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Sino Land Co

Sino Land Co Ltd is a property developer mainly engaged in residential development in Hong Kong. The company also holds a portfolio of investment properties in the city, mostly commercial properties adjoining the housing projects it built in the past. Many of its residential projects were developed in joint ventures with government-related entities such as MTR and Urban Renewal Authority. The segments of the company are Property sales, Property rental, Property management and other services, Hotel operations, and Investments in securities and financing.

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Chinese real estate developers are having some of their worst 12-month periods on record this year, defaulting on billions of debt as they face the new reality of much slower home sales in mainland China.

Is There A Real Estate Bubble In Hong Kong That&#39;s About To Burst?

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Hong Kong stocks ended a quiet week in the green as speculators bet that government easing measures in China would come into place to stimulate the local economy. The Hang Seng Index finished the day’s trading 1.6% higher at 17,485.98.

Hong Kong Investors Bid Up Shares On Turnaround Hopes For China&#39;s Sluggish Economy

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Chinese real estate developers are having some of their worst 12-month periods on record this year, defaulting on billions of debt as they face the new reality of much slower home sales in mainland China.

China&rsquo;s non-financial debt-to-GDP that comprises in large part retail borrowing on properties has surged since the country&rsquo;s boom days, from 132% in 2007 to 285% this year. Property comprises around a third of China&rsquo;s GDP and around 65% of all household assets in China.

So a dwindling real estate market has put pressure on the country&rsquo;s growth, where the World Bank recently cut its forecast from 4.8% to just 4.4% in 2024.

<h3>Plunging Home Prices, Empty Office Space</h3>

In Hong Kong, the situation is potentially even more precarious than it is in neighboring China. The number of people applying for greater than 80% mortgages in Hong Kong has risen sharply this year by over a third, even as properties are going for massive discounts to what they did in prior years&rsquo; sales. &nbsp;

Property prices in the world&rsquo;s least affordable housing market plunged 16% in 2022 and have been dropping further throughout this year. Residential housing prices fell a further 10% in the first half of 2023, while larger apartments over 1,700 square feet in size dropped as much as 22% in value according to <a href="https://www.rvd.gov.hk/doc/tc/hkpr23/HKPR2023%20Full%20Book_TC.pdf" style="color:#0563c1">data</a> from Ratings &amp; Valuation Department.

Sales volumes are still well over 40% below what they were 18 months ago, according to the department, and in some cases up to 70% lower than before.

Despite these declines, the island still remains the world&rsquo;s least affordable to buy or rent property in, according to a recent <a href="http://www.demographia.com/dhi.pdf" style="color:#0563c1">survey</a> by Demographia. That suggests that unless the economy rebounds sharply, property prices have further to fall.

Among commercial real estate developers, headwinds appear even stronger still: vacancy rates for office rentals are hitting all-time highs of 16%, with rents off 5% so far in 2023.

The Midland Price Index, a volume weighted <a href="https://www.midland.com.hk/en/market-insight" style="color:#0563c1">index</a> of the average prices of Hong Kong properties compiled by Midland Realty Limited, has been steadily declining throughout the year. In October, it is 2.2% lower than the month before, while Midland&rsquo;s Confidence Index for the property market also hit a new low this month for 2023.

The lacking demand for office space on the island this week prompted the Hong Kong government to pause on its commercial real estate auctions, which typically provides the local government with funds for expansion.

<h3>Developer Woes Point To Bubble Bursting</h3>

All of this raises the possibility of there being a property bubble in Hong Kong that&rsquo;s soon about to burst. Part of the problem, according to Knight Frank Limited, a property agent, is the huge amount of debt that Hong Kong real estate purchasers are assuming when they buy. That&rsquo;s not likely to help a decline that won&rsquo;t seem to abate.

&ldquo;Under the current market headwinds, sell-offs are set to endure amid weakening purchasing power,&rdquo; wrote analysts at Knight Frank in a recent <a href="https://content.knightfrank.com/research/676/documents/en/hong-kong-monthly-august-2023-10503.pdf" style="color:#0563c1">note</a>.

Hong Kong&rsquo;s biggest listed real estate developers are down sharply on the year as rising defaults, tighter credit conditions and weaker-than-expected economic prospects in China maul their financial statements.

Country Garden Holdings Limited (OTC:<a class="ticker" href="https://www.benzinga.com/stock/CTRYY#OTC">CTRYY</a>) is off 67% this year, while China Evergrande Group (OTC:<a class="ticker" href="https://www.benzinga.com/stock/EGRNF#OTC">EGRNF</a>) is 80% lower, returning from a trading suspension in August after 17 months due to legal and financial woes.

