Good afternoon. Thank you for joining the results presentation. As usual, we have Mr. Ronnie Chan, Chairman of Hang Lung Group, and also Hang Lung Properties. Mr. Philip Chen, Managing Director, and Mr. H.C. Ho, Executive Director. Without further ado, can I just pass the mic to Ronnie to give an overview?
Why don't we just open to everybody? You all saw the numbers. It's a tough trading environment in mainland China. I think our numbers turned out okay, given how terrible the situation is. The horror story I've been hearing has been amazing. I was told recently that there was one shopping center that after opening for what, six months or whatever, it was at less than 10% shops filled. Today, still less than 10%. At least I think in our Dalian, Olympia 66, at least we expect maybe 70% at opening. Given today's environment, it's okay. Shanghai has been growing both in terms of tenant sales as well as rent increase. Both properties in Shanghai have done quite well, given the circumstance. They're at least growing both our rent as well as our tenants' sales. The other places, it's a little bit of a mixed bag.
As many of you know, the top brands are basically frozen in terms of opening new stores, not just for this year, but probably next year as well. It is a different ballgame. Anyway, maybe I should just leave it to you to raise issues that are high on your mind. Unless, Philip, you want, or H.C., you want to make some opening comments first?
Welcome questions. Sorry. Hi, couldn't see you. Yeah.
Hi, it's Paul Louie from Barclays. Just have a quick question on the China margins. I think we saw that this first half, the margin went down to about 69%. But if we compare that to the second half of last year, which was about 67%, it does seem to be stabilizing. Just have a question on, how should we look at sort of the China rental margin trends going forward? Is 69% above sort of a stabilized level given the new investments that will be coming through?
Well, whenever you open one new property, the number goes down. It's just the nature of the beast. I suppose the good news is next year, we won't open any new ones. That's one way of looking at it. So in that sense, it can only go Well, I shouldn't say it can only, but anyway, it should go up. But that said, the trading environment is so crazily tough that I'm not sure if things will improve by that big of a margin. So
Yeah, but Ronnie, we're opening one very big mall at the end of this year.
Yeah. Right.
That will impact.
That's going to bring everything down as well. You're right.
That mall is 2.4 million square feet , so that's quite a sizable mall.
Three and a half times the size of Pacific Place.
Okay, there's a question here. Given the slowdown in China, will the company cut back its CapEx in China, so as to maintain the net cash position?
Well, maintaining the net cash position is not that critical. To have net cash is a highly, highly unusual thing for any real estate developer. It's just that for us, it has been basically over the last nine years, we've had net cash, but there's never been an aim to keep net cash, right? The question is, will we slow down CapEx? Well, I think the slow market upon us today, I don't think it's going to be over in a few months. I think it's going to persist for a little bit longer. If so, I don't think that we need to rush on any construction. On the other hand, we never really slowed down. I don't think that we will necessarily speed up or slow down. Just as a matter of course, business will go on, and we will continue to construct.
Yeah, absolutely. We take a very long-term view. If you think of a project that will be there, or built to last for 50 years, 40 years, honestly, it's not a really good prudent policy to go with the market, go slow down or speed up at any one time. We keep to our schedule. As for the net cash position, can I just add that, in fact, I'm actually inclined to put on a little debt because Finance 101 teaches me that the cost of capital is higher if you have pure equity and net cash as such. Yeah. That's something we've been looking at all the time, the net cash position, but that's not a priority. As Ronnie Chan just said, to keep the net cash, that's not our priority at all.
Okay, we have UBS.
Hi. I'd like to ask a few questions. First, Ronnie, you mentioned that you're recruiting the leasing team in the earlier annual report. Could you update us on any progress, and what are you aiming in the next 12 months? What do you aim to achieve? In that, especially the mainland leasing strategy. Second, could the management team just update us on the retail sales of each individual shopping mall, especially in the first half? Especially, we've seen Center 66 occupancy actually lowered by another 10% to 80%. I would like to ask what's the particular reason behind. Finally, just a number question. Has the company written down any value in the first half results on the IP under development, or it's just a transition from any development to completed investment property? That's it.
How about why don't I take one of them?
