Maybe I will make a couple of comments explaining some of the— well, if I'm kind, I'll say salient point. If not, then I'll say surprising points to some people. I think that many people have underestimated the profit that was generated by the sales of non-core assets in Hong Kong. First of all, I just want to remind everybody that two years ago, I already wrote about it, that that is something on the offing, and we will do that at the appropriate time. In particular, we want to make sure that we know how to grow the rent roll in the mainland of China. After I think it's too loud. Turn it down. No. I think that there's an echo. I think that after the last two years, we're pretty convinced that we know how to grow rent quite well in the mainland of China.
The second point I have reminded everybody repeatedly is that the periodic valuation of our investment portfolio is really very conservative. Some developers want to have their valuers up the numbers. We never do. We just leave it to them. Whatever they want to say, it's basically fine. Recognizing that they are really, very conservative. As a result, when we do sell them, there is a surplus. Profit, if you will. So that's one point I will make. The other point is that I think there's no question that rent growth in the mainland of China, in particular in the high-end luxury sector, is slowing. I wrote about it six months ago. Now, I suppose the numbers confirm that. This is the first time I've seen it in 12 years, from the time we began in Plaza 66.
This is really the first time that I saw a dip like that. My view of the global economy, as you know, is very cautious. I describe it this way. I think Europe has cancer. You know that you'll die, but you won't die right away. You're dying slowly. The United States, especially its financial market, perhaps suffers from heart disease. You're happy every day until it hits, and then you're gone suddenly. We saw that in 2008 with the demise of two major firms. Some of you might have been ex in those firms. All those things affect China, and of course, China has its own set of troublesome situations, from society to economics. So the overall scene is one that calls for caution.
On the one hand, we have amassed quite a bit of cash, as you know that, including the $500 million, 10-year bond that we did. We have been waiting for a bear market to come, and it came. Yet we're not acting, and that's because of our assessment of the overall condition in mainland China. I think economically speaking, mainland China, as long as it remains stable, will economically speaking, outperform the rest of the world. It will do a lot better than Europe and perhaps even the United States. So in that sense, we are lucky to be in the mainland of China. However, neither can the mainland of China be divorced from the rest of the global economy, and so it is affected. Although the market is down, we're still not yet biting.
If I see really good property at very reasonable price, I may bite. Anything less, I am in no great hurry. I think it is a buyer's market. Many of the cities, to my knowledge, are in financial difficulties. Many of the local developers, not all, but many of them, are in terrible financial state. Competition is not keen, which means that we can afford to wait and buy the best deal at hopefully cheaper price. We are watching. As you all know, we tend to surprise everybody. It's not because I like to lie to you all. As you know, we are probably the most transparent of any company. I don't think that any other real estate company in Hong Kong so clearly states its strategy in the chairman's letter every year and every six months, and we basically stick to it.
If we are happy about a market, we'll tell you about it. If we're not, we'll tell you about it. But the market just changes so fast that sometimes we act. Apparently, it takes the market by surprise, but it is really not so. There's really a logic to what we do. We are biding our time. We think that there will be opportunities, and we want to buy right, as is always the case. I don't know if you like our ad campaign that Philip and C.F. put together. We do it right. I think the Chinese is even better. For those of you, anybody who don't speak Chinese here? I assume that a few don't speak Chinese here. The Chinese is even better. [Non-English content] We only choose that which is best or that which is good, and we always do that which is right.
We always like to— we don't always succeed, I suppose, but so far so good. We always like to buy right. That's basically where we stand. I think one final piece of number. Whereas Shanghai is slowing down, our profit margin have improved, and the growth in operating profit outstrips the growth in turnover. What that tells you is that we are improving our efficiency. We are running our assets better than ever. But perhaps of more interest to you in this regard of property rental in the mainland China is that both Parc 66 and Forum 66, the new one to be open on September 28th this year in Shenyang. That's Forum 66. Both of those have done or will do superbly. The reason I can say that is because contracted rent is at a very, very attractive level.
