粵港澳大灣區(qū)房地產(chǎn)的未來

GlobalResearch 19February2019EquitiesHongKongandChinaPropertyEquitiesRealEstateHongKongThefutureoftheGreaterBayAreaRealEstateHongKongGBA=Software+hardwareintegrationWebelievetheaimoftheGreaterBayArea(GBA)developmentistoenhanceintegrationamongcitiesintermsofpeople,capital,logisticflowthroughbetterhardware(infrastructure)andsoftware(eg,socialwelfare,taxation,mutualrecognitionofqualifications).Weexpectthistolowertransactioncostandhenceincreasethereo'scmettvee—sitvetoecmicactvtesadteroertymarket.rstudyofGreaterTokyoArea’sdevelopmenthistorysuggestsinfrastructureandgovernmentinitiativesarekeytosuccess,andbenefitsatellitecitiesmore.TheGBAOutlineDevelopmentPlanwasannouncedon18February2019;seepage3forourinterpretationsoftheplan.Amongourcoverage,webelieveTimesChina(1233.HK)andLogan(3380.HK)willbenefitthemostfromtheGBAdevelopment,giventheirhighlandbankexposure(59%and53%,respectively).Readalsooursectorinitiation.ImplicationsforHKproperty:‘onecountry,twosystems’makesHKuniqueDuetodifferentsystemsinHongKong,MacauandmainlandChina,weexpectbottlenecksintermsofintegration(ie,peopleandcapitalflow).UnderOneCountry,TwoSystems,HongKong'slow-tax,common-lawjudicialsystemandfreecapitalfloatwillremaininplaceuntil2047,whichmakesHongKonguniqueasaninternationalfinancialcentreandoffersprotectionforChinesehouseholdwealthversusothercitiesinChina.WebelieveHongKongpropertystillprovidesvaluefromanoffshoreassetallocationperspective,ontopofbenefitingfromrisingeconomicactivitiesintheGBA.Chinapropertymarket:weprefersatellitecitiesovercorecitiesInthelongrun,onpropertymarketsintheGBA(excludingHongKongandMacau),wewouldprefersatellitecities(eg,HuizhouandZhongshan)overcorecities(eg,ShenzhenandGuangzhou),duetopopulationandeconomicactivitiespotentiallyspillingovertosatellitecities,givenlowerlandandlabourcostsaswellasinfrastructurebuildout.ThislargelyfollowsthedevelopmenthistoryoftheGreaterTokyoAreaafterWorldWarII.Stockimplications:welikeLoganandTimesChinaInChinaproperty,TimesChina(1233.HK;Buyandtoppick),Logan(3380.HK;Buyandtoppick),andKWG(1813.HK;Sell)havethehighestexposuretotheGBA,rangingfrom37%to61%oflandbank.IntheHongKongpropertyspace,NewWorldDevelopment(17.HK,Buy)hasthehighestexposuretotheGBA(excludingHongKongandMacau).