I'll take number one question, Philip, take the second one, and H.C., you take the third. How about that? We are always hiring. We've been hiring so many people, it's truly amazing. This year, for the new center, we're going to hire maybe 500 people. But that which counts are really the executives. We have grown that number by so much in the last five to seven years. I think that we also admit that there is a dearth of really experienced people out there. That said, I think we have recruited some very, very good ones. Given time, I think some of them can really assume some leadership position, but all the time, some, we're really greedy. You got a good person, let me know. I'll hire him or her. Philip.
Can I just add that? Yeah, absolutely. I think Ronnie just said it, getting a new mall open, you need at least another 500 new hires. Can I just go off tangent by saying that actually apart from the 500 we directly hire, we also create a lot of employment for the city. The tenants will hire people, the suppliers, the cleaners, and everybody will hire people. So in opening a mall, we probably create another 5,000 employment jobs for the city. That's by the side. Coming back to us, we need a lot of management people as well. We've been hiring a lot of them. In fact, in many ways, we don't necessarily concentrate on hiring people with real estate experience.
I think a lot of people with non-real estate experience can give us good stimulus on the way we think and the way we look at things and give us new energy. The point obviously is these people need a little bit of time to get their feet on the ground, literally. We are also hiring a lot of bright young people, including our management trainees, and I am very happy with the quality we are getting. But they also need a bit of time to grow. I am very confident that in a few years' time, you will see an even better quality of people maturing within the organization going forward. I think we are doing all the right work now. But given the expansion, as I just mentioned, there will always be a demand to get in more people.
As Ronnie Chan says, if you have very good referrals, do let us know as soon as possible. As far as the figures are concerned, either sales turnover and the valuation, I think. Can I just ask, actually give you some figures and then some views and we will
The change in the amount of properties under development is the net result of the HKD 3 billion CapEx during the first half, and the transfer out of completed investment properties to their account. For example, we transferred the Forum 66 office tower out of under development to completed properties.
Sorry.
Okay. The retail sales of Plaza 66, it actually went up by about 1% compared to the same period last year. For Grand Gateway 66, I think it is mid-single digit, 5%-6%. Okay.
Maybe let me supplement some numbers.
Yeah.
Retail sales number. Plaza 66 up 1% YoY. Grand Gateway 6%, Shenyang Palace 66 + 10%, Parc 66 in Jinan - 1%, Shenyang Forum 66 - 5%, and Wuxi Center 66 was flat.
The flat number should be supplemented. That is, it doesn't count the car sales. We have a Maserati and a Ferrari shop there, just two shops. The number that C.F. gave you doesn't include the car sales. The car sales is something like 22%. If you take the total, including the car sales, about 22% of it is actually Do you know how many Ferraris and Maseratis they sold in the first six months of last year? 93. That means people got money. I'll be happy to bet that none of that is government officials buying. These are actual self-made entrepreneurs or their sons or daughters. It's truly amazing. There's money in the system. That community is very wealthy. We just need to somehow convert that to other sales besides just the car sales. We like the car sales, too.
Okay. We have a Goldman.
I've got three questions. Given the general environment in China, retail sales, except for car sales, that's not so great. Would that affect the positioning of your future centers in the pipeline? Also, you talk about the slowdown in China. Does that translate into lower construction costs in your future projects? Lastly-
Lower what?
Construction costs.
Construction costs.
Yeah. Grand Gateway has been strong at 6% compared to the others. Can you tell us why? Are you achieving that through changing tenant mix? Thank you.
First question was what?
Positioning of the-
Oh, okay. Sorry. Sorry.
Okay. I'll answer that one first. It would be crazy to go down because we have nowhere else to go but down. Because we're already at the top. The reason why we shouldn't go down is very simple. There's no reason to. Going down, we'll bump into a lot more competitors. At the top, there's very few competitors. As I tell people, I said, "If Chanel were to go into a city, how many shopping centers, realistically, will Chanel consider going into opening a shop in?" You tell me. In the old days, there were no good properties, so they had to go into terrible department stores and this and that. But now there are many shopping centers. I submit to you that realistically, if you are Chanel, you are Hermès, you are Prada, there's probably no more. Not counting Shanghai, Beijing.