Parc 66 in Jinan, when it first opened, I told people that maybe we'll hit a 6% initial yield. But we always try to underpromise rather than overpromise. Eventually by mid-year, six months later, well, less than six months later, we told the market, "Yeah, it will be 7%." Now it's 10 months into it. I'll be happy to tell you that it's closer to 8%. It's more like 7.9% in the first year, which far exceeds the initial threshold that we demand of ourselves, which is four to five years, a number that I have told all of you repeatedly for the last couple of years. Forum 66 will likely outperform Jinan Parc 66. Shenyang Forum 66, according to the contracted rent right now, which is 100% leased, it'll be more like 9%. We are very happy that so many major brands have signed up.
A number of them have never been in Shenyang or the northeastern part of the country, and this will be the first entrance. Quite a few major brand names are in that category. The rents we are able to generate, according to contract, are very pleasing. Obviously, the office, the low zone of which tower one will open next year, second half of next year. Obviously, the office tower cannot produce that kind of return. It will be much lower. It will meet our initial target, our threshold. It would not be 8%, 9%. The blended return, you can figure out, is still going to be quite an acceptable return for investors. The mall part is, in particular, rewarding. We do not play around too much with allocation of cost, how to allocate.
Basically, after talking to the accountants, the giving to, we basically just use the square footage, 1 ft to 1 ft. That is the simplest way. I think that we are quite happy with Parc 66 and Forum 66. Palace 66 has stabilized. It has turned a corner. The roadwork surrounding us that made us an island site before is now really relieved. The government paved the road, although we suspect it is not permanent paving yet. That means they may still muck around and do other things. At least now pedestrian traffic can enter into the shopping mall easier, and new rents are definitely higher than the previous rent at the first contract, and that we are repositioning the whole mall. Whereas Forum 66 is a five-star facility, we are definitely make sure that Palace 66 is a four-star. We do not go after all the big names.
The amazing thing is this, on a unit rent basis, when you have a lesser, so-called cheaper price point brand name, yet they are able to give us a better rent. So rent is growing. A year ago, our rental margin was very low, hardly of anything to speak of. Now we are at about 30%. Parc 66, of course, is far better. Less than one year on, we are already at 52%. Then of course, Shanghai is 80-something, in the mid-80s. So, I think Palace 66 is doing okay. I think it is turned a corner, and it is on its way to a healthy state of affairs. So with that, I think I will stop. I just ask Philip and H.C. if they would like to add anything before we open up.
H.C., would you like to give an overview about the financial position?
Yeah. Following our bond issues during the first half, we create a lot more headroom and flexibility for ourselves. You can see from the financials. We have not only lengthened the overall average maturity of our debt to five years, but at the same time, you've got a much better mix between fixed and floating rate borrowings, as well as short-term versus long-term. Financially, I think we are very well prepared for any possible downturn of the economy. Besides that, I think on our leasing business, you can tell from the figures, we continue to deliver a very steady growth in rental as well as the profit generated from our property leasing activities.
Thank you, H.C. We now welcome any questions from the floor. Likewise, we also welcome questions through the webcast. Any investors who are interested to raise questions, just send questions through the webpage. Okay, we got a question from an investor asking how the IFC in Shanghai affecting the Plaza 66 business performance.
Well, first of all, I don't know exactly how IFC is doing. I did write about it either six months ago or a year ago. At that point, we did compare the same brand in the same city with multiple stores. Our conclusion at the time was that our sales was consistently two to three times more than any other stores of the same brand in the same city, in other locations. That tells us that we're doing something right. Our location, our design, our management. As you know, about two weeks ago, we opened, I suppose Asia's biggest LV store in Plaza 66. The first couple of days was just for their private clients, and the sales was very strong. Inasmuch as I told you that overall, the luxury goods is slowing, but the initial response was very good.
Obviously, we'd like to be the only LV, only Chanel, only Dior, only Prada in any one city, but that is unrealistic. There will be competition. Our job is to make sure that people shop at our place rather than somebody else. The market, I think, is big enough for multiple locations for some of these brands in any one city.
Okay. Any further questions? Amy?
