CAN ANYONE SEE SEA BISCUIT?
Property downgrades in Hong Kong
By Jennifer Lee

Race day at the Hong Kong Jockey Club in Sha Tin has a festive air – when you can see the races. At 2:15 on a recent Sha Tin race day afternoon, managers had to switch the floodlights on because the TV broadcasting department couldn’t get a clear shot of the action. The polluted air had grown so hazy racegoers couldn’t see who was leading on the other side of the track, about 300 meters away. Although the expense of operating the floodlights is a tiny fraction of the club’s operating expenses, many days like that one could erode even the Jockey Club’s famously deep pockets.

Hong Kong’s blue chip real estate companies felt the pinch of pollution last month, too. Foul air quality led to three of the territory’s biggest office landlords being downgraded by investment bank Merrill Lynch to “sell”. Hongkong Land and Great Eagle were changed from “neutral” while Hysan Development was altered from “buy”. The report, authored by strategist Spencer White, argued that pollution will increasingly impact expatriates’ willingness to live in the city, and that will ultimately cause companies to relocate to Singapore, where, despite smoke from forest burning in Indonesia, the air is generally cleaner. The report maintains that Singapore’s population is set to double from mass migration and as finance companies relocate there.

Merrill also downgraded Hong Kong’s office sector, forecasting a 5% drop in office rents for 2007. With 70% of the pollution coming from the Pearl River Delta, the report says there is little the Hong Kong government can do without aggressive intervention from China’s government. Says the report: “It could be a long, choking wait.”
For consolation, there’s always the races.