Director Philip Chen, and Executive Director H.C. Ho . I would like to first pass the time to Ronnie to give us some opening remarks, and we welcome any questions thereafter. Ronnie?
Well, I wonder if there's any need to say much. It's all in the figures. I wonder if we can just go to Q&A and let you all ask your questions.
Okay. We welcome any questions, and please raise your hand and let us know your name and also organization name. Anyone want to make the first shot?
Everybody's reading still.
Joyce, you got a question?
Thank you very much, CF and the management team. The first impression comes to my mind when I was reading the announcement, I am not sure, and that is why I need, want your confirmation. Is there any signs of stabilization, in terms of Shanghai shopping malls, retail sales performance? Because I see that, although the retail sales in the first half of this year dropped by 2%, I did see that, I think, last year, first half was still a positive growth, and that went to a negative territory in the second half. Can I read as a start of a stabilization?
Philip, you want to take that or you want me to start?
You start. I will complement.
First of all, the whole market segment that we are in Shanghai has not been strong. The latest number has actually a rather bigger fall. There are, however, some mixed signals, which personally I do not quite yet know how to read. For example, jewelry and watches, which a year or two ago was the worst performer, has actually done much better. I thought that when you are anti-corruption, these small item, high value products should be the worst hit. But in many of our shopping centers, including the two in Shanghai, they actually went up. I do not quite know how to interpret that observation yet. I think it is better safer for me to not say too much about the market turning around. Philip, anything?
Yeah. I think in the short run, to quote the Chairman, I do not think you should expect a very strong tailwind coming up immediately. Having said that, of course, I mean, traditionally, if you look at just the figures, the second half is normally stronger than the first half. I think because of the buying season, shopping season, the National Day Golden Week, the sort of Christmas in that sense in the Mainland. There is a difference between the first half and the second half. Taking a longer view, longer term view, in Plaza 66 for example, there are some major names which have been requesting additional space from us. Louis Vuitton had previously, but now even Tod's actually bought extra space. I think, taking a long-term view, Shanghai is still the leading city in the Mainland.
Actually, we have four major stores that are doing 60%-100% expansion plan. Chanel doubled. Tod's, I forgot, somewhere between 60% and 100%.
We got Prada.
Celine, Prada. A lot of them are taking a lot more space. That seems to indicate to me that the big brands, they are not retreating, they are just concentrating. If they like your mall, they will double up. All these are mixed signals, which we don't quite know how to read. Frankly, take for example, Tianjin. Many of the big brands have no budget whatsoever to open new stores this year. Just a fact. Because the last two years was weak, in particular the last one year or the year before, let's say 2013, has been weak. They hardly had money to open new stores. If they open a new store, they will have to close one somewhere else. Louis Vuitton is opening in Center 66 in Wuxi. Well, that's because they are going to close another store elsewhere in the city.
It seems to me that they are concentrating, they are not retreating.
Ronnie, would you like to talk about other retail sales number in other projects in Mainland China? We see actually,
Yeah. Actually, retail sales have been going up except in Shanghai. Shanghai was 2% down. Everywhere else it was up anywhere from 3% to 18%. Now, part of it may be just our own management effort. We realize that we make certain mistakes in the past. We fix them, and then now they are doing well. Or there are some externalities, such as Palace 66, when the road was all ducked up for basically three years. When that's done, footfall grew tremendously. It's now at 26,000 on average a day, and weekends, of course, it will be more. Sales growth has been double-digit. The other places are doing fine. Then you also have some situations, such as in Parc 66, where because of the end of the first lease term that was started in 2012. Sorry, 2011. This is the third year.
When there is a lease renewal, obviously, there will be plenty of shops that will change over. In normal circumstances, already 20%-25% of the, well, maybe not that much. 15%-20% of the shops turn over every year anyway, in a steady state situation. In a new store, sorry, a new shopping center, where we are adjusting to the market and the market is adjusting to us, having a changeover is a very normal thing. However, we have observed that while we have some shrinkage of rental space because some shops are being changed over, they are taken out of the market temporarily. Actual retail sales have gone up. That tells you a couple of things. One is that the ones that are leaving are truly the weaker ones.