JohnLam,CFA+852-29716358EdwinChen,CFA+86-105-8328186Wendy+852-37123785Li+852-37123038MarkLeung+852-29718636MichaelAssociateAnalyst+852-29715573CindyChenAssociateAnalyst+852-29718888Titus+86-105-8328777Figure1:ShenzhenInvestment,Times,Logan,YuexiuandKWGhavethehighestexposuretoGBA70%61%59%61%59%53%Chinadevelopers'exposuretoGBA(inGFA;asofend-H118)47%37%GBA-corecities(incl.HK/Macau)GBA-othercities30%29%26%1%20%217%16%16%15%14%2%10%9%9%9%8%7%5%15%5%4%4%3%2%0.4%50%40%30%20%10%SZInvtTimesLoganYuexiuKWGCMSKAgileFinancialStreetPolyDevAoyuanGemdaleSino-OceanVankeCountryGardenOCTPolyPropCRLandSunacCOLISZInvtTimesLoganYuexiuKWGCMSKAgileFinancialStreetPolyDevAoyuanGemdaleSino-OceanVankeCountryGardenOCTPolyPropCRLandSunacCOLIShimaoGZR&FCIFIEvergrandeJinmaoGreenlandBCDCFutureLandLongforJinkeCFLDNote:CorecitiesincludeGuangzhou,Shenzhen,HongKongandMacau.Source:Companydata,UBSestimates/investmentresearchThisreporthasbeenpreparedbyUBSSecuritiesAsiaLimited.ANALYSTCERTIFICATIONANDREQUIREDDISCLOSURESBEGINONPAGE19.UBSdoesandseekstodobusinesswithcompaniescoveredinitsresearchreports.Asaresult,investorsshouldbeawarethatthefirmmayhaveaconflictofinterestthatcouldaffecttheobjectivityofthisreport.Investorsshouldconsiderthisreportasonlyasinglefactorinmakingtheirinvestmentdecision.ChinaPropertyUBSResearchTHESISMAPMOSTFAVORED LEASTFAVOREDCOLI,Vanke,LoganandTimes Evergrande,KWGandAgilePIVOTALQUESTIONS Q:WhereareweintheChinapropertycycle?Afteranupcyclein2017-18weexpectamoderateslowdownin2019,drivenbythefadingcontributionfromshantyredevelopmentandweakerpurchasesentiment.Wethinkthisdowncycleisdemanddriven,unlikethesupply-drivendowncyclesinH211-H112and2014.Weviewthisasmorepositive,asdemandcanbestimulatedbygovernmentpolicyormortgagerates/accessibility,whileittakesmuchmoretimeforthemarkettodigestoversupply.USvieabse:cyeseerthnstyce;asecveaewthseviw”1Q:Willdevelopers'leveragecausethemfinancialdistressinthecurrentslowdown?No.1)Inventoryinthesystemislowerthaninthelasttwodowncycles(seePQ1discussion),suggestingthereislessinventorypressuresittingontheirbalancesheets2)Wethinkthereismoreroomfordeveloperstopreservetheircashflowbycuttingbackonlandacquisition,aslandcostsarethelargestcashoutflowitem.3)Listeddevelopershavenowgonethroughmultipledowncycles,andhaveexperienceinbalancesheetmanagement,assuggestedbytheirlowershort-termdebttocashratios.4)Listeddevelopershavebecomemoregeographicallydiversified,andarethereforelessexposedtoasharpslowdowninasinglecityorregion.USvieabse:cyeseerthnstyce;asecveaewthseviw”9UBSVIEW Weviewthisdowncycleaslesssevere:weviewthisdowncycleasdifferentfromthepasttwobecauseitisdemanddriven.Wethinkitwillbeeasierfordeveloperstoweatherthandowncyclesdrivenbyoversupply,inwhichitcantakealongtimetodigestinventory.Wethinkthesector’scurrentclose-to-troughvaluationsfactorinadistressedsituationfordevelopers.EVIDENCE