The contagion has rattled local banks, with China Construction Bank Corporation (OTC:<a class="ticker" href="https://www.benzinga.com/stock/CICHY#OTC">CICHY</a>) 11% lower year-to-date and Bank of China Limited (OTC:<a class="ticker" href="https://www.benzinga.com/stock/BACHY#OTC">BACHY</a>) 5% weaker over the same period. Local lender HSBC Holdings plc (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/HSBC#NYSE">HSBC</a>) is higher by 27% for the year as a result of undertaking billions in stock repurchases but is still trading 6% lower than it was 5 years ago.

<h3>Market Intervention Hazards</h3>

The increasingly troubled sector has brought about a sharp sell-off in all Hong Kong stocks this year, not just in developer stocks and banks, as the unknown extent of defaults continue to weigh on investors&rsquo; minds. Year-to-date, the Hang Seng Index is down over 15%.

That has caused some to speculating that the Chinese government&nbsp;<a href="https://www.benzinga.com/markets/penny-stocks/23/10/35067690/china-evergrande-shares-soar-on-trading-resumption-in-hong-kong-sparking-bailout-speculation" style="color:#0563c1" target="_blank">will step in with a bail-out for property developers</a>, similar to the way the US government bailed out automakers such as&nbsp;Ford Motor Co (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/F#NYSE">F</a>)&nbsp;and&nbsp;General Motors Co (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GM#NYSE">GM</a>)&nbsp;as well as giant financial institutions&nbsp;Morgan Stanley (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/MS#NYSE">MS</a>),&nbsp;The Goldman Sachs Group Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GS#NYSE">GS</a>),&nbsp;Bank of America Corp. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/BAC#NYSE">BAC</a>)&nbsp;and&nbsp;JP Morgan Chase &amp; Co (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/JPM#NYSE">JPM</a>)&nbsp;in the 2008 subprime crisis.

Hong Kong&rsquo;s local government has already tried to work in a range of stimulus policies to revive its beleaguered property market. These include everything from introducing tax credits for buyers to tightening up available supply and even <a href="https://www.scmp.com/news/hong-kong/hong-kong-economy/article/3236780/30-companies-pledge-invest-hk30-billion-hong-kong-helping-spur-citys-rise-it-hub" style="color:#0563c1">inducing</a> Chinese companies to invest billions of dollars in an IT Hub on a patch of agrarian farmland that lies between Hong Kong and China in a zone known as the New Territories.

But in China&rsquo;s complex economy, it&rsquo;s not as easy as just pumping in money, the more so in Hong Kong, which has an international component to its real estate scene, maintain market watchers. Market intervention tactics by local government, while stabilizing things a bit, ultimately only made matters messier last year in neighboring China.

The extent of China&rsquo;s overblown real estate prices was muddied by financing from local government financing vehicles (LGFVs), a way for banks and governments to game the real estate market and other asset prices.

LGFVs accounted for over half of land purchases in 2022 vs. just 33% the year before and 17% in 2021, according to data from Rhodium Group. That created a false sense of demand, ultimately crashing prices in areas faster than they would have otherwise fallen.

Rhodium says the LGFV purchasing interventions only made matters worse as government-subsidized property buyers came to form a bedrock of artificial value below much of China&rsquo;s land values in 2022.

Ultimately, these interventions caught up with developers when the music stopped in 2022 and early this year, <a href="https://www.benzinga.com/markets/penny-stocks/23/09/34912174/china-evergrande-debt-default-hits-hong-kong-developers-with-doozy-while-chinese-big-tech-ho" style="color:#0563c1">resulting in huge debt defaults such as Evergrande&rsquo;s missed repayments of $30 billion in offshore bonds</a>. China&rsquo;s Ministry of Finance eventually issued a notice for local governments to stop intervening in their property markets using LGFVs.

Further, government stimulus only seems to be showing up how weak the Hong Kong property market actually is. This month, Hong Kong&rsquo;s local government is set to auction off <a href="https://www.scmp.com/business/article/3236806/hong-kong-government-sell-only-1-plot-quarter-putting-revenue-target-us108-billion-land-sale-out?utm_source=cm&amp;utm_medium=txn&amp;utm_campaign=enlz-NOT-Follow&amp;utm_content=20231005_daily5&amp;d=e342e512-a5fc-4414-a8dc-effce3b5e5b2" style="color:#0563c1">just one</a> property, meaning it will end up meeting a maximum of 20% of its targeted auction revenue for the year.

The recent auctions provide a guage of the extent of discounts local developers are demanding to develop new land in Hong Kong.

Sun Hung Kai Properties Ltd. (OTC:<a class="ticker" href="https://www.benzinga.com/stock/SUHJY#OTC">SUHJY</a>) recently <a href="https://www.bloomberg.com/news/articles/2023-10-05/hong-kong-to-pause-selling-commercial-land-as-market-falters?embedded-checkout=true" style="color:#0563c1">won</a> a HK$20 billion Kowloon property for just HK$4.6 billion at a recent auction while consortium of property developers led by Sino Land Company Limited (OTC:<a class="ticker" href="https://www.benzinga.com/stock/SNLAY#OTC">SNLAY</a>) last month won another auction for a property in Kai Tak for a 10% discount, paying just HK$5.3 billion for over 100,000 sq ft of prime Hong Kong development space.