Amy Luk from JP Morgan. Ronnie, I just want to hear your thought about your strategy on Hong Kong properties. Since on one hand, you are selling down the long core assets, while on the other hand, we saw you are bidding for the North Point site earlier. We understand that you won't buy if the price is not cheap enough. Does it mean that you think right now the Hong Kong residential land cost is cheap enough for you to go into and, like, the overall Hong Kong strategy?
Well, the reason we bid it for, or rather to be more exact, tendered for that North Point site is that it's a really one-off, very unique situation. The new government just came in. A lot of developers don't know what its policy is. Actually, he has stated his position pretty clearly, but it sometimes takes some time for it to sink in. There was a lot of apprehension on where the new chief executive will lead the real estate market into, and we don't know how other developers would respond in this kind of situation. So we just want to make sure that we didn't miss anything, that's all. If it came out to be very cheap and we realized we could not tender for it, we would have hit ourselves and say, "Damn it, dummy." We just want to make sure that we don't regret.
We discussed, we put in a tender, a bid, which eventually did not win. Right. As the Chinese say, [Non-English content]. I can't even say it in Mandarin. I don't know what it means. I don't know how to say it. Can somebody help me? Just trying to— oh, steal a base. If you are a baseball fan in America, right? If there's a chance to steal a base, you do it. But we didn't make it, so be it. It is really not a reflection of where the market is. It is just one-off opportunistic testing of the market, I suppose. The selling of it, some people say, "Hey, how come you're buying and selling at the same time?" Well, different products, sometimes they don't go in sync. The market curves don't always go in sync.
If there are people who are willing to pay good prices for some of our non-core, low-yielding, slow-growing property. They are not the Causeway Bay or Central or Mong Kok, these are the areas where we are very strong in. These are usually one-off single buildings somewhere in the middle of nowhere, as far as our total portfolio is concerned. They have still good location, you know, somewhere. For those, it really makes sense. They are usually, frankly, I do not want to say it to the journalists, for example, I do not want to— the reality is they are older properties. They have been in our portfolio for the most part a long time. We know their potential.
If I can sell those things at a 4%-5% cap, and put the money into— forget about Forum 66 that would do 8% or 9%. Parc 66 at 7% or 8%. Hey, you are ahead already. Moreover, other people can do more with some of these single building. There is an opportunity because there are some people out there in the market that specialize in doing these smaller one-off deals. Of course, if they do 5%, 7% of them, it makes a meal. For us, it really does not make sense. One of the most precious thing to me is the time and attention of my top management. I do not want them to be running around doing a lot of things, which to me does not maximize long-term sustainable return for shareholders. It is wonderful.
If other people can make money out of it and is willing to pay me a price that we consider to be very, very good, such as a 4%-5% cap, which happened, by the way, to be 45%-50% higher than our book cost, we will do it. Prices may go up further, I do not know. A lot of people get the erroneous impression that Hang Lung always call the market right. We are not gods, ladies and gentlemen. We are not always right. I really fear that reputation because you fall one day, you are a goner. We just do our best to read the market. So far so good, but, hey, we would like to learn from Mr. Li Ka-shing and always leave something on the table for the next guy. That is the best way to do it in the long term. Anyway.
Question from Citibank.
Kam from Citi. I have two questions. First is on your— can you tell us on the first half, your occupancy cost in both Jinan and Shenyang? Secondly, regarding to H.C., can you break us down further, sorry for that, for the HKD 32 billion, how to spend in each years?
Want to take it first?
H.C., Jinan is in the high 20s at this point in time. Obviously, this is still the first year of operations, so some monitoring and adjustment and getting used to. Shenyang, we have only opened one mall, so I can only talk to you about Palace 66. That is still on the high side this point in time. But obviously, we are actually in the process of refining and fine-tuning the tenant mix. Actually, we are proactively changing some of the tenants, and with that, obviously, some tenancy costs and occupancy costs and figures will change a bit. But I think that is the process you have to go through, particularly when it is at the right stage to do that kind of thing.