TheSeptember2018UBSEvidenceLabChinaHousingSurveysuggestspurchaseintentionsandpropertypriceexpectationshaveslowed,duetorisingmortgageratesandmacroconcerns,insteadoftoomuchsupply.OursupplyanalysissuggestsinventoryremainslowerthanintheH211and2014downcyclesasnewstartshavebeenlowerthanin2010and2013.WHAT'SPRICEDIN? ValuationclosetotroughcycleinH211and2014:UsingPEvaluation,theMSCIChinaRealEstateIndexistradingat5.5x,-1.1SDsince2010,similartotheH211andMay2014troughcyclesof4.7xand5.3x.Wethinkthemarketisconcernedaboutdevelopers'balancesheetsandmargins.Afterourstresstestondevelopermargins,weestimatedownsideriskofabout17%to2019consensusearnings.ThisimpliestheMSCIChinaRealEstateIndexPEwouldreturnto6.2x,between-1SDof5.8xandtheaverage(since2010)of7.5x.Wethinkmarginriskmayhavebeenpricedinatthislevel.Nationalnewstarts,salesarea,andcumulativeinventory—basecaseNationalnewstarts,salesarea,andcumulativeinventory-basecase Sectorwasadding stockSectorwasdestocking Inventorydown15%frompeak1,8001,6001,4001,2001,000800600400200Jan-05Jul-05Jan-05Jul-05Jan-06Jul-06Jan-07Jul-07Jan-08Jul-08Jan-09Jul-09Jan-10Jul-10Jan-11Jul-11Jan-12Jul-12Jan-13Jul-13Jan-14Jul-14Jan-15Jul-15Jan-16Jul-16Jan-17Jul-17Jan-18Jul-18Jan-19Jul-19

2019E:Sales-4%;Newstartsmsqm-3%3,500-3%3,0002,5002,0001,5001,000500-Inventoryinthepipeline(RHS) Completion(T12M,LHS) Newstarts(T12M,LHS) Salesarea(T12M,LHS)Source:CEIC,UBSestimatesOurinterpretationsoftheGBAOutlineDevelopmentPlanTheHongKonggovernmentofficiallyreleasedtheOutlineDevelopmentPlanfortheGBAon18February2019.Theplanprovidesabroad,directionaldevelopmentframeworkfortheGBA,butlacksdetailsonspecificpoliciestofacilitatedevelopment.Ourkeytakeawaysfromtheplaninclude:1)thegovernmenthassetthepositioningfortheGBAcities,especiallyforthefourcorecities(HongKong,Macau,GuangzhouandShenzhen);2)thegovernmenthasprovidedatimeframefordevelopingtheGBA,astheplancoverstheperiodfromnowto2022forthenearterm,andto2035forthelongterm;and3)sincetheplanonlyprovidesanoverallframeworkfordevelopingtheGBA,webelievethecentralgovernmentmayleaveittothelocalgovernmentstorolloutdetailedpoliciesatalaterstage.PleaseseeFigure1belowforasummaryoftheplan.Figure2:SummaryoftheOutlineDevelopmentPlanfortheGBADevelopmentDevelopmenttime Theplancoverstheperiodfromnowto2022fornear-termdevelopment,andextendsto2035forlong-termdevelopment.framePositioningofthecitiesInfrastructureenhancementManufacturingindustrylayoutHongKongasfinancialhubCooperationinsecurityHongKong:Toconsolidateandenhanceitspositioningasaninternationalfinancial,transportationandtradecentre;tostrengthenitsstatusasaglobaloffshorerenminbihubandasariskmanagementcentre;topromotethedevelopmentofhigh-value-addedfinancial,commercialandtrading,logisticsandprofessionalservices,etc.Macau:Todevelopitintoaworld-classtourismandleisurecentre,aswellasdevelopatradecooperationserviceplatformbetweenChinaandLusophonecountries.Guangzhou:Tostrengthenitsfunctionsasaninternationalcommerceandindustrycentreandanintegratedtransporthub;toenhanceitsfunctionsastechnological,educationalandculturalcentres.Shenzhen:Totransformitintoamodernandinternationalcity,aswellasacapitalofinnovationandcreativitywithglobalinfluence.TobuildarapidtransportnetworkintheGBAtoreducethetravellingtimeamongmajorcitiesintheGBAtoonehourorless;tofocusonconnectingthemainlandwithHongKongandMacau,andtheeastandwestbanksofthePealRiverEstuary.Toleverage:1)thestrengthsofHongKong,Macau,GuangzhouandShenzhenininnovationandR&D;and2)thecompleteindustrychainsinotherGBAcities,toenhancecollaborationandconnectivityamongindustriesintheGBA.ToconsolidateandenhanceHongKong'sstatusasaninternationalfinancialcentre;toestablishaplatformforinvestmentandfinancingservingtheBeltandRoadInitiative.Topromotemutualfinancialmarketsaccess,including:1)expandingthescaleandscopeofthecross-boundaryuseoftherenminbiintheGBA;2)wideningthescopeforcross-boundaryinvestmentbyHongKongandmainlandresidentsandinstitutions.ToexploreallowingHongKongandMacauresidentsworkingandlivinginGuangdongtoenjoyequaltreatmentasmainlandresidentsineducation,medicalcare,elderlycare,housingandtransport.Source:OutlineDevelopmentPlanfortheGuangdong-HongKong-MacaoGreaterBayAreaGBA=Hardware+softwareintegrationConclusion:WebelievetheaimoftheGBAdevelopmentistoenhancetheregion'scompetitivenessbyloweringtransactioncostandincreasingintegrationamongcities,apositivetoeconomicactivitiesandpropertymarket.OurstudyofGreaterTokyoArea’sdevelopmenthistorysince1920suggeststheGBAwouldenhancetheregion'sGDPandpopulationgrowthandwouldrequireinfrastructureinvestmentandgovernmentcoordination.WithintheGBA,wewouldpreferGBA'ssatellitecitiesoverHongKongoverGBAcorecities,duetopotentialpopulationspillovertothesatellitecities.ForHongKong,wethinkHongKongpropertyprovidesvaluefromanassetprotectionperspectiveforChinesehouseholdwealthandoffshoreassetallocation.Stockimplications—welikeLoganandTimes:AmongChinapropertystocks,TimesChina(1233.HK;Buyandtoppick),Logan(3380.HK;Buyandtoppick),andKWG(1813.HK;Sell)havethehighestexposuretotheGBA,rangingfrom37%to61%oflandbank.IntheHongKongpropertyspace,NewWorldDevelopment(17.HK;Buy)hasthehighestexposuretotheGBA(excludingHongKong).Figure3:SummaryroadmapofGBAdevelopmentimplicationsSource:UBSBackground:TheGBAcomprisesninecitiesandtwoSpecialAdministrativeRegions(SARs).TheninecitiesincludeGuangzhou,Shenzhen,Foshan,Huizhou,Dongguan,Zhuhai,Zhongshan,ZhaoqingandJiangmen.ThetwoSARsareHongKongandMacau.In2017,theGDPandpopulationoftheregion(includingHongKongandMacau)wereRmb10,132bnand69.6million,representing12.3%and5.0%ofChina’stotal,respectively.Figure4:ComparisonofvariousmetropolitanareasintheworldGreaterBayAreaGreaterTokyoAreaSanFranciscoBayAreaNewYorkMetropolitanAdministrativeunits9cities+2SARs1capital+7prefectures9counties25counties2017Population(m)69.643.87.820.32017GDP(US$bn)1,5561,9518381,7182017GDPpercapita(US$)22,37144,511107,98484,529Area(sqkm)57,75336,89017,90017,405GDPdensity(US$m/sqkm)27534799Populationdensity(person/sqkm)1,2051,1884331,168Ratioofpopulationdensitytothenation(x)841335Nationalpopulationpernationalarea(person/sqkm)1453353333Note:2017populationandGDPofGreaterTokyoAreaareestimatedfrom2015data.NewYorkMetropolitanAreadefinitionistakenasMetropolitanStatisticalArea.Source:USCensus,WorldBank,JapanStatisticsBureau,JapanCabinetOffice,CEIC,UBSFigure5:Guangdong-HongKong-MacauGreaterBayAreaZhaoqing肇Area:15,000sq.kmGDP:USD32.6billionPopulation:Zhaoqing肇Area:15,000sq.kmGDP:USD32.6billionPopulation:4.1MASP:Rmb8,000/sqmGuangzhou廣州Area:7,433sq.kmGDP:USD318.8billionPopulation:14.5MASP:Rmb33,216/sqmFoshan佛山Area:3,875sq.kmGDP:USD141.6billionPopulation:7.7MASP:Rmb12,882/sqmHuizhou惠州Area:11,200sq.kmGDP:USD56.8billionPopulation:4.8MASP:Rmb10,079/sqmZhongshanArea:1,784sq.kmGDP:USD51.2billionPopulation:3.3MASP:Rmb10,572/sqmDongguan東莞Area:2,465sq.kmGDP:USD112.4billionPopulation:8.3MASP:Rmb15,896/sqmJiangmen江門Area:9,504sq.kmGDP:USD39.9billionPopulation:4.6MASP:Rmb7,686/sqmShenzhen-ZhongshanBridge深中通道跨海大橋HK-Zhuhai-MacauBridge港珠澳大橋Shenzhen深圳Area:1,997sq.kmGDP:USD332.7billionPopulation:12.5MASP:Rmb54,918/sqmZhuhai珠海 Macau澳門 HongKong香港

Area:30.5sq.kmGDP:USD48.6billionPopulation:0.7MASP:Rmb87,030/sqm

Area:2,754sq.kmGDP:USD329.6billionPopulation:7.4MASP:Rmb138,488/sqmNote:GDPandpopulationdataasof2017.PropertyASPforGuangzhou,ShenzhenandHongKongarebasedonsecondarytransactions;whilethoseforothercitiesarebasedonprimarytransactions.Source:ChinaNationalBureauofStatistics,UBSFigure6:PropertyASPintheGBA(Rmb/sqm)PropertypriceCity-wideASPHongKong138,488Macau87,030Shenzhen54,918Guangzhou33,216Zhuhai21,383Dongguan15,896Foshan12,882Zhongshan10,572Huizhou10,079Zhaoqing8,000Jiangmen7,686PrimeareaASP HKIsland157,247Nanshan,Shenzhen74,840Tianhe,Guangzhou43,726Note:PropertypricesforHongKong,ShenzhenandGuangzhouarebasedonsecondarytransactions;thoseforothercitiesarebasedonprimarytransactions.Basedonlatestdataavailable.Source:Centaline,CEIC,CREISChangeofdevelopmentmodel:Overthenext5-10years,webelieveChina'surbndeopmentmodloudhngefromuprties”totyuterswthoneortwocorecitiesandmultiplenearbysatellitecities,supportedbyefficienttransportationinfrastructureconnectingallcities.AspertheGuangdongNationalDevelopmentandReformCommission(NDRC),thepurposeistodeveloptheGBAintoaworld-classcityclusterby2035,byenhancingtheintegrationamongcities(ie,avoidduplicateinvestment)andloweringthetransactioncostfortheregion.Figure7:Changeofcitydevelopmentmodel—fromsupercitiestocityclustersUrbanRailwayDevelopmentSupercities CityClustersUrbanRailwayDevelopmentSource:UBSProgress—theplanistobeannouncedon21February2019:InMarch2017,PremierLiKeqiangfirstannouncedtheplaninhisgovernmentworkreport,placingtheGBAdevelopmentplanatthecentralgovernmentlevel.On1July2017,PresidentXiattendedasigningceremonyinHongKongto"deepencooperationandpromotetheconstructionoftheHongKongandMacaoBayAreaframeworkagreement".On12February2019,HongKongChiefExecutiveCarrieLamsaidanoutlinedevelopmentplanfortheGBAwillbeformallyannouncedon21February2019.‘Software’measurestofacilitateintegration CapitalflowEligibleenterprisesintheGuangdongFreeTradeZonecanborrowrenminbiloansandparticipateincross-bordercapitalpoolschemesunderexistingarrangements;HongKong-basedenterprisescanissuePandabonds(renminbibondsissuedbynon-ChineseissuersandsoldinChina)inthemainland;HongKong-ShenzhenStockConnectisavailableforcross-borderstockinvestments;andthereistheQualifiedDomesticInvestmentEnterprise(QDIE)schemeforonshoreprivateequityfundstoinvestoverseas,thoughitiscurrentlypaused.TaxesOnhouseholdandcorporateincometaxes,forHongKong/MacauresidentsworkinginHengqin,Zhuhai,thereisarebateonincometaxpaidinexcessof15%/12%.Also,eligibleenterprisesinHengqinenjoyanincometaxof15%.Foreligiblenon-ChineseresidentsworkinginQianhai,Shenzhen,thereisarebateonincometaxpaidinexcessof15%.SocialwelfareOnresidencestatus,HongKongandMacaupeoplelivinginthemainland,whomeetcertaincriteria,areeligibleforresidencepermits.Theresidencepermitgivesthem:1)rightstoemployment,participationinthesocialsecurityscheme,andpaymentanduseofthehousingprovidentfund;2)publicservices,eg,freeeducation,basicpublichygieneservices,culturalandsportsservices,andlegalservices;and3)otherfacilitationmeasures,includingtransportation,hotelaccommodation,financialservices,etc.Oneducationandemployment,theChineseMinistryofEducationhasannouncedfurtherfacilitationmeasuresforHongKongstudentsstudying,workingandlivinginthemainland.Startingfrom2017,HongKongstudentsgraduatingfrommainlanduniversitiesareeligibleforEmploymentRegistrationCertificates,whichmaketheirjob-seekingeasier.Also,HongKongchildrenlivinginShenzhen,Guangzhou,Zhuhai,DongguanandZhongshancanapplyforadmissiontopublicschoolsthroughapoint-basedsystem,where,forexample,theirparents'lengthofresidence,taxationandemployersareconsidered.Onhealthcarereimbursementandprofessionalservices,underthemainlandandHongKongCloserEconomicPartnershipArrangement(CEPA),eligibleHongKongelderscanusehealthcarevoucherstopayforfeesofoutpatientservicesprovidedbydesignatedclinics/departmentsoftheUniversityofHongKong-ShenzhenHospital.Furthermore,statutoryhealthcareprofessionalswhoareregisteredtopractiseinHongKongareallowedtoprovideshort-termservicesinthemainland.Onmutualrecognitionofprofessionalqualifications,eligibleHongKongprofessionalssuchasarchitects,structuralengineers,lawyersanddoctorsmightacquirecorrespondingmainlandChinaprofessionalqualificationsthroughmutualrecognitionorexaminations,andareallowedtoregisterandpractiseinmainlandChina.Theseprofessionalscanstartbusinessesaswhollyownedoperationsandpartnerships,orinassociationwiththeirmainlandpartners.Onlegalservices,theInternationalChamberofCommerce,theInternationalCourtofArbitration,theChinaInternationalEconomicandTradeArbitrationCommissionandtheChinaMaritimeArbitrationCommissionhavesetupofficesorarbitrationcentresinHongKong.TheChinaCouncilforthePromotionofInternationalTrade,incollaborationwiththeHongKongMeditationCentre,hassetuptheMainland-HongKongJointMediationCentre,providingaplatformforresolvingcross-bordercommercialdisputesforHongKongandthemainland.‘Hardware’developmenttofacilitateintegrationAone-hourcommutingradiusintheGBAisunderdevelopment.WhiletheHongKong-Guangzhouhigh-speedrail(HK-GZHSR)startedoperationinSeptember2018,andtheHongKong-Zhuhai-MacauBridgeopenedinOctober2018,therearequiteafewotherroutesunderconstruction/planning,includingShenzhen-ZhongshanLink(SZ-ZSLink),Shenzhen-MaomingHigh-SpeedRail(SZ-MMHSR),SecondHumenBridge(2ndHMB),Shenzhen-HuizhouIntercityRail(SZ-HZIR),Guangzhou-Foshan-Jiangmen-ZhuhaiIntercityRail(GFJZIR)andZhaoqing-Jiangmen-ZhuhaiHigh-SpeedRail(ZJZHSR)(Figure8).Zhaoqing肇慶ZJZHSRGFJZIRGuangzhou廣州Huizhou惠州FoshanZhaoqing肇慶ZJZHSRGFJZIRGuangzhou廣州Huizhou惠州Foshan佛山HK-GZHSRDongguan東莞2ndHMBSZ-MMHSRShenzhen深圳Jiangmen江門ZhongshanSZ-ZSLink中山SZ-HZIRHong香港Zhuhai