There's probably no more than two facilities that you would really consider going into. If we are one of them, which we invariably are, then what's my competitor? My competitor is one. But if you were to go down, say, to a three-star facility, such as what, I don't know, CapitaLand or somebody that does stuff, then there's a lot of people that know how to do that stuff. There's a lot more competition there. Admittedly, the market is also bigger. Now, I don't know if you have noticed that one company in the Mainland used to say that they are like Hang Lung, but they have publicly announced two things. Number one, closing a lot of their stores, and number two, going down. That's the last thing we want to do.
Because the people that know how to do the truly five-star or even four-star malls in China is very limited. It's mostly Hong Kong people that know how to do it. The competition there is far less. Unless we are convinced that that market is finito, which we are not, then why go down? Now is the time to stay high, in fact, higher if we can. Second question.
The construction costs.
Construction costs.
I don't expect it to go down drastically because the majority of the cost is not affected by market ups and downs. It's really your design, your location and all that. The labor cost actually is not very high today. Absolutely, that's true. Material costs, such as steel and cement, it's not the highest in China today. However, they are not a major component of the construction cost. Having said that, we are always doing value engineering, looking at what areas where we can actually be more cost effective. At the same time, obviously, the contractors who are eager to get our business will be paying more attention, which will definitely help to control the cost. But I don't see that the cost will go down drastically at this point in time.
The increase in retail sales at Grand Gateway 66.
Part of that is due to the ongoing tenant remixing. Part of that is due to positive rental reversions.
Let me say this, that the pressure for negative rental reversion all over China is real. Our properties in Shanghai are perhaps two of the few exceptions. So we are still seeing positive reversion in our two facilities in Shanghai. But outside, there are pressure.
There is a lot of pressure, I agree. But actually, if you think of what we have been doing to Plaza 66 and Shanghai Grand Gateway since a few years back, you can hear me partly explain why. We have improved the tenant mix in Plaza 66, for example, allowing all these big brand names, the Hermès, the Louis Vuitton, the Dior, Tod's, Prada, to actually relocate and some of them expanding their stores and doing all that stuff. Refining that target market and tenant mix actually help us to consolidate our position, which you see actually strengthen what we are doing now. And that also means that we are actually making the existing tenants at least more cost effective. So that is very important. Same happened to Grand Gateway. As you are aware, since a few years back, we are actually doing a whole lot of these things.
One major example, very obvious, is that cafe on the second floor of Grand Gateway. It used to be a very dark cafe on a balcony. But I thought in Shanghai, you need a place for people to see and to be seen. So we actually brought in the first TWG Tea shop selling very expensive tea, I will say. But actually, they are very pleasant and the who's who in Shanghai like to go there. Because in Shanghai, they do not have the balls and all these big social events and where the women show off their Prada bags. So that is a very good location. As such, the rental we received actually drastically increased. The environment significantly improved. And I would say a lot of that actually contributed to what we are seeing today. Now, is Shanghai under pressure? I can bet you my bottom dollar, yes.
Why are our two malls getting some still very acceptable results? As a result, a lot of work has been done before. More work will be put in from here on. For example, in Plaza 66, we are now starting a renovation upgrade program. In fact, we have just started with the office part. We expect to finish it over a year actually, for the mall to be upgraded, for the office to be upgraded. That is a major upgrading program. And then we will do the Grand Gateway upgrading as well. Both actually will be investments, but I think I am very confident that actually will be a very good sustainable development and great improvement to our two malls in Shanghai.
Yeah, a question about the upgrade for Shanghai. The investor asked about the CapEx plus the payback period. Payback.
Based on our current planning, the CapEx for renovating Plaza 66 and Grand Gateway is about HKD 1.3 billion. We started the renovation work for Plaza 66 a couple of months ago. The detailed planning on renovating Grand Gateway is being finalized. The overall payback is around four years.
Macquarie?
I will be happy to bet you that we can pay back a little bit earlier, but anyway.
Kai?
All right. It's Kai from Macquarie. A couple of questions. Just a follow-up question on the margin in China. Given Riverside 66 had been running for about nine months, could you share with us what the EBIT margin is like for that shopping mall? The new one, I think Olympia 66 is coming. Maybe can you share with us the initial yield on cost and also the margin outlook for that property? Second question, maybe it's related to the Shanghai office again. The rental was down 4%, I guess it's partially due to the renovation. Would you share about the outlook for the rents? I guess the last question is back to Hong Kong. I see there's more disclosure for the Hong Kong portfolio in these results. Is that an indication that there will be more focus on Hong Kong investment properties and also the residential pipeline?