Which is another thing that tells you is that the stronger ones actually do more business because as a whole, for the entire shopping center, there is an increase of retail sales in the face of a smaller square footage for rent. The rest are still growing. Personally, I think it would take some time for the present wave of anti-corruption, anti-opulence, all that stuff, for it to conclude. In a sense, I hope it will not conclude. I hope that it will continue, in the sense that, hopefully, China will become a lot more clean place, for all who want to do business honorably to play in that market. It will be some time. I do not know how long.
Okay. Ken, is it your question?
Yes. Hi, management. Ken Yeung from Citi. A question is on the retail sales down 2%. Can you give me a split between Grand Gateway 66 and Palace 66 in the-
Both are two.
Same.
Yeah. Roughly the same.
You said that your jewelry and fewer things has done much better. I mean, up year-on-year. So what has happened? You see the weakest in this first half.
Yeah. This morning we just saw all those numbers in the board meeting. I do not recall what it is now. Actually, do you have it?
Fashion.
Fashion and accessory.
Okay.
Was down.
Do you think this will be the impact of anti-viral or just maybe because this is some of the most newly opened nearby? For example, have you assessed the impact of, let's say, IAPM Mall opening and together with their Jing'an Kerry Centre? Do they have any impact to your retail sales before?
The Jinan one is further. Are you referring to Shimao Group?
No. Jing'an.
Oh, Jing'an. Oh, sorry. I thought you said Jinan. Oh, sorry. Oh, Jing'an. Yeah. Sorry. Either your accent is not good or my ear has something wrong. Sorry. Yeah. It's no doubt that the proliferation of shopping centers must have some impact. Right. Even shopping centers who don't target the same segment will have some peripheral impact, let alone a shopping center who may be a direct competitor. It is hard to, if it is possible at all, to figure out what percentage of the business is diverted somewhere else. It is just impossible to figure that one out. Suffice to say that there must be some impact. That said, I'll be happy to bet it's just nothing more than an inkling on my part that the sales drop of 2%. I am not overly concerned that it's going to be a sustainable thing. I don't think so.
I think that it is going to be a temporary phenomenon. Although what percentage the market will bear, what percentage growth per year the market will bear? It is something that I think none of us know. Only time will show.
Macquarie has a question.
Thank you very much. I actually have a couple of questions. The first question is related to the new shopping malls. Ronnie, you talked about the Shanghai ones. Maybe can you spend a little bit of time talking about the other shopping centers, like the ones in Shenyang, in Jinan, and also the one in Wuxi. You mentioned about 3%-18% growth in retail sales.
The what?
3%-18% retail sales growth.
Yeah.
But if you look at half- on- half that the rents sort of fall for these assets, is it because of the occupancy or is it because of the unit rents and occupancy costs? Maybe you can provide us a color on that. Secondly, is just on your balance sheet and capital management strategy.
Can you take it one at a time?
Yeah, sure.
As you know, I sleep very little, and so your brain is not working at half capacity, less than half capacity. Okay. Palace 66. You want me to just a few comments on each of the other shopping centers. Palace 66 has definitely turned around. Footfall has now increased to something like 25,000, 26,000 a day from a low of 13,000 when the roads were all dug up. So it has had a tremendous growth in footfall. The changing of tenancy, basically, leaving the luxury or asking the luxury brands to leave, such as Cartier, who cannot do business in Palace 66, has produced much more rent. Although the brands are not as high-end. So that's a good sign. I was told that by my staff that the Starbucks store at Palace 66 is the number one in the whole city.
The UGG, the Australian, now owned by Americans, but anyway, the original, the boots people. Where the top sales office is actually now in Palace 66. I must say that I'm surprised that we're doing that well. Suffice to say that I think it's doing fine. In fact, it has turned around, and it's on the way up. Forum 66. The numbers are okay. Growing at something like 3%. Although, we do have a little bit of vacancy now. The occupancy rate is now in the mid-90s. Whereas when it opened, it was 100%. So there are some stores that are not performing. Those have to be changed, and that process has just started in Forum. Some of you know that Forum had some physical issues when we first opened, such as some material that were defective and pretty serious stuff. We have already remedied all that.