MacauHZMB珠海 澳門Source:UBSLegendIntercityLine-CompletedIntercityLine-UnderConstructionNewStartsin13LegendIntercityLine-CompletedIntercityLine-UnderConstructionNewStartsin135-yearRailroad-CompletedRailroad-UnderConstructionRailroad-PlanSource:GuangdongProvincialDevelopmentandReformCommission,UBSBottlenecksforintegration‘Onecountry,threesystems’makesGBAunique:DuetothedifferentsystemsinHongKong,MacauandmainlandChina,weexpectsomebottlenecksinintegration(eg,flowofpeople,capital)amongcities,whichcouldleadtodifferentimpactonthepropertymarketsinmainlandChinaandHongKong.Inparticular,webelievedifferencesinthreeareas—taxation,legalsystemandcapitalcontrol—maketheHongKongpropertymarketuniquefromothercorecities,ie,ShenzhenandGuangzhou.Taxation:ThemuchlowertaxrateinHongKongcomparedtomainlandChinaislikelytomakeintegration(especiallypeopleflow)moredifficultcomparedtoothercities.Forexample,HongKong'ssalarytaxrateis2-17%,ora15%standardrate,comparedtoChina’sindividualincometaxrateof3-45%.Thus,itwouldbemoreattractiveformainlandChinesetomovetoHongKong(ie,southboundflow)thanHongKongpeoplemovingtothemainlandtowork(ie,northbound),unlessthejobopportunitiescouldmakeupthedifference.Figure10:IndividualincometaxinChina Figure11:IndividualincometaxinHongKongTax-freepersonalTax-freepersonalallowance Rmb5,000Monthlytaxableincome(MTI,inRmb) TaxrateTax-freepersonalallowanceAnnualtaxableincome(ATI,inHK$)HK$132,000TaxrateMTI≤3,000 3%3,000<MTI≤12,000 10%12,000<MTI≤25,000 20%25,000<MTI≤35,000 25%35,000<MTI≤55,000 30%55,000<MTI≤80,000 35%

ATI≤50,000 2%50,000<ATI≤100,000 6%100,000<ATI≤150,000 10%150,000<ATI≤200,000 14%ATI>200,000 17%MTI>80,000 40% Source:ChinaStateTaxationAdministration Source:HongKongInlandRevenueDepartmentJudicialsystem:HongKonghasbeenknownforitsjudicialindependence,whichiscrucialtoprotectingindividualandinvestors'freedomandrights.HongKongisalsotheonlycityinChinathatfollowsBritish'sCommonLawsystem,whichtheinternationalbusinesscommunityisfamiliarwith.UnderOneCountry,TwoSystems,webelievethiswillremainthecaseuntil2047.ThesetwocrucialelementsshouldremainattractivetoinvestorsandcorporatesconductingbusinessactivitiesinHongKong—positivetoHongKong’spropertymarket,inourview.Capitalcontrol:WebelievecapitalcontrolinChinacouldremainanobstaclefortheintegrationofHongKongintotheGBA.However,wethinktheHongKongpropertymarketmayappealfromtheperspectiveofoffshoreassetallocation:givencapitalcontrolinChina,individualswhohaveoffshoreassets(eg,annualdividendpayoutpaidtochairmenoflistedcompanies)mayprefertoinvestinoffshoremarkets.Otherbottlenecks:ForpeoplemovingtoHongKongfrommainlandChina,highhousingcostisadistinctbarrier;forthosemovingfromHongKongtomainlandChina,highincometaxisakeybarrier.Thesearebesidesseparatelyadministeredpublicservicessystemsforeducation,healthcare,andretirement.Howtobreakdownthesecurrentsiloswithoutdamagingthebenefitsofthestatusquoisamajorchallenge,inourview.Alackofastrongcoordinatoralsoaddstothedifficultiesinrealintegration.Currently,therearenoclearlydefinedrolesforeachcity.Thus,theninecitiesarecompetingonmanyfronts.Forinstance,thereare11portsintheGBA,belongingtodifferentportoperators,andprovidinghomogenousservices,resultinginfiercecompetition.ThetransportationnetworkintheGBAalsoneedstobeimproved.Forexample,high-speedraildoesnotcoverallinter-cityroutescurrently.LessonlearnedfromGreaterTokyoAreadevelopmentConclusion:Duringthe19th-20thcenturies,infrastructure(mainlyrailway)buildoutandgovernmentcoordination(eg,IndustrialLocationControlActin1959)drovethepopulationandlower-value-addedindustries(eg,factories)awayfromcorecitiestosatellitecities,makingroomforhigher-value-addedindustriesincorecities,resultingintheoverallregion'sGDPandpopulationoutgrowingthenation'sGDPandpopulation.Inparticular,satellitecitiesoutgrewthecorecity(Tokyo).WeexpectsimilarimplicationsfortheGBAandwithintheregion,andprefersatellitecitiesovercorecities.What'sGreaterTokyoArea?AsdefinedbytheNationalCapitalRegionPlanningAct(Shutoken-seibi-hō),theNationalCapitalRegion(Shuto-ken)referstotheGreaterTokyoArea,whichisdefinedasTokyoandsixprefecturesintheKantoregionplusYamanashiPrefecture.Ithasa43.6mpopulationwithanareaof36,890sqkm.In2015,itgeneratedUS$1,951bnofGDP.TheGreaterTokyoArearepresented34.5%and39.3%ofJapan'spopulationandGDP,respectively,butonly9.8%ofitsareathatyear.Figure12:GreaterTokyoArea—Tokyoand7prefecturesNote:Datafor2015.Source:WorldBank,JapanStatisticsBureau,UBSDevelopmenthistory:AfterWorldWarII,thepopulationofTokyoincreased.Deterioratinglivingconditionsandever-worseningtrafficbecamemajorissues.Againstthisbackdrop,theIndustrialLocationControlActwaspassedin1959torestricttheconstructionofnewfactoriesanduniversitiesintheTokyometropolis.Thepaceofpopulationgrowthinthecapitaltheneased,whilethepopulationinsurroundingregionsexpandedcontinuously.Railwaynetworkdevelopmentplayedacrucialrole:ThefirstrailwaylineinJapanwasopenedin1872,a29kmlinefromShimbashitoYokohama.Afterthat,theMeijigovernmentallowedprivatebusinessestobuildandoperaterailways,resultinginthefirstconstructionboom.By1900,Japan’sprivaterailnetworkcovered4,674km,3.5timeslongerthanthegovernment'srailnetwork.Thesecondconstructionboomtookplacefromthe1910stomid-1930swhentheprivatesectorbuiltnewlinestoservecitiesandadjacentdistricts.AfterWorldWarII,theconstructionofrailwaylinescontinued.DuetorisingpropertyandlandpricesinTokyo,therailwayallowedpeopleandindustriestomoveawayfromTokyotonearbyprefectureswherethelandcostwasmuchlower,whichdrovemorerapiddevelopmentintheprefecturesthanotherpartsofthecountry.Figure13:ConstructionoftherailwaynetworkdrovemorepeopletonearbyregionsDecadeTracklength(km)*PopulationofTokyo's23wards(m)Tokyo23wardspopulation(m)perkmoftrackPopulationofGreaterTokyo(m)GreaterTokyopopulation(m)perkmoftrack1880271890236190056319107201920888441213193012425414121940143375171219501491641913196015301062416197016991173018198018741263619199020261263919199521431254019*Tracklength:Totallengthofgovernmentrailways,JNR,JR,majorprivaterailways,subways,monorails,andnewtransportationsystems,atdecadeend.Source:MinistryofInternalAffairsandCommunications(MIC),EastJapanRailwayCultureFoundation(EJRCF),UBSGreaterTokyoAreahaslongoutgrownthenation’sGDPandpopulation.Duetoimprovedconne