Is There A Real Estate Bubble In Hong Kong That's About To Burst?

Hong Kong stocks ended a quiet week in the green as speculators bet that government easing measures in China would come into place to stimulate the local economy. The Hang Seng Index finished the day&rsquo;s trading 1.6% higher at 17,485.98.

China&rsquo;s stock markets and banks were closed this week for the annual National Golden Week Holiday, which investors hope also provided a boost to consumer spending.

About HK$60 billion&nbsp;($7.7 billion) of shares were traded per day in Hong Kong this week, about half the weekly 12-month average volume.

A Goldman Sachs Group Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/GS#NYSE">GS</a>) report stipulating that the economic slowdown in China is coming to an end followed a similar report by Citigroup Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/C#NYSE">C</a>) Thursday which stated that the bottom is in for a slump in exports and weak consumer confidence on the mainland.

&ldquo;We expect growth and inflation to bottom out in the near term on stabilising exports, less drag from inventory destocking and increased policy offset,&rdquo; Goldman&rsquo;s economists wrote in the report.

Property stocks and exporters got most of the action as investors bet that a turning point for China&rsquo;s economy had been reached. Hang Lung Properties Limited (OTC:<a class="ticker" href="https://www.benzinga.com/stock/HLPPY#OTC">HLPPY</a>) jumped 2.3%, Sino Land Company Limited (OTC:<a class="ticker" href="https://www.benzinga.com/stock/SNLAY#OTC">SNLAY</a>) rose 1% and Country Garden Holdings Company Limited (OTC:<a class="ticker" href="https://www.benzinga.com/stock/CTRYY#OTC">CTRYY</a>) leaped 3.5% on the day. Sunac China Holdings Limited (OTC:<a class="ticker" href="https://www.benzinga.com/stock/SNCNF#OTC">SNCNF</a>) surged 10.5% after it successfully convinced a Hong Kong court Thursday to vote in favour of its $10.2 billion offshore debt restricting proposals, approved by 98% of its creditors in a fortnight-ago vote.

Consumer names Alibaba Group Holding Limited (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/BABA#NYSE">BABA</a>) and JD.com, Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/JD#NASDAQ">JD</a>) were both higher by 1.5%. Tencent Holdings Limited (OTC:<a class="ticker" href="https://www.benzinga.com/stock/TCEHY#OTC">TCEHY</a>) and insurer AIA Group Ltd. (OTC:<a class="ticker" href="https://www.benzinga.com/stock/AAIGF#OTC">AAIGF</a>) were both around 2% stronger on the day as both companies continued their aggressive multi-month stock repurchasing programs on the Hong Kong Stock Exchange.

CNOOC fell a bit after Bloomberg <a href="https://www.bloomberg.com/news/articles/2023-10-06/china-oil-giant-cnooc-to-repay-dollar-bond-week-after-due-date?srnd=premium-asia" style="color:#0563c1">reported</a> today that it told investors there would be a delay of seven days in an offshore bond repayment to account for the Chinese national holiday. The $1.3 billion investment grade 10-year bonds issued in 2013 were trading at 99.99 cents on the dollar, indicating that investors were unconcerned about any credit risk from the issuer, but the incident sparked discussions about what constituted a debt default in light of recent property share credit defaults. In the bonds&rsquo; terms of repayment, it stipulates they will be repaid within two working days of the maturity date of the notes according to a New York and Australian working week.

Caixin, China&rsquo;s largest business daily <a href="https://www.caixinglobal.com/2023-10-06/in-depth-nio-looks-to-ride-uptick-in-ev-sales-out-of-slump-in-crowded-market-102114221.html" style="color:#0563c1">reported</a> that automaker NIO Inc. (NYSE:<a class="ticker" href="https://www.benzinga.com/stock/NIO#NYSE">NIO</a>) is starting to put pressure on rival EV makers Tesla, Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/TSLA#NASDAQ">TSLA</a>), Li Auto Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/LI#NASDAQ">LI</a>), XPeng Inc. (NASDAQ:<a class="ticker" href="https://www.benzinga.com/stock/XPEV#NASDAQ">XPEV</a>) and BYD Company Limited (OTC:<a class="ticker" href="https://www.benzinga.com/stock/BYDYY#OTC">BYDYY</a>) in China after raising sales commissions for its agents.

Minimum sales commissions paid to NIO sales reps have been more than doubled recently, Caixin said, from 800 RMB ($110) to 2,000 RMB per car sold and by over fourfold from 800 RMB to 4,000 RMB per car for inventory stock and showroom display vehicles. The big increase in sales commissions was what helped the company achieve over 6 billion RMB in sales and raise sales over the 20,000-mark in July this year.

Hong Kong Investors Bid Up Shares On Turnaround Hopes For China's Sluggish Economy

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