It took us five months, but we did it. The physical condition is much improved from a year or two ago. The brands that are there, it is quite mixed. Some are doing very well, some are so-so. Chanel are doing particularly good. Van Cleef & Arpels is doing superb business. Roger Vivier is doing very well. I think it must be the first Van Cleef store in the whole of the northeast of China. I know that store very well because I went with my mother 30, 40 years ago in Hong Kong to Van Cleef & Arpels, and I said, "Wow, the mainland Chinese have really learned very fast." Brand new to the city, and yet doing just superb. Harry Winston is also coming. Not to Forum, but I forgot which shopping center. One of our shopping centers that we are discussing with.
Givenchy is doing very good, but some are struggling. Overall, it is an okay situation. It is not a star performer. Parc 66 is in the depth of changing tenants after the first term. It was opened in 2011, so this is exactly the third year, and obviously changes has to be made. So be it. We are changing some of the tenants, but retail sales is up. I think that Parc 66 should have seen the toughest moment as far as the changeover from the first lease term to the second lease term. Parc also has the benefit of having less competition. As we all know, Shenyang is hotly competed. But Parc, the competitive landscape is far more comfortable. Hopefully by the time that serious competition arrives a couple of years down the road, I can only assume that it will come.
I visited all our shopping centers in the last five days, and I think that Parc, once we fix our own internal issues, will be a winner. Center 66 in Wuxi, sales figures are okay because it is less than one year, so we can only use sales of per day rent figures for comparison between the first three months in the fourth quarter of 2013 versus the first six months of 2014. Those numbers are really not that meaningful for comparison purposes. Suffice to say that the initial yield is likely going to be very close to 9%. Six months ago, we were expecting 8%, similar to Parc in its first year, but turn out that the first year is better than we expected. Wuxi also does not have much direct competition, just like Parc.
The strategy is to establish ourselves there before people get there, other competitors, other worthy competitors get there, and hopefully our position will become much more defendable. It is always difficult to gain market from other people. It is much better to gain it when there is less competition, and defend it. It is a lot easier that way. Center 66 is doing okay.
If I may supplement, the Apple Store will open in Center 66 on coming Saturday. That will be the first Apple Store in Hang Lung Mall, which is also the 12th in whole China.
Also, the first one in Jiangsu province.
Yes, in Jiangsu.
Yeah.
Also Hang Lung Mall as well.
Yeah.
Okay, we got a question from the investor through the webcast. The Hong Kong housing market has been enjoying strong volumes over the past three months. Do you see a window in the near term to sell more Long Beach and The HarbourSide units?
Let me make a comment about the Hong Kong residential market. I must say that I am quite pleasantly surprised that so soon I always expect that the policies of this administration, being correct in my opinion, will bear fruit, but it is perhaps bearing fruit earlier than I expected. Meaning that some people predicted a drop of 15%, 20%, 25%. One company even said 30%. I think everybody is now revising those number upwards, meaning that those who said that it used to be 25%, expecting 25% drop, are now saying 5%. The one expecting 10%, 15% drop are now saying perhaps flat. So that I think is a healthy development. The expectation of more land to come, together with a little bit of controlling of demand, which I never liked, but anyway, it is what it is.
The combination of all those policies have made the market for the first time in a long, long time, healthy. Is it sustainable? I think that as long as the present government continue to do the right thing, and I have confidence that they will, then the residential market in Hong Kong should become much more steady and healthy. Given that picture, I think the possibility of further sales of Long Beach or of our other projects, for that matter, I think definitely it is there. I think the chances are fairly good that we will be able to sell more in the coming period, in the not too distant future. Yeah.
A follow-up question is about the Blue Pool Road in Happy Valley. Any plan to release to the market?
Well, I expect the occupation permit very soon. The main thing to do there is to rent it. If the price is right, we will consider selling as well.
You got a second question?
I am sorry. Just on the first question, I think also Tianjin as well.
Yeah. Just the second question-
Yeah, that's right.
Is on your balance sheet and capital management strategy. It seems that you have a lot of money in China, as cash, and there's a lot of that in Hong Kong dollar. With the renminbi sort of going the other way around, what's the capital management strategy going forward from here? This ties to a second question linked to it, is the book value of the company softened a little bit. Can you comment on that? Thank you.
I'll leave the second question to H.C. I forgot about Tianjin because it's not open yet. I should address it because it's opening within about two months time. By the way, it will be September 26th in the morning, so all of you are invited to join the opening ceremony. This is a tough year to open a new shopping center because brands just don't have budgets to do anything more than maintenance, maintaining the position. As I said, unless they close one, it is difficult for them to open another. This is a very difficult situation. Fortunately, through the good effort of my colleagues, we are now about 86% leased, and we expect that by the opening date, we should be around 90%. That doesn't mean that they will all be open on the day, on September 26th.