I.e., the rental growth for individual properties this time is being
I mean, I didn't notice that actually we deliberately put some emphasis on Hong Kong. That was not the intention, obviously. Anyway, I'll let H.C. give you the figures first, and I'll supplement with that.
You asked a few questions at the same time. I try to answer those that I can remember. The first one, you asked about the margin for Riverside 66, and we've been saying that for any brand new shopping mall during their first year, it would be around 25%-30%. Right. That's in line with our other newer malls. What's the second question again? Sorry.
The one coming up, Olympia 66.
Olympia. I would expect it would be similar to Riverside. It may be slightly lower because we opened it up in two separate phases. For the first phase is around 70% of the total area. So it is possible that it might be slightly lower than what we have experienced with other newer malls during the first couple of years.
The first phase is 87%.
Yeah.
Okay.
Open entire area.
Entire area. Yeah.
One more is on the residential for The Long Beach sales in the second half. How many units would you plan to launch in the second half?
The further sales of The Long Beach very much depends on the market conditions. We will continue to sell more of The Long Beach when the market environment is favorable. I believe that we could sell something like 30 to another 50 units, unless the market is very different from the current situations.
Kai, can I just supplement Hong Kong? Since you asked that question, I was not aware that anyone deliberately put in more emphasis on Hong Kong, but I think it is a very exciting story for everyone in Hang Lung. Again, since a few years back, we thought there is a lot of potential that we should be exploring in Hong Kong. Starting with Hong Kong, where we upgraded the Grand Plaza, and as you can see today, actually is, I think one of our brightest spots along that part of Nathan Road. Rental has gone up significantly. I just had lunch there with the frontline staff last Thursday. I was quite impressed that some queues outside these restaurants are doing quite well. What is probably an area you go to more often is Causeway Bay.
Again, since a few years back, we decided we wanted to upgrade Causeway Bay. Have you been there recently, by the way? Anyone been there recently? Yeah. Thanks, Sarah. It is a very good area to be in now, and if you look at social media, actually, there is a lot of mention of it today. I think the Paterson Street side actually has totally changed, a major facelift. The food street area actually has got a lot of new attractive restaurants. In fact, one restaurant that opened in our place, called Eataly, the Italian restaurant, yesterday or the day before, opened a new branch somewhere else in Hong Kong. So that proves actually they are doing very well at our place. By the end of the year, you should see H&M's global flagship opening, which is now that corner on Great George Street.
Needless to say, the appeal of the area has gone up tremendously, and will go up further. Needless to say, the rental has also been very positive since then. People ask me how much more rental, but that is not a benchmark, I said, because coming up will be H&M, but previously we only have the Mannings. Is it Watsons or Mannings? Anyway, one of them. The Starbucks, Mr. Steak, Zara, and a Japanese izakaya. So you can actually think of what kind of rental can you get from those places now, vis-a-vis a H&M global flagship store. Right? So I think that has actually been a very pleasing exercise. Very, very satisfying, and a lot of people are very excited about it. So probably that is why you see a bit more mention. I do not think it is a deliberate thing.
Hong Kong is still 45% of our total turnover income on the Hang Lung Properties front. So it is a very important part of our portfolio.
That perception is interesting. I remember about two to three years ago, particularly in 2012, when we divested some of our matured properties in Hong Kong, then the question was Hang Lung quitting from the Hong Kong market completely? At the time, we said that no, we simply recycle some capital out, and ran away some of our better properties in Hong Kong to enhance its income potentials. Now, what you see now is we have been actually doing what we said, right? As Philip Chen said, Hong Kong still accounts for 45% of our total. So, it is not deliberate or intentional, whether we are putting more emphasis on Hong Kong and less emphasis on China, so on and so forth.
My marching order to our colleague is we got to perform better this year than last year in Hong Kong.
Much better.
Much better. Yes. Much better. It's possible too.
Okay. A question about. Sorry. A question about the Shanghai office, and also the office performance in Wuhan and also Shenyang.
