Fund manager stock pick: China Overseas Land & Investment (0688.HK), Guangzhou R & F Properties Co (2777.HK), Hang Lung Properties (0101.HK), Agile Property Holdings (3383.HK)
Current share price: Hong Kong $17.98, HK$36.20, HK$33.90, HK$16.30
Projection: up 50-60% in 12 months’ time
Fund manager: John Snowden, Colonial First State Global Asset Management
Property stgelopment in China is going gangbusters with the stocks of many property stgelopers surging by over 100 per cent in the past 12 months thanks to a housing boom and diversified stgelopment projects in big cities.
John Snowden at Colonial First State Global Asset Management is punting on four Chinese property stgelopment companies, China Overseas Land & Investment, Guangzhou R & F Properties Co, Hang Lung Properties and Agile Property Holdings. (A number of Australian brokers such as Sonray Capital Markets offer direct access to Hong Kong listed stocks).
Snowden anticipates that the share prices of all four will continue their meteoric rise; over the past 12 months alone China Overseas Land & Investment rose from HK$6.00 to HK$17.98; Guangzhou R & F from HK$10.12 to HK$36.20; Hang Lung Properties from HK$16.14 to HK$33.90; Agile Property Holdings from HK$5.55 to HK$16.30.
If Snowden’s tip is on the money, China Overseas Land & Investment will be at least HK$26.97 in 12 months’ time; Guangzhou R & F at HK$54.30; Hang Lung Properties, HK$50.85, and Agile Property Holdings, HK$24.45.
“At this point in time the most attractive place to invest in property stocks is in Asia, specifically Hong Kong, Singapore and China,” says Snowden.
“Asian countries have some of the highest levels of economic Gross Domestic Product (GDP) growth in the world. Whereas Australia is growing at 3-4 per cent and the US at 2-3 per cent, places like China and Singapore are growing at nearly 10 per cent.
“Then when you start to look at the actual property companies you find that the level of earnings growth is in many cases 10 times the amount of earnings growth in Australia.”
There are reasons for this. China has a massive population of 1.3 billion people, many of whom have acquired the penchant of most Western folk to own property.
Private property ownership in China was first permitted around eight years ago (previously provincial governments would determine accommodation). Since then there has been an explosion of private property ownership.
China Overseas Land & Investment, Guangzhou R & F, Hang Lung Properties and Agile Property Holdings are all based in Hong Kong, and listed on the Hong Kong sharemarket. All companies, according to Snowden, have a high level of regional expertise.
Snowden maintains that driving the growth of the property market in China is “an aspirational population whose per capita income is doubling every four years” and, short of a global recession, this trend should continue.
Snowden, who boasts of a hands-on, “kicking the tyres” approach to his research into management style and strategy says: “We like to back management teams that have a high level of expertise in their particular province because you find that a lot of provincial cities have populations of five to ten million”.
Snowden says the risks inherent within these stocks are political (a central government in China that controls both the regulatory system and the overall financial system), rising interest rates (in China they are currently around 5.278 per cent) and the strengthening of the Australian dollar.
However, Snowden is confident that strong fundamentals should continue to support the share prices of these select property stocks. “The changing landscape of the global property universe is set to continue and is expected to grow to A$1.3 trillion by 2011,” says Snowden.
“Asia continues to benefit from the changing retail patterns which have opened up the creation of mall assets in Japan and China whilst the hotel, logistics and industrial property are all growing sectors in the region. We expect to see a Real Estate Investment Trusts (REIT) style legislation launched in China and India within the next decade,” he concludes.
China Overseas Land & Inv (COLI)
China Overseas Land & Investment Ltd (“COLI”) was incorporated in Hong Kong in 1979, and is the subsidiary of China State Construction Engineering Corporation, the largest construction conglomerate in China. In August 1992, COLI was listed on the Stock Exchange of Hong Kong Limited. It was the first Chinese enterprise to acquire the listing status by its own local business or assets located in Hong Kong.
Its core business is the stgelopment and sales of property projects in Beijing, Shanghai, Guangzhou, Shenzhen, Chengdu, Changchun, Nanjing, Xi’an, Zhongshan, Foshan, Suzhou, Ningbo, Chongqing, Hangzhou, Hong Kong and Macau. Related property businesses include property investment, property management, construction design, as well as infrastructure investment.
By end 2006, the company had a total land reserve of over 15 million sq. m. to be stgeloped in the near future or under stgelopment in 16 cities / districts including mainland cities, Hong Kong and Macau, enough for meeting its stgelopment requirement which is set in such a way to ensure achievement of profit target of over 20 per cent annual increase in the coming 4 to 5 years.
Guangzhou R&F Properties
Established in 1994, Guangzhou R&F Properties Co integrates real estate design, stgelopment, engineering supervision, sales, property management and real estate intermediary.
On July 14, 2005, the company was listed at the main board of Stock Exchange of Hong Kong.
Currently the company owns 60 property projects, land reserves of about 20 million square meters and construction area in progress is 4.0 million square meters. The six major flagship projects of National whose single construction area exceeds 500,000 square meters include Beijing R & F City, R & F Another City, Guangzhou R & F City, R & F Peach Garden, Tianjin R & F City and Xi’an R & F City, Chongqing R & F City.
With the rapid stgelopment of China’s economy, there is a growing demand for commercial real estate. CBD (commercial business district) circles have come into being. Apart from continuing to create ideal residential quarters, R & F Properties began to march into the commercial real estate field. In Guangzhou, R & F becomes the first to obtain the commercial buildings in over 10 property sites with over one million square meters of construction area at Zhujiang New Town, where the CBD centre lies.
R & F Properties also cooperates with Marriott International Group and Hyatt Hotels Corporation, the global famous chain hotel groups, jointly creating two five-star hotels.
Agile Property Holdings
Agile Property Holdings Limited is one of the largest property stgelopers in the rapidly growing Pearl River Delta region in China, offering a broad range of properties such as villas, duplexes, apartments and condominiums to cater to the needs of different customers. Besides residential property business, the Group is also engaged in the stgelopment of commercial properties including retail shops and commercial complexes.
The Company was listed on the Main Board of The Stock Exchange of Hong Kong Limited on 15 December 2005, and was included into Morgan Stanley Capital International China Index in February 2006 and the Hang Seng Composite Index and Hang Seng Freefloat Composite Index in March 2006.
As at 31 December 2005, the Group has 19 property stgelopment projects being stgeloped at various stages through major cities in the Pearl River Delta region.
Hang Lung Properties
Hang Lung Properties Limited is a top tier property stgeloper in mainland China and Hong Kong.
Its businesses in Hong Kong include property stgelopment for sale and lease. The portfolio includes residential, office and large-scale commercial stgelopments in prominent locations.
Hang Lung Properties Limited is listed on the Hong Kong Stock Exchange and is a constituent stock of the Hang Seng Index. It is one of the top three companies listed in Hong Kong engaged purely in property stgelopment.
The Group was an early mover in the mainland China property market, making its first investment in the early 1990s as the first step in a future direction for business expansion. The Group’s strategy in mainland China is to stgelop prime sites in major cities. The portfolio of investment properties currently comprises two large-scale stgelopments in Shanghai: a large commercial complex The Grand Gateway; and the commercial and office complex Plaza 66. The group is now building its success in Shanghai to stgelop similar properties in other major cities including Tianjin, Shenyang, Jinan and Changsha.