At least committed lease will account for something like 90%, hopefully a little more, of all the available space. In terms of return, as I always tell people, we expect 4%-5%, and we'll achieve that. Hopefully, it'll be more like 5% than 4%. It is acceptable. It is not phenomenal. This year is just a very difficult year. In fact, we think that next year will still be difficult. Because you're talking about negotiation now or soon to be for opening of next year, which is Dalian. I do not expect the great results, such as Forum 66 opening at almost 10%, Center 66 in Wuxi at about 9%, or even Parc 66 at 7.9%. It would not be that. Of course, nor will it be as difficult as Palace 66, which, as you know, we started with a very low return.
But Tianjin would do better than the beginning of Palace 66.
You want to take the second question, H.C.?
For those cash that we have in our bank account, over 90% of those was held in renminbi. The main purpose of that is to literally hedged our construction payment programs over the next few years. We have been saying that all along. Because of that purpose, rather than speculating which way the currency will go, the renminbi going up and down or either way, it will not change our original objective of holding that amount of renminbi cash balance. In respect of the capital structure management of the company, we have been saying that over the next few years, each year, we will have a CapEx program of about HKD 6 billion- HKD 7 billion, depends on how fast we execute our other remaining phases of projects in China. We will progressively use up that amount of cash balances.
As a result of that, so will our net debt gearing will also go up over time. All this well planned for it. At the end of June this year, you see our net debt gearing has gone up to something like 1.5%. We expect that to increase up to something like around 5% by the end of this year. It will be higher next year. As for the reason I just explained. I do not expect this company will continue to maintain that amount of cash in the bank account, but our currency hedging program will continue.
That assumes that we do not sell any more properties in Hong Kong, which is perhaps a little unrealistic to expect not selling anything.
His question about the book value.
The book value, I think, with a larger amount of our properties are completed in China, and their books are denominated in renminbi. So any change in the renminbi value when you translate those in Hong Kong currency, you will have the exchange gain or exchange loss. The exchange rate between the end of December last year and end of June this year has actually depreciated by about 1%, and that is the main reasons for your observations. We do not know what would be the exchange rate by the end of December this year, so it could go the other way too. Again, this a purely translation issue for consolidation purposes.
We got a follow-up similar question on that subject regarding the cap rate that we used. The question was there any change in terms of cap rate in the last six months?
We had a good discussion with our valuers at Savills, and they do not see any need for changing the cap rate nor the valuation methodologies. They basically use the same cap rate, the same method of valuing all our properties and come to the valuation result for the first half year.
On the RMB, it moved up and down, as we all know. But some of our board members are not convinced that it will necessarily weaken further. As H.C. says, we keep it there mainly because we need to pay the CapEx with RMB. Nonetheless, we do not assume that prices will go down or go up.
Okay. Any further question? Amy?
Amy Luk from JP Morgan. I got a question about your offices. Since you mentioned in the result announcement that for the Plaza 66, the average unit rent increased by 10%, could you elaborate a little bit more, how should we compare this 10% with? Also for Wuxi office, is there anything committed so far on the leasing side? Then the plan for Shenyang office when it gets complete. Thanks.
The 10% that you mentioned-
Where did you get the 10% from?
Page three of your result announcement.
What was that 10% again?
It is about Plaza 66. Average unit rent increased by 10% against a year ago.
That's the unit rent, right? Not the
That's the reversions.
Yes.
Yeah.
Does it mean spot rent increased by 10% in a year? Because if we look at Shanghai market, it looks like it's not as good.
No. That refers to the reversion rate for the first half of this year.
Oh, okay. It should be comparing with the previous lease. Thanks.
If I may supplement, there was some tenant change in Plaza 66 office tower. The number was comparing the new lease as well as the old lease. There was an upside regarding the new lease. The question Wuxi and Forum office tower.
Well, Wuxi the building should be finished by the last quarter of this year. We are actually pre-leasing the lower floors, not the entire building, because that's a very prudent strategy. You do not want one light there and one light here and one light over there. You actually want it to be a very good offer for the tenants to cluster. We expect by the end of the year, the pre-lease would be about roughly up to 20% of the entire building, one fifth, roughly. Depending on the market, we will then look at the pacing of the remaining offers. Shenyang building to be completed early next year. It's a bit early at this point in time. A lot of people have expressed interest. We're still talking to various tenants.