I really have a problem with this measure of rental cost. If it is too low, you say, "Then why don't you charge them more rent?" If it is too high, you say, "Oh, maybe they are not making enough revenue." I suppose every property, and every city, in general, must have some level. For example, that number, even in Shanghai, is lower than that in Hong Kong. We know that, right? It is not because Hong Kong people don't know how to get revenue out of it. That is not it. It is just the overall market somehow moves properties in a particular city to a certain level. But in the case of Palace 66, obviously, revenue needs to be built. So in that sense, I think I like to see the occupancy cost come down a bit over time.
I think so.
Both around 30, right?
Around, but actually, it also depends on the mix.
Yeah.
Because when you change some kind of the tenant, what the nature of the tenant also has an impact, isn't it? For example, we've actually got a new tenant in. Juicy Couture, is that the right way to pronounce it? Yeah.
Juicy Couture—
You love it.
—in Palace 66.
I think they actually pay better rent and actually better terms than the previous luxury brand that occupied the same space. We've now got actually people like Watsons coming in. We've got Häagen-Dazs. We've got Starbucks opening, opened already actually in fact. Columbia. Actually, all these people, because of the different nature, has to offer a slightly different occupancy cost, which is something we're monitoring or fine-tuning.
You see? To answer your question about how we spend the CapEx. These are the numbers for the next five years in unit of billion dollars. HKD 6 billion, HKD 7 billion, HKD 9 billion, HKD 5 billion, HKD 5 billion. All add up to HKD 32 billion. A bit more on that, and if you look at our balance sheet closely, you can tell that we still have HKD 29 billion cash, committed but undrawn bank facility over HKD 4 billion. In other words, we do not do anything else further on from here. We will have enough money to complete all these projects over the next five years. At the same time, we have been saying that over the next few years, each year we will add a brand new shopping mall or office tower for completions, and those will start earning rental income.
It is not unreasonable to expect that our rental turnover over the next few years will continue to see double digit growth. Right. In the absence of unforeseeable circumstances. Just to sum up then, as I said earlier on, financially, I think we are very strong and very robust. You can also tell from our balance sheet that we have no major loan repayments over the next 12 months. Indeed, there is no major loan repayments over the next 24 months. This is our situation.
Thanks, H.C. We got a pretty general question here. Can you talk about the trends in tenant sales and footfall in Tier 1 cities over the last three to six months?
Tier 1 city?
Tier 1. Tier 1 cities.
Tier 1 city.
This is not necessary with figure to handle, but just a general question.
Well, I don't have the exact figures, but I think from all the reports, in fact, some of which are from you guys. They do indicate a general slowdown in some of the Tier 1 cities.
Such as Shanghai.
That's fine. Actually, there are business cycles and ups and downs. These cycles will come and go. I think Hang Lung's probably in a better place in our position actually compared to a lot of other players. But that's some of the figures we've got, actually. C.F., you've got some in hand as well. Yeah.
While he's looking, the question remind me of something else. That is, take for example, Grand Gateway. Whereas Plaza 66, really the rent growth slowed considerably in the last six months. Part of it, of course, is because three major brands, the Dior Men, Louis Vuitton, and Hermès, they were being refurbished. Now two of the three are opened. So I'm hopeful that rent will pick up a little bit because of that. Nonetheless, it is no denying that luxury rent is slowing.
But in the case of Grand Gateway 66, because of the expertise and know-how of my team, they were able to greatly upgrade it, I would even say, at least the ground floor and the first floor, to become really a five-star mall. Bottega Veneta is there, Gucci is there, Tiffany is coming, and many others. We were able to grow the rent still at double digit the last six months because of these kind of new tenants coming in. Gucci just opened up not long ago. Bottega, last time I was there, it was just about to open.
Yes, that is right.
Now it is open.
Open.
Right. Tiffany is now open.
Tiffany is open.
Yeah. Right.
Open.
It opened.
Open.
Okay. Hopefully, these brands with higher brand equity will be able to generate more sales and perhaps even sales rent.
Okay.
Yeah. Do you have anything? No, go ahead.
Any further questions from the floor? Anthony?
Anthony Wu from Goldman Sachs. Questions for Ronnie. Can you give us a little bit more guidance on how to assess the return profile of your future centers, such as those in Wuxi, Tianjin, and Dalian? Should we have these centers compare with Grand Gateway or Parc 66 in terms of the future positioning and also the competitive landscape of these three markets?