Shanghai, everybody knows that there is increase in supply of office space, and it has some adverse impact on Plaza 66 office towers rental reversions. That is why you see a 6% or 7% drop in this rental for the first half of this year. On the other hand, the office tower at Grand Gateway has been holding up quite well. We still see a single-digit rental growth. For the new office tower at Wuhan, it has already been leased out for over 60%, and it is also command very high average unit rent in that market, if not the highest. For Forum 66, despite all this saying about X million extra square meter of office space coming onto the market, the leasing progress is actually beyond our own expectation, too. So, in general, we are quite confident about the entire office portfolio in China.
For the Plaza 66 office towers, since the end of June, the news that we got back from our colleagues locally, it has been very encouraging for the renewal of the new leases for our office towers at Plaza 66.
Sarah?
Thanks. Sarah Cooper, Merrill Lynch. I just had a follow-on question on the Shanghai office as well. I was wondering, given that we are seeing so much about office lately in the last week with Corporate Avenue and Link and Vanke and Cheung Kong in the press this morning, can you just explain to us the details of some of the co-ownership agreement there, and how that works with Hysan?
The what? The contract for what?
The co-ownership.
Oh, co-ownership.
Just what?
Grand Gateway?
Yeah.
Oh. That's simple. The assets, the shopping mall, the office tower, and the service apartment, actually holds through the joint venture company between Hang Lung and Hysan. That's all.
If one party wanted to sell, the first right of refusal, or how does it work?
It's something that in building to the joint venture contract, that is business in confidence, right? Like what Philip Chen say, I don't think either party at this moment has got any plan for that kind of a move. Whether they want to sell or they don't want to sell. I don't see the reason why they want to think of it that way at the moment.
I just wonder, where's Ronnie Chan's tie?
Where?
Where is your tie?
Oh.
You are extremely observant.
It takes a woman to see that. None of the journalists saw it. I really think hard if I should put on the same tie. That is the Harvard T.H. Chan School of Public Health tie. I just got it. I gave one to each of my directors at the board meeting this morning. Some of them decided to put it on. Mine is actually slightly different than theirs. They sent me the wrong one. I am going to tell them to send me the right one again, because at the back it says the T.H. Chan School. It says Harvard T.H. Chan School. Theirs does not say it.
Okay. This is Wenhan also from Merrill Lynch. I got three questions. One is for China, one is for Hong Kong, and the last one on the financial. For China, among your all the projects in operation, judging from the current operation, which one will you be the least satisfied with project in China now? Which one will you see the most improved potential in the next one or two years? That is for China. The second one for Hong Kong is, the Hong Kong property sales. Since you have already started a tester market on your 23-39 Blue Pool Road, can we expect some unit sales in the second half of this year? Any expected management accepted price for the project, the 23-39 Blue Pool Road project? The last one on the financial is, since in the first half, your capitalized interest cost had been dropped.
Does that, because of your less 40 CapEx or maybe completed, can we expect the similar capitalization ratio for the next period? Thank you.
I have two sons. They are both great. But they are great in different ways. All our shopping centers, we treat them like a son or a daughter. I remember that Palace 66 went through three years of very difficult time, actually four. But in due course, I began to write, and I said that Palace 66 may turn out to be the star for the next few years. Why? Because we had the confidence that we had turned a corner. Sure enough, we had sales growth of 10%, rent growth of 5% or whatever, in the last period. Obviously, we have done the right thing. So the mall is really growing. The others will all go through the same process, just at a different stage. Don't be fooled just by the numbers itself, because the numbers doesn't tell the full story.
It's really, you have to talk to us, talk to management to get a feel for what's going on in each of them. Frankly, we won't tell you until we are pretty confident that something really good has happened. Now, if something really bad happened, we'll tell you, too. Like Palace 66, I told you. It was bad when we first opened. The first two years was pretty tough, right? So, when you hear from me, you'll know it. I think I know which is the next one, but I want to be more sure before I tell you about it. I think there's another one that is going to follow Palace 66 soon. But that said, there's still two others who are still struggling. It so happened to coincide with the toughest trading environment of China.
Sorry, sort of it's frost on the Just tough. So, I'll let you know.
