2007/2008 Guide to Asia's Blue Chip Companies

Real Estate

Asian properties continue to boom

Asian properties indices gained substantial upsides through 2006, making it a fruitful year for Asian property stocks with sound market fundamentals. In 2007, the US subprime crisis shadowed the world’s financial markets, but the credit crunch had a limited impact on the regional property markets. Despite the spectre of a US-led downturn, most markets in Asia continued to attract investors and sentiment remains positive. Real estate is still an investment choice for both the man on the street with a few discretionary dollars and the mogul on a mission.

The Singapore Property Equities index soared 61.5% in 2006 and the momentum continued into 2007. The index reached a historic high of 1,664 in May 2007, before a substantial correction in August – a result of the global markets’ correction and the nominal effect of the US subprime crisis. The upside was a result of increasing residential property prices and office rental. In the third quarter of 2006, Singapore’s local residential property-price index showed the largest quarterly increase of 2.5% over the previous six years, while its quarterly rental increase for small prime Grade-A office space reached the highest in a decade at 13%.

A stable business-operating environment and strong prospects in Indonesia’s long-term economic outlook pushed the growth of the country’s office market, as companies continued to expand their businesses. Office demand stayed robust through 2006, with significant growth in the central business area in Jakarta, where the occupancy rate remained high at 83.5% as of the end of June 2006.

In the Philippines, the expanding outsourcing industry reinforced demand for office space in 2006. Rents increased and vacancies recorded their lowest level since the Asian financial crisis. Meanwhile, in Malaysia, continuous economic growth drove demand for prime office buildings and retail space in Kuala Lumpur. The overall property markets of both countries stayed strong through 2007.

Thailand is one of the few countries that missed the sustained economic growth benefits that its Southeast-Asian neighbours have enjoyed for the past two years. A coup didn’t help – indeed political uncertainty has continued to disturb investor confidence in the country, blurring the outlook for the overall economy and the commercial real estate sectors.

Dan Tantisunthorn, head of research for Thailand for Jones Lang LaSalle, said that even if a stable government is installed early next year, landlords are will not likely enjoy the favourable conditions available prior to the political crisis over the short term.

In the last three years, India has enjoyed buoyant growth in its residential market, with capital value appreciation ranging from 50% to 100% in selected areas of Mumbai. The asset-price appreciation of Grade-A office space in the central business area of Mumbai has been phenomenal since early 2005, making it the most expensive city for commercial operations in India. Robust economic growth in the country is expected to boost the Indian property market.

While the Chinese government keeps rolling out new policies to cool its property market, there is no denying that real estate has remained heated. The Shanghai Stock Exchange Property Index more than doubled in 2006 and the trend continued until early September 2007.

The Shenzhen Stock Exchange Real Estate Index rode the same track – or climbed higher – than its northern counterpart, reflecting bullish sentiment in the Chinese property sector. Although both indices shed more than 25% and 15% respectively, as a result of general market movements after October 2007, office and residential markets in the country are expected to benefit from sustained levels of underlying demand.

Meanwhile Hong Kong remains a market that has persistently taken advantage of the growth in China. As a result of the expected interest-rate hikes and a lack of major new launches by developers, there was some slowdown in the property market in the first half of 2006. But the market picked up in the second half of the year.

Indeed, any concerns that there might be a global economic downturn due to the US subprime turmoil did not have any significant effect on the Hong Kong economy, while the lowering of Hong Kong interest rates under an inflationary environment helped trigger demand in the real-estate sector.

Once again, Sun Hung Kai Properties was the most profitable company among the property developers in our index. Looking forward, the company has a 73% gross asset value exposure in Hong Kong and is a direct beneficiary of the strong asset market. According to a Morgan Stanley research report, residential prices in the territory are expected to rise approximately 30% through November 2008. This is good news for Sun Hung Kai, given that property sales accounted for 46% of its revenues in 2006.

The Morgan Stanley report also noted that Hong Kong property prices are expected to experience a period of strong growth over the next 12 to 18 months and, as a market leader, Sun Hung Kai Properties will be the industry’s prime beneficiary.

Ranking by revenue
Country	Company	(million $)
HK	Sun Hung Kai Properties	3,997.14
HK	Cheung Kong	1,979.10
HK	Henderson Land	1,077.62
HK	Sino Land	971.37
HK	Hang Lung Properties	566.03
HK	HK Land	555.9
HK	Great Eagle	486.49

Ranking by revenue growth
Country	Company
HK	HK Land	51.20%
HK	Henderson Land	23.40%
HK	Sun Hung Kai Properties	21.10%
HK	Hang Lung Properties	20.00%
HK	Great Eagle	7.10%
HK	Cheung Kong	6.90%
HK	Sino Land	-9.60%

Ranking by net profit
Country	Company	(million $)
HK	Sun Hung Kai Properties	2737.41
HK	Cheung Kong	2331.04
HK	HK Land	1901
HK	Henderson Land	1266.14
HK	Hang Lung Properties	821.64
HK	Sino Land	808.26
HK	Great Eagle	52.3

Ranking by ROE
Country	Company
HK	HK Land	23.16%
HK	Sino Land	14.35%
HK	Hang Lung Properties	13.06%
HK	Sun Hung Kai Properties	12.03%
HK	Henderson Land	11.54%
HK	Cheung Kong	9.38%
HK	Great Eagle	1.83%

Ranking by total points
Country	Top property company
HK	Sun Hung Kai Properties	35
HK	HK Land	33
HK	Henderson Land	30
HK	Cheung Kong	28
HK	Hang Lung Properties	27
HK	Sino Land	25
HK	Great Eagle	18