I thought you want return figures, which I don't have because I don't know what they are. But if you're talking about market positioning. Okay, let me make some general statements. Forum 66, because it's only 1 million square feet, so it's not that big. So the whole thing is basically a Plaza 66, if you will. Tianjin Riverside 66, on the other hand, is 1.7 million square feet, 1.8 million square feet. It's humongous. It's as big as Parc 66. And the design, as you may remember, Anthony, in Parc 66 in Jinan, that we've more or less organically put two parts together.
So you don't know you're walking from one to the other, yet it is very distinctly, in design, two parts. So you have the top brands in one side and the others in the other side. So it is really a blended kind of a situation. Tianjin obviously is going to be one of those. Really, basically from the size of the mall that we built, for the most part, you can tell what they are. Take, for example, Dalian Olympia 66. It is 2.3 million square feet. Obviously it is going to be a blended type of a facility. That is the market positioning.
Okay. We have got a question here. Do you think China's economy is on the hard landing now? If so, how will that affect companies' China business?
Well, I always tell people that that which worries me about China is not so much its economy. Its economy obviously has issues, problems. It is really the economic structure that is more of a worry, as well as the social structure. They may be able to Band-Aid things together so that the economy is okay. But if the economic structure, if the system is not properly improved, that sooner or later you are going to still have problems. Will China have a soft landing? I never— I shouldn't say never. I almost never think that China would have a hard landing. To me, that is, in a sense, not the first and foremost worry on my mind. These are just phenomenon, happenings, the outward happenings, behind which are the real issues and problems, such as structural problems.
Those are the kind of things that worries me far more. The fact that they will have a soft landing does not mean that they will not have a systemic problem in the longer term. Whereas I am relatively comfortable about having a soft landing, that does not in any way alleviate my worry for some deeper issues. So, I do not worry too much about that which is on the surface. Will they have a hard landing or soft landing? I worry far more the structural issues. So, I think barring any difficulties in society at large, I think the economic situation, I think they will land okay.
Okay. Any further questions?
Clifford from UBS. Can you comment a bit more on your retail rental in Hong Kong? Are you seeing a similar trend like China? Secondly, under new government in Hong Kong and a new policy, or the other way to put it, in the past, probably after The HarbourSide, after year 2002 - 2003, Hong Kong to you, it is basically more of like a sell rather than a buy. Under the new government, under the new policy, do you think that Hang Lung would have a better chance of making more acquisitions in Hong Kong?
Why are you so tan, Clifford? It is summertime coming.
I just went down to Singapore, and I thought that Hong Kong is a sell and Singapore is a buy.
Okay. Philip, you want to take the first half of the question?
Well, I think Hong Kong remains a very key revenue source for Hang Lung. We have a lot of very good assets in Hong Kong, which we are actually investing money into, such as the one in Mong Kok, [inaudible] . In fact, we are putting money into it that actually upgrades it and actually gets new tenant mix and actually collecting more rent. In fact, starting now, collect point, a very famous Japanese brand name, has now been in Grand Tower, actually, already. That is good.
We are looking at, obviously, the other good assets in Hong Kong and see how we can do better. This building, for example, actually has been a very good revenue source for us. I think for the next nine years will be very good too because of our agreement with Standard Chartered Bank. All in all, actually, if you look at Hong Kong today—
For 10 years, yeah.
If you look at Hong Kong today, actually, there have been some changes in assets, properties. As you know, we have reduced one or two, as we have reported. If you take like with like comparing what we've got now and what exactly it was like, we have actually 7% growth for year-on-year. I think that's a pretty respectable situation provided, particularly when you think that actually we don't renew all our leases in one go. Probably three years, four years renew. If you actually say every three years renew the lease, that's at least 21% growth for you. That's not a bad performance.
Yeah. Perhaps one thing I should add to that is, despite what we call the so-called non-core properties in Hong Kong, those really form a very small part of our total portfolio here. Those are also located in the peripheral area or the fringe area, not the traditional main shopping area of Hong Kong. Hong Kong still forms a very important part of our stable and recurring revenue income of the total portfolio. Like Philip said, while at the same time we are also reinvesting some of the money in upgrading the really core part of our buildings in Hong Kong, like the Grand Tower in Mong Kok, et cetera. You could expect to see more of that too.