Ronnie talked like a father in his earlier parts of the answer. If I may talk like a parent now. If I have five kids, I do not think it is fair for me to judge on these five kids who ranges from a few months old to five years old on their future. Particularly in our business, it is pretty long term. If I may then move on to your question about interest expenses, and I will let Philip Chen to talk about the 23-39 Blue Pool Road side. Yes, the drop in net interest income or the increase in interest expenses is partly due to the less capitalization of interest expenses when some of our investment properties were under development. That is the accounting rules.
As Riverside 66 moving from under development to complete the properties later this year, and interest expenses relating to that project would also have to be charged to P&L starting from say, next year. So you would expect to see the interest expenses amount will go up also for the reasons. Another reason is, we have also talked about that in our MD&A or the financial comments on our financial statements is we have been issuing long-dated fixed interest bonds as part of enhancement of our debt capital structure, and better manage the interest rate and refinancing risk. As you can expect it, those are more costly debt versus to short-term floating rate bank loans. But we are doing that for good reasons. Peering risk management and better position this company to ride through whatever unexpected market situations.
All this added together is the result you see in the interest expenses.
Okay.
I will say a few words on 23-39 Blue Pool Road. A few words: beautiful, outstanding, impeccable, wonderful, appealing.
Most of them have already been there.
Okay. That's why we are in no hurry to part with it, unless the price is absolutely right. These are the only houses in town. Only houses in the city in Hong Kong. We cannot find another house like that, right? Unless the price is right, why should we sell them? We only have 18 of them. But if you offer the right price, I will seriously consider you to be on the reserve list.
Okay, Anthony.
We'll work harder to save up for a down payment. Here, one more question for you, H.C. The North Shanghai Mall occupancies have been hovering around 80 something percent. Is it an unrealistic expectation to expect this will improve back to 90% in 12 months time? Another set of question is about your cap rate. Are there any changes in the cap rate in this set of result? Would you consider disposing some of the office development in China? Now we have some company, like the Link REIT, they are willing to offer 4% to acquire asset in China. It obviously holds a very different view on the outlook. Thank you.
Let me give you one example, Anthony. We had one shopping center outside of Shanghai where the occupancy rate dropped to about 82%. Now it is back up to 90. That is exactly what happened to Palace 66. The trend is just the same thing. It will go back up. I do not worry that at all. But just that we want to make sure that we get it right, because once you sign a lease, if it is a wrong one or in the wrong location, then you are stuck with it for a long time. Those are not light decisions for us. We just want to make sure that we do the right thing.
Because actually some of them are enticed to go, too, some of the tenants, because if they do not perform, they are not the right mix, then we have to proactively get the tenant mix right. In Jinan, for example, you see the introduction of another major tenant probably by early next year. I think that would be quite interesting to see, too. In this change, obviously, the occupancy rate will be affected, but I am quite confident for some of those. We are working on them. The work created this situation a snapshot. But I am quite confident actually our work will be showing results. Let H.C. talk about the cap rates.
On the cap rate, there has been no changes whatsoever in all the cap rate used in valuing our properties between December and June. When I first received a copy of the valuation results from our valuer, Savills, I sort of half-jokingly talking to the valuer, the guy in charge, I said, "Considering the price that the Link paid for the offices in Shanghai, wouldn't he consider lowering the cap rate for our offices by half?" His answer to me was, I was insane by asking that.
Wait, are you insane or is he insane? That is an actual transaction at 4% or 4.5%, right? Ours is a much better property, so why should we be at 7.5 and they are at 4? I don't think you are insane.
Sorry, for offices, it's 8.25%, not even 7.5% .
Okay
for our valuation.
Somebody else is insane.
Okay. In view of the time, we have a last two questions. Jeffrey?
Jeff Yau from DBS. Can you give us some color on the turnover rent? For example, what percent of the retail rental income from two shopping malls in Shanghai comes from turnover rent? How does it compare to last year?
For Plaza 66, the turnover rent portion is around 11% now. Compared to last year, it would be around 15%, 15 . Grand Gateway has always been around 5%-8%. The other malls are minimal, usually around 5%-8%. Eugene, you got the last call.
Just two more questions. First, on the import tariff reduction, I know it's a bit early to talk about what the impact on sales.
What?
The import tariff reduction.
Oh, sure.