Just a follow-up question about Wuxi office. Can you share with us the type of tenants that are going to move in the office?
Well, I think the advantage of There it is, the macro environment, which means Wuxi hasn't got a lot of multinational base in Wuxi, and we all know that. But the advantage is actually there's no building comparable to what we are going to offer. Therefore, if you are somebody of a reputable name, you want to come here. So we're talking to a lot of finance companies, insurance companies, got bases there. Actually that's under discussion at this moment. Obviously, some companies got names that you recognize and they are in home appliances and various things that they're also showing interest. So we're talking to them. We obviously choose our tenants too, not just the tenants choose us. We don't want a brand that you probably don't want at your home.
Okay. Any more questions?
You mentioned some comments on the changing dynamic with e-commerce and traffic and adaptation for the physical retail to coexist with that. Can you talk a little bit more about what you're thinking there and how that may be changing how you think about new designs or retrofitting the existing space and the tenant mix?
Okay. I wrote about it quite extensively six months ago in the full year report. So for those of you who have not had a chance to read it, I encourage you to go take a look. It lays out our basic thoughts in this direction. We recognize two things. Number one, we have some of the best hardware in the industry. However, number two, we need to supplement it with some of the best software. By having both the hardware and the software, then it will solidify our position as a market leader. So even just this morning in our board meeting, we heard a presentation from our staff on what we call EST, which stands for Experience, Service, and Technology. That's from the customer's perception. From our operation, it's the reverse direction. You start with technology. That will enable you to give services that before was impossible.
Simply such as mobile devices. It can do so many things for you. With technology, we provide service in order to enhance the overall experience and our bottom line. That is the purpose of EST. The technology that we're looking at comes in many directions. Some of them are really novel. Others are quite simple, actually. Whatever it is, we recognize that we need the best software to match our best hardware. Some people think that if you have a good software, you don't need a good hardware. That's not true. We disagree with that. I don't know if I told you guys about what I saw on TV of this gentleman, David Wei. Have you ever heard of him? Vision Knight. Former Chief Executive Officer of Alibaba, who was responsible for a lot of the e-commerce platform at Alibaba. He's a friend.
In fact, I invited him to address the board a couple of years ago. I won't tell you what he says in private, but let me tell you what he says in public on CNN. Somebody asks, Kristie, the journalist asked him, "If I were a major brand from U.S., Europe, wherever, I want to establish myself in the e-commerce space in China, because I heard about how great Alibaba is, for example. What shall I do?" The answer David gave them was, "Find the best brick-and-mortar. That's the step one. Find the best brick-and-mortar." So it's this O2O, online-offline thing. That it's going to be powerful. For anybody who thinks that all you have is software without the hardware, I don't think it'll work.
Equally, if you have the best hardware without adequate, if not superb software, then your position is not as solid as it ought to be. We have done our part in the hardware, and now we have to supplement it with the software. Some of the things that we hear in the marketplace, we are not convinced at all. Some of them just sounds to me just crap. But there are others, real enablers with technology that can really enhance two things, customer experience and sales to us. Well, sales to our tenants, which translate to rent to us. That's where we're spending a lot of effort. In the past, we invite outside people to talk to us a lot on the subject, but increasingly in recent board meetings, it is our staff that is reporting to the board on what they have done.
You will see a rollout of a lot of things in our shopping centers in the coming years.
We got a question here regarding the Hong Kong asset enhancement initiatives. Can you give us an update on the progress for Hong Kong assets?
Want to talk about your baby? One of your babies. Go ahead.
He just recognized one of them.
Hong Kong is extremely important for Hang Lung. A lot of people talk about the new malls and the offices in the mainland, but Hong Kong is still contributing about 40% something, nearly 50%, 45%-ish of the total recurrent rental income for Hang Lung. It is not something that you should overlook. In fact, I think there is a lot of potential in enhancing that rental income. We started to do a lot of work in bringing that up. If you remember, I think probably last year, I talked about the Gala Place in Mong Kok, and after a little bit of work, no major renovations, but changing the lifts and rationalizing with tenants. There is a cafe on the second floor. We said, "Well, you should not be here, and we should have Collect Point," which is a much more fashionable brand, et cetera. We have done all that.