I can't tell you how Hong Kong will behave under the new administration. It really depends on the market conditions at the time. All I know is that from what Mr. Leung has said, I think he will do A and B. That I'm pretty sure. A, supply more land, B, he's going to do some public housing. Right. How would that affect the market? We'll see. We read the market every day, right? I just warn the Hong Kong society that when we build these public housing, whether for sale or for rent, we should not just look at it as a one-way street.
Meaning that you can start, you cannot stop. It is really a stopgap measure. It is a little bit of a non-market-oriented measure that is necessitated by the utter foolishness of the last administration for not selling land for some seven years. Society has such ill feeling built up that somehow you have to relieve it, and hence, okay, let's build some public housing.
We've done it before, since 1953, by the way. But then don't forget also in 2002, we stopped it because it's no longer the need. While we start building these public housing, we should also recognize that if A, meaning supply of land is adequate, then prices will moderate. In which case, it will take away the reason for the government building further public housing. If that happens, I don't know what it will be, maybe five years, maybe seven years, maybe 10 years, I don't know. When that happens, we should stop the program. I think Hong Kong should be cognizant of that, and we, as a developer, will just react and respond to that. As you know well, Clifford, that whenever Hang Lung buys, you guys are very, very unhappy people. Right?
Because we only buy when there's a lot of blood on the street. As you also know that I smile a lot when there's blood on the street. I just hope that the next time when there's blood on the street, I can still smile. Right now we have a lot of cash. If there's blood tomorrow, I will be smiling too. But if I have a choice, I prefer not to smile.
Okay, we got a question here. Do you anticipate another window for launching another batch of The Long Beach or The HarbourSide in the next six months?
Well, my answer is I'm not God. But I think that possibility remains. There is a possibility of that. The last time we were just darn unlucky. You have to have a couple of days period after you announce, before you actually take intentions to buy. During those couple of days, the stock market just went to hell. I think it's globally, not just Hong Kong.
Globally, yes. Absolutely.
It just went to hell, and it affected how much we can sell. If not, we would have sold more. And at that price, HKD 10,600 on average, it is a good price. It is 52% higher than the last time we sold. I think that possibility is definitely there, but I cannot say for sure.
Anthony?
Question on your balance sheet. The net cash position has come down a little bit compared to last time. Do you have any internal sort of tolerance level on how high the debt level that you can tolerate.
H.C.?
Yeah. We have been saying that for a company like ours, with our business model, I think with a net debt gearing, anything like 20% is comfortable. We feel totally comfortable with that. You noted that the net cash balance has dropped for the past six months. It is because we paid just over HKD 2 billion of CapEx for the first six months as we continue to build our projects in China. So that is the CapEx figure I gave you earlier on, is the reason for that. We do expect that unless we sell any further residential flats or non-core properties by the end of this year, we do expect to see a small amount of net debt or low single digits on that level. We will be careful and plan for it to be something.
On a similar subject, we got a question here. Has it become more difficult to repatriate funds from Hong Kong to the mainland?
Well, we never experienced any difficulties in remitting funds to our project companies in China. In fact, two months ago, we were successful in remitting renminbi directly from Hong Kong, and which we also anticipated that, and that is why we are sitting on such a large amount of renminbi deposits in Hong Kong. That is part and parcel of our hedging strategy for our renminbi construction payment obligations in China. The other way of looking at us is normally people would criticize companies when they sit on a large amount of cash, and they call that idle cash. But in our case, it is not so, because we convert a lot of our Hong Kong dollar deposits into renminbi.
As you know, at the moment, those renminbi deposits are earning something like 200 basis points positive carry compared to Hong Kong dollar deposits, as well as earning a premium over our average borrowing cost in Hong Kong. So the fact that we are sitting on a whole pile of renminbi deposits, they are also adding value to our shareholders too, while we are hedging the possible currency fluctuations with our future construction payment commitments.
