New mix of property and stock catches on
Updated: 2007-09-05 10:30
"But the high price-earnings (P/E) ratio of today's real estate market is not sustainable and may face correction," she said. The P/E ratio of real estate stocks in Hong Kong is only 20 percent of that on the mainland. In Hong Kong, the average P/E ratio of top five stocks is only 20, while that on the mainland is as high as 117, according to statistics from Wind, an information provider.
However, Matthew Brailsford, director of the investment department at Savills (Shanghai), said real estate companies are not trying to transfer the risk. "It's just a good opportunity for listed companies to capitalize their land reserves," he said.
"From an unlisted company's perspective, the risk is that the listed entity's share price will fall below the price at which the land was exchanged, but they would have an alternative to realize cash more readily," said Stephen W.S. Ip, partner of transaction services at KPMG.
"If a company can increase its land reserves at a reasonable cost so that it can develop the land for a profit, it can enhance its net asset value, which is important for a listed company if it seeks to raise funds from the stock market," said Ip.
"Housing prices in China are clearly too expensive and going up too fast right now, but the price may continue to rise next year as well," said Brailsford.
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