The growth in revenue has been about nearly 80%. That was not bad. Then came this building, for example. Now, you probably remember that this building on the ground floor, there used to be some very small shops, even a tailor shop, I think, if I remember correctly, a sandwich shop. They are all gone now. Instead, we have the Standard Chartered banking hall, which obviously they want in their so-called headquarter building. Obviously, you have to pay for that. Obviously, we have the Volvo Central facing front. We then put in an Escada shop, which you see downstairs. Obviously, that is a major step up from the previous shops occupying the same space. We had to have the basement. The basement actually used to be occupied by a cheap Chinese restaurant.
I think Ronnie liked that because that restaurant in the evening, there is nobody there. So you could actually go in and get a seat in the table any time. Now we got something downstairs called Mott 32 you probably recognize. I reckon one dish of char siu barbecue pork is about HKD 300. Right. So, it is actually quite a unique place. Apparently, it is very popular. It is doing very good business.
How many of you have eaten there?
I am sure a lot of people have.
I have tried. I call and every time there's no seat. Today was the first time I ate there at lunchtime.
Wow.
Worth of char siu.
The secret is I dropped a name and get a table. Anyway, I think the rental there, obviously you can actually use. I do not think you should use how many percent. You should use, are you doubling? That sort of fundamental basic look at the rental increases in this building. What we are doing now, actually, you can see we are trying to look at Causeway Bay, trying to start to work on Causeway Bay. You see some of the work already started on Causeway Bay. I am pretty confident actually that the Causeway Bay area will look very different by autumn next year. When H&M now comes into the Hang Lung Centre, replacing the Starbucks and the Mannings in that same building. It will look very different area, and it will be, I think, the hip area coming fall next year. Obviously, rental would be greatly enhanced.
Some of these things we are doing. We are very willing to invest. We think there is an opportunity. We are actually upgrading them. We cannot do everything at the same time. Gradually you see these things transforming very significantly.
Yeah. Philip, if I may add something to that. About two years ago, when we sold some of our non-core properties, some question raised were, are we quitting Hong Kong market? I think at the time our explanation was, we simply let go some of the less desirable, matured properties that we've limited potentials. Philip has just explained to you is that we're simply putting words into actions by parting with some of those properties. Now we are focusing our energy and effort more onto the more valuable ones in Hong Kong to earn much higher rentable potential in future.
Okay. In view of the time, we can take two more questions. One got here is about your land acquisition prospect. How likely you could get another piece of land in coming 12 months?
Well, I'm not God, so I cannot say. I can only speak by way of principle that whenever the market is down, we are very interested to buy land. But whether we succeed or not depends on many things. Because every piece of land that we buy are so humongous that it's very complicated to consummate a deal. So far, in the last couple of years, each time the market had a low, we're able to catch the moment and buy. Will we have the same luck going forward? I don't know. I hope so. So I cannot say for a fact, for sure that we will be able to buy, but we certainly are looking, and we are certainly very active looking for good properties.
Moreover, people, or at least what I read, that for example, the president of one of the top residential developer in China said recently that the golden era of residential development in China is over. I think some of you have heard that kind of a statement. That means runaway prices will not easily be seen en masse. Although I remind people that real estate market is always very, very localized, and so although overall you will not see runaway prices, it doesn't mean that in unique, small situations, you won't see that. You may see that. But overall, as a market, it is unlikely. If so, then the ramifications are several. One is that they will not have as much money to invade into the commercial real estate field that we play in. They did invade a couple of years ago when market was good.
But I think that as their profit margin began to shrink, they will less likely invade into our market. Moreover, the government dependence on selling land will also be weakened, which mean that government may be more willing to part with commercial land. We have been working on quite a number of deals, and we hope that some of them will come to fruition. Another thing is that the noise in the market, that many cities just indiscriminately sell commercial land in the past 10 years, 15 years. I think that increasingly pressure will come to bear on municipal leaders that they should not and cannot do that. Because really it's a wastage of resources to duplicate and build shopping malls that nobody want to go to. Hence, many of the shopping centers are just lying half empty or three-quarter empty.