I think the question is whether you can repatriate back to Hong Kong. Is that correct?
No, from Hong Kong to—
From Hong Kong to—
Oh, from Hong Kong.
I think the problem, the question is that some corporations or developers, they did experience difficulties in sending money from Hong Kong to China with the austerity measures. All of our projects are properly approved by the government, so we never experienced that kind of issue.
Okay, we got a question here about dividends. In light of the growth in rental income and the gains from non-core asset disposal, is there a scope for Hang Lung to raise the dividends for the full year?
We've long been saying that our dividend policy is to maintain a stable amount of dividend payment with progressive growth.
Yes.
The proposed interim dividend also approved by our board this morning, just a reflection of that policy.
Okay. Any further questions?
This is Eugene from UBS. Just a few quick questions. First, on the IP revaluation gain, could you provide us a breakdown on Hong Kong and China assets and whether there are any change in the cap rate assumptions in the past six months? Secondly, more on the Forum 66. First on the office side, has the company start pre-leasing the office and how has the progress been? Second, on the shopping mall Forum 66, what's the rental level compared to the overall market? Is it at the top end of the overall market? Also, what type of margins, rental margins, are you expecting from Forum 66? Thank you.
To answer your first question, which is the revaluations. There's been no change to the cap rates at all. The distribution of the revaluation gains between Hong Kong and the mainland, over 50% of that relating to the Hong Kong portfolio.
I think on the office of Forum 66, because we only opened the mall first, which is that oval shape building you can see on that picture there. The lower portion of the tall building, which is 350 m tall, will only be completed by end of next year. Then 2014, the whole thing will be completed. Therefore, actually it's only now that we're beginning to talk about releasing the offices. We have our tenant list, we have prospective tenants. We can only report the better forecast and the progress a bit later.
We have a question here for Ronnie. When you bid for the residential lands in Hong Kong, what would be your return on margin hurdle? What is your view on Hong Kong's residential prices for second half and a few years down the road?
Some of you are laughing. I agree with you. I do not know how to answer that. Anyway, it is really not a science what return you want. Every piece of land is different, so you have to take a comprehensive way of looking at a project. It is really hard to say. Moreover, when you are building to sell, the timing becomes very important. That affects your return greatly as well. I really do not know how to answer that one.
The second one is even tougher to answer, and that is what will the second half of the residential market in Hong Kong be like? All I can say is speculate. I am asked to speculate. I do not see how the market can go too high, nor can I see the market falling off. I just do not see either direction being too drastic, barring any special events such as the CE going crazy and wanting to destroy the market, which I do not foresee. I just do not think there is going to be one way or the other, too much movement.
Okay. Any last two questions from the floor?
It's Shirley from UBS. I have a question over China. Since China market is not very friendly, so I—
Is more what?
Sorry?
The China market is more?
Is not very friendly—
Oh, not very friendly?
—in this moment. I actually have seen some property companies starting buying land. Are you seeing more land acquisition opportunities arising from China? Are you open to such opportunities?
Yeah. I don't know who has been buying land. Can you give me some names of people who are buying land? I have heard one or two cases, but I know of so many more cases of people needing land. Am I correct? Am I correct? You agree with me? Is my assessing of the situation in line with yours? Nobody's saying. Then I don't answer. Well, as I said, many of the cities, I believe, are really in difficult financial position, and there's a lot of horror stories that I have heard. Such as some cities not being able to pay salary, such as some cities selling cars. As you know, once a car hits the road, within three days, it depreciate by 30%. How much can you make selling your fleet of cars?
But all that tells me that the cities are not in the best of financial condition. We do have examples where we see cities being much more willing to discuss, shall I say, or negotiate or concede prices. But for the reason that I said earlier, that is, I am still quite concerned over the medium-term health of the society and of the economy, that even if they lower prices, I may still not bite. There is one case that they did lower, call it, I do not want to give it away, call it six. A year ago, it came down to four plus a little, four months ago. Then the Vice Mayor came to Hong Kong, insisted on seeing me, so I got off the plane, and I had to see him before he get on his plane.
