HK Property Shares Surge, Even Amidst Police Investigation of Luxury Apartment Sales

In Asia Monday Hong Kong's Hang Seng Index rose 0.4% to 20,467 and China's Shanghai Composite Index advanced 0.8% to 2,491. In Japan the Nikkei 225 Index slid 0.4% to end the day at 9,548.

Canceled sales at Henderson Land's 39 Conduit Road are still making headlines in Hong Kong, where today the developer refused to show up at a meeting with government officials. A police investigation into the disintegration of 20 purchase agreements, including one for what would have been the world's most expensive property, was launched earlier this month, digging into whether the transactions could have been faked in order to help drive up prices.

Suspiciously, Henderson Land is not seeking penalties from the buyers over breach of contract, raising concern from Hong Kong's Land Department. "The incident may involve connected transactions between Henderson Land and the property buyers that need thorough investigation," writes China Daily. Meanwhile, Spike, a Hong Kong blogger, notes that the buyers "all used the same law firm and all presented documents that used the same words and phrases." It turns out that the 20 flats were under agreement with 20 different shell companies, all controlled by the same four people, according to Bloomberg.

Henderson Land could be betting that prices will continue to rise and that the apartments will eventually fetch even higher prices. Today property shares surged in Hong Kong with Henderson Land rising 0.6%. China Overseas racked up a 4.3% gain, China Resource Land surged 2.2%, Hang Lung climbed 1.3% and Sun Hung Kai advanced 1.1%.

Hong Kong Banks also gained today with China Construction Bank soaring 2.4%, Bank of Communications rising 1.1% and Bank of China adding 1%. HSBC, the most heavily weighted bank on the exchange, was up only 0.07%.

In China, a new report shows a slowdown in the rise of housing prices with prices rising 11.4% in June as compared with the same month last year. That's lower than the 12.8% rise for prices in April and 12.4% for May as compared with last year. But that didn't seem to dampen property stocks as today China Vanke skyrocketed 5.5%, Poly Real Estate surged 3.7% and Gemdale racked up a 3.4% gain. Khiem Do, of Baring Asset Management told Bloomberg, "'Rumors to ease off those mortgage restrictions might have lifted the Chinese property stocks.'"

Chinese commodity producers rose today with Yanzhou Coal Mining climbing 1.3% and Jiangxi Copper advancing 1.2%. Gold miner Shandong Gold jumped 2.3%.

Japan Prime Minister Naoto Kan's support for raising taxes on consumer goods has cost him dearly as his party lost its majority in the Upper House in Sunday's elections. The political uncertainty sent Japan's banking shares tumbling. Shinsei Bank plunged 2.8%, Sumitomo Mitsui Financial Group plummeted 2.3% and Mitsubishi UFJ Financial Group and Shizouka Bank both sank 2.1%.

Japanese gainers included commodity producers. Inpex Corp., an oil exploration company, surged 5.4%. Sumitomo Metal Industries jumped 2.9%, Kobe Steel climbed 2.8% and Japan Steel Work rose 2.2%. Carmaker Honda leaped 3.1% and Nissan rallied 1.9%, bolstered by a weakened yen -- one positive side effect of political turmoil.