I spent four days, as I said, traveling to many mainland cities last week. Visited what? 20, 25 shopping centers. Some of them are really, really, really pitiful. I hope that that will also cause the municipal leaders and as a society to wake up and say, "Hey, cannot do that. It is not good for the economy." All that is to say that I see opportunities in the coming period to buy land. Another peripheral result of that phenomenon that I just described is that in the West, commercial real estate developers and residential real estate developers are two groups of very distinct people. It's only in odd situations such as Hong Kong, where the same developer would do both. In the mainland of China, there was a little bit mix.
I think that over time, that situation may change such that residential real estate people will do only residential, and commercial real estate people will only do commercial real estate. Somebody asked that Chief Executive Officer of that company, that major residential real estate developer in China. When they asked him, "Are you going to do more commercial real estate?" His answer was no. I was surprised because I know that they were looking at it about a year or two ago. They were looking at commercial real estate, and yet recently, just within the last month or two, the Chief Executive Officer told the press that, no, they're not going to divert too much resource to commercial. I think that is perhaps a maturation process of the real estate business in China, where if you are in commercial, you are in commercial, you are in residential, you are in residential.
That's good. That's good for us. Hopefully, they will give us some opportunity to buy land.
Okay, we take the last question. Macquarie again.
Hi, Ronnie. You bring up a very interesting topic about the asset value. Basically, you are thinking that asset value in China could go down, so you have the opportunity to buy cheap land. When I looked at the book value of Hang Lung, in China, the asset value now is HKD 86 billion. I think it is the first time in your results in the recent few years that you break out the revaluation gain of your mainland properties, which is roughly HKD 36 million in this period. On page five of the results. Do you think there are some downside risks to your China book value, or you think it is pretty much going to be flat for the next few years? Thanks.
I think we need to differentiate between land value and property value, meaning completed properties. Land value tend to be much more volatile because it generates no rent, so there is no cap rate to be applied to. Land prices always go up and down. What you referred to at the beginning is the volatility is really in the land price. Land price always go up and down, so we are hopeful to catch the right moment to buy. As I have told you six months ago in this very occasion, I believe. Seven months after we bought our Wuhan land. We bought our Wuhan land in February 2013. Seven months later, that is last September, a very similar piece, much inferior in usage and location was sold basically twice our unit price. Land cost is always volatile.
Whereas asset value for completed buildings, which has a usage, which is rent collecting, I think the value there is far more steady. As long as rents keep going up and as long as there is no expansion of cap rate, then your value will not go down. Our cap rate has been, as you all know, so ridiculously, in my personal opinion, so ridiculously. The cap rate is just so darn high. Even when market was hot, it was at 7%-7.5% for our Shanghai properties. The likelihood of expansion of cap rate in our case, it seems to me to be minimal. I just cannot imagine a situation where that can happen. The only thing that can cause asset devaluation is if rent goes down. I do not see that either. Let me tell you what is the surest thing I can tell in China today.
In China, nothing is for sure, right? We all know that. We all have been following that market too long. There is one thing I think if I can come close to being assured is consumption will continue to grow very strongly. Even in today's terrible market, overall consumption growth was still 12.7%. Granted last year was 13%-something, and the year before was 14%-something. It has gone down. Hey, even in today's terrible market, it is still at what? 12.7% or something like that. The [Non-English content ], what do you call it? The social consumption figures. 12.7% is still a very decent growth, and it is in a very difficult market. I think that if I am assured of anything in mainland China, I think it is a fact that consumption will grow. Middle class, what number do you use?
What is the amount of middle class now? HKD 300 million, HKD 400 million today? What would you say? I have read anywhere from HKD 275 million-HKD 400 million is the range that I have been reading. Call it HKD 300-some million. It is very likely that in the next 10 years, that number may double. You are talking about a market that may double in the next few years. Of course, as I said earlier, supply of space is also growing although there is the beginning signs of it perhaps tapering off. Still it is growing. As we all know, the winners will disproportionately win and the losers will disproportionately lose. The idea is obviously to be the biggest beneficiary when the market recovers. I think that the scenario that you propose, I don't think that it will happen to us.
Other people who have crazy cap rates. I know of companies that have half my cap rate. For them, I don't know because if their cap rate go up by 50% of the differential between he and me, it is a lot. It is 50% devaluation for them. For us, which cap rate is already so high, I just don't see that possibility. I cannot see it.
Thank you. That concludes today's session. Thank you very much.