for group investment in China. Mr Chan said Hang Lung would catch up with its rivals in the next three years, by rolling out about 10 mainland mega-mall projects including one in Tianjin and a newly announced project in Shenyang. Total investment was estimated at $25 billion. Yet to show the same enthusiasm for the China market are investment bank researchers. Currently only a few, notably JP Morgan and Morgan Stanley, keep a watch over the China investments of locally listed companies. But it is believed Goldman Sachs will place the China property market on the radar of its research team as early as next month - fresh attention that could have something to do with the fact that the playing field is levelling off and becoming more transparent. Mogul City Major Hong Kong developers with projects in Shanghai Hutchison Whampoa Sun Hung Kai Properties Henderson Land Shui On Group Liu Chong Hing Hang Lung Group Kerry Properties Hong Kong New World Land Wharf/Wheelock Source: DTZ Debenham Tie Leung
