Merrill Lynch Downgrades Hong Kong Real Estate On Air Pollution Worries - Reuters

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HONG KONG - Merrill Lynch is advising clients to sell Hong Kong office landlords in favour of Singapore's, saying the city's air pollution will prompt skilled talent to move further south.

"Buy Singapore office landlords, sell Hong Kong ofice landlords," the US investment bank said in a report. "The government