He said, "I just talked to the Party Secretary, and the price is now three instead of four sum." We are not buying. There is a lot to consider other than just price. Price is just one of the several key elements you have to consider. As I said, if it is really a top located piece and price is really attractive, I will salivate, and I will bite. But take that piece for example, it is just not in the best of locations. If I have a lot of money, if I think the market is really rising very fast, maybe I will consider doing that. But right now, I want to make sure that I use every dollar to buy only the best site at rather attractive prices. I am just a stingy guy. I am just a stingy guy. I want to win big.
I am not interested in making money in general. No. I want to make big returns. Everyone has limited resources, and you deploy it somewhere else that is less than top return, your ability to take advantage of other better opportunity may come along is minimized. So we have to be very careful in when I put down the chips.
All right. Probably the last question. Okay. [Ravi].
Considering the last remark of yours, would you buy the Kunming site again if you were to buy it today?
Yeah. I think the Kunming site I would still buy. The reason is because it is one of the two best sites I know in the whole city. We tried the other piece for several years, and we eventually gave up. We decided that that is not a doable deal. They have so much complication there that it is just not going to go. It is reason that if I do not buy it, I do not think anybody else can, because those are not dollar issues. Those are complicated social, political issues. So this is the only piece. The city was dumb enough and smart enough. I should not say— well, I should not put it on record, but I say it anyway. They could have sold it four months before they actually sold it. They took it back. During four months, the market deteriorated.
If they had sold it four months earlier, I would not have bought it. I guarantee you that. Because I think that there will be a lot of other people bidding for it that I would not win. But four months later, it was at a price that we were willing to do, and so we did it. As I also have written already that if it had been delayed for another four months, and the city is not dumb enough to do that, too bad. If they had done it another four months later, I think my price would be even cheaper. You are asking me, would it be a better deal? Yes, it would be a better deal. But at the price that we paid, fine, we will pay it. The best cities in the country, as I told the board this morning, it is not that many.
I know of about 180 some cities that have 1 million people or more, 80 some cities that have 3 million people or more, 55 cities that have 5 million or more. That I know. But if you were to just look at those 55 cities, plus a few of the 3+ million people cities, there are not that many that really have the economic vibrancy and the amount of money in absolute terms that is in the system that will justify our investment. So we have to balance the two things, recognizing that good opportunities do not come all the time. As one of the Board Members keep reminding us, and he has been saying it this morning and said it the last meeting.
He said, "Price is not your biggest consideration. There are other things. In the long run, you pay a little bit more, it does not matter a whole lot," which is true. He is correct. But how much? That is an art rather than a science. We were able to get one of the two best pieces in Kunming, and we have designed, I think, really very good design. I am not happy yet with the office tower. I think it can be improved, but the overall layout is really very attractive. That really plays to the strength of that piece.
You know that across the street there is [Non-English content], right? You do not know how much time I have spent walking [Non-English content] five years ago, six years ago, seven years ago. I know that place quite well. This design really plays to that whole environment. Hopefully we will come up with another winner, both design wise as well as financially.
Okay. Thank you. Thank you, Ronnie.
Can I— sorry. Can I just interrupt that this is probably the right forum to give because I think this year we added this little page into the booklet which is the first, very first page.
This is not the full version.
Yeah.
We are still producing it.
Oh, they don't get it.
They don't have the page today.
This is because of time, we only have a gist for that full version.
Oh, okay. Well, I was about to say C.F. has been far too modest to show people all these corporate governance and all these awards he has been receiving on behalf of the company, our awards.
I made him do it.
This year we, he took that page from your booklet, but that's all right. You know that page.
I really do. A constituent stock of the Hang— okay. Yeah. A constituent stock of the Hang Seng Corporate Sustainability Index Series. Best Corporate Governance and Best Corporate Social Responsibility. The Best of Asia Corporate Governance Asia Recognition Award. Best Investor Relations Company. 2010 and 2011 Annual Report Silver Winner. 2010, 2011, Annual Report, Best Reporting and Reporting and Outline for it by a Hong Kong company.
Okay. Thank you very much again. We will have our executive briefing soon after this one. Thank you again.