2008/2009 Guide to Asia's Blue Chip Companies

Real estate

Bust or boom?

Figuring out if this is the time to buy or sell in Asia

The whole world is reeling from last year’s subprime crisis yet analysts say the long-term outlook for real estate in the region is positive thanks to some underlying fundamentals.

While values are down and concerns remain regarding liquidity and what the final impact of the credit crisis may be, CLSA stated in its Asian property report in May that “the sector is not only fundamentally sound but set to surge”.

Though the US economy is into recession, many Asian economies are still on a sound footing. Lessons learned from the Asian financial crisis of the 1990s mean that Asian banks have pursued more conservative lending policies than their Western counterparts. As a result the region has low loan-to-deposit ratios, mortgage debt as a percentage of GDP is a fraction in Asia of what it is elsewhere – 12% in China as opposed to 105% in the US.

The residential sector should benefit from greater wealth and urban living, as well as the Asian propensity for saving over consumption.

Real economic growth (albeit at lower rates), a shift towards service industries and increasing numbers of company formations should be good for the commercial sector. Once confidence returns, especially if consumer credit expands, the shopping complexes that were once such an attraction for Asians should ring again with the sound of cash registers. This should bring handsome returns for commercial property owners and those in the rental market.

It’s not surprising that companies from a city that is as much defined by its skyscrapers as its jam-packed population, should feature so heavily in the FA100. Four of the five companies that made the list were from Hong Kong, with Hongkong Land peaking at the top. Founded in 1889, Hongkong Land is one of Asia’s leading property investment, management and development groups – it owns and operates most of the office and retail properties in Hong Kong’s main business district, Central. Despite inflationary pressures office rents there are still the highest in Asia, prompting Hongkong Land to say that rental reversions and residential completions are looking good for the year ahead.

Also on the list is Cheung Kong, owned by Hong Kong’s richest man Li Ka-shing, who is on record as saying bullishly that he sees the subprime crisis as an opportunity for well-priced acquisition. Other big names on our annual ranking include Sun Hung Kai Properties, which has the world’s largest property stock, and Henderson Land, which has been buying up land in China, most significantly in tier-two cities.

Tight liquidity and a dislike of risk will be a headache for the property sector, but overall demand in the large developing markets of China and India is still outstripping supply. And there is room for growth in the world’s most populous nation as China has one of the region’s lowest rates of home ownership. In addition the country’s biggest developer has only 2% of the total market share, offering the potential for consolidation and growth.

At the beginning of the year analysts were predicting double-digit growth in Hong Kong’s commercial property values and last February FA100 company Great Eagle announced one of Asia’s biggest real estate investment trusts, the sale of Langham Place Mall and the office section of its prestigious Langham Place development. Retail rents appear to be somewhat resilient in the current downturn and Hong Kong’s relatively low unemployment and the increasing numbers of tourists from the mainland are partly behind this. In addition, following the US Federal Reserve rate cut in September, the Hong Kong government followed suit with a cut in borrowing rates in October (as did the Korean and Taiwanese governments) in an attempt to counter market dislocation.

India’s largest listed real estate company, DLF India, also made the FA100 on the back of a successful 2007, which saw the company move into the overseas luxury market when it acquired a $200 million controlling stake in Amanresorts, one of the world’s most exclusive hotel chains. The deal was part of a continuing trend among Indian companies – across all sectors – to embark on a number of offshore mergers and acquisitions.

“We feel it should be part of our strategy to start looking outward,” said Rajiv Singh, vice-chairman of DLF.

As with China, demand is still outstripping supply in India, but the country has pertinent factors that may cause the property sector trouble. One such area is a slowdown in the IT industry that has been deeper than expected. This has an impact on residential and office space in cities such as Bangalore, meanwhile inflation is at a three-year high and food prices are rising.

Similar dark clouds hang over the Philippine market as the global recession affects remittances sent home by overseas workers, which CLSA forecasts to decline by 6% a year between 2008 to 2010.

Ranking by revenue
Country	Company	(million $)
SK	Daewoo Engineering & Construction	6,530
HK	Sun Hung Kai Properties	2,895
HK	Cheung Kong	1,979
HK	Hongkong Land	933
IN	DLF	585
HK	Great Eagle	536
HK	Henderson Land	332

Ranking by revenue growth
Country	Company
IN	DLF	128.6%
HK	Hongkong Land	67.9%
HK	Sun Hung Kai Properties	21.3%
HK	Great Eagle	10.9%
SK	Daewoo Engineering & Construction	5.9%
HK	Cheung Kong	0.6%
HK	Henderson Land	-17.1%

Ranking by net profit
Country	Company
IN	DLF	908.2%
HK	Great Eagle	856.6%
SK	Daewoo Engineering & Construction	114.0%
HK	Cheung Kong	42.3%
HK	Hongkong Land	40.9%
HK	Sun Hung Kai Properties	11.5%
HK	Henderson Land	1.1%

Ranking by ROE
Country	Company
IN	DLF	108.7%
SK	Daewoo Engineering & Construction	32.2%
HK	Great Eagle	17.3%
HK	Cheung Kong	12.9%
HK	Henderson Land	6.9%
HK	Sun Hung Kai Properties	6.5%
HK	Hongkong Land	3.3%

Share price
Country	Company	Share price, Nov 1, 2007	Share price, Nov 1, 2008	Currency
HK	Cheung Kong	148.9	72.6	HKD
IN	DLF	928.0	220.3	INR
SK	Daewoo Engineering & Construction	26,927.1	8,800.0	KRW
HK	Great Eagle	32.0	8.7	HKD
HK	Henderson Land	69.2	27.1	HKD
HK	Hongkong Land	5.0	2.7	USD