When you talk to the tenants, what are their attitude towards this change in policy? Is that going to be an impact on their sales? What's the view that they hold? Could you share with us on that? The second one, you mentioned you see Palace 66 as a turnaround. Can you share a little bit more on what you actually did on the shopping mall and how you can replicate that into the other ones? Thank you.
You just had lunch with one of the top-
Yeah
brands.
Well, one of the top brands. Obviously all the retailers, big or small, high or low, they all welcome this tariff review, which I think is absolutely important. I think they will really benefit. Coupled with currency ups and downs, I am sure if you think of Japan in the 1980s, all the Japanese are queuing up Peninsula Hotel here. No more today, obviously. In fact, that only lasted a very short period of time. They are shopping at home. If you think of actually a lot of Chinese going overseas to shop, there is a lot of demand. If you can divert some of that demand into basically home shopping inside China, I think that potential is huge. I am quite confident the day will come, actually. Nobody can actually afford to have all his citizens going overseas to shop.
Now, if you think on the side of the brands, they would also like these people to shop at home because you cannot really only rely on people coming to Paris to shop. Right? You say, well, maybe they give you a good margin, but your competitors may be doing a lot of things inside China to capture them before they leave home. Right? You can see in the last few months, some of the brands are actually adjusting the prices, the price alignment between overseas pricing and China pricing as if they have done just like what they have done in Japan in the '80s and the '90s, for example. That has happened. The import tariff reduction will actually help all of that. It must be in China's interest to see consumption inside China going up and the citizenry shopping in there.
There is a lot of, I think, attributes adding to what we think actually will be, to me, a rather positive situation going forward.
Let me give you some numbers. Let us assume that 60% right now is consumed outside in luxury goods. It is a reasonable number, right? So 60%, maybe even more, 65%. If only a quarter of that comes back to China, not all will come back. But if only a quarter of them come back, that is 15% of the total, right? Right now, there is 40% at home, consumed inside mainland China. 15% on top of the 40%, that is 40% growth. Right? Just by that one action alone. It should benefit those of us who are playing in the Chinese domestic market.
Finally, Eugene, did you ask about Palace, right? That is Shenyang Palace 66 turning around. Well, I think there are a few things, if I may very quickly summarize it for you. Number one is actually you must get your product offer right. So at first, I think actually the tenant mix was not ideal. There is a Cartier shop, a watch shop operated by a franchisee next to a fast fashion shop, and not really a brand-name fast fashion.
So we rationalized all of that, and now actually I think we have got a pretty decent mix, with the right target market, aiming at a slightly younger lot. It is a four-star type four of mall, which I think has worked out extremely well, fitting that environment of Zhongjie. Secondly, you got to make sure that the environment is absolutely appealing because people come to your mall for an experience. Okay?
We make sure that the facilities are right. We work on the feel of coming into the mall and to the smallest detail of the toilets, for example. In China, a lot of people don't need to look at the signage. They just follow the nose to find a toilet. We demand the general manager of our malls that on a day specified by us, you got to have a meal inside the toilet. There are a lot of KPIs of cleanliness, but if you can do the exit test, I think you have done a very good job. The Palace 66 venture hasn't done that yet, but he'll be reminded regularly. Thirdly, you got to have a good relationship.
This one is worthwhile.
You got to have a very good relationship with the government and all the concerned parties. Basically, now the roads are well paved outside and the traffic and all that are actually back in order, so that's good. Fourthly, you got to give people an excuse to come to your mall. Apart from making your shops really the best shops around, the people come to those shops, and the right tenant mix, of course, you got to have the best promotions and activities. For example, we are the first in the whole northeast of China to have started Halloween promotions. I think that that's the first time these Chinese in that part of the world actually see Halloween. People think, "No, no. It won't work." I say, "How do you know it won't work? Give it a try." I've tried that in Ocean Park.
I've done that in Disney. Why not in Palace 66? It became one of the really signature events, and people really had good fun. A lot of these promotions, actually, we have throughout the year. It has a very rich calendar, and actually people are quite interested in seeing what we If you look at social media, you can find out actually that people are quite interested in it. A lot of these things basically are getting the so-called marketing mix right.
Thank you, Philip. That finishes today's presentation. Thank you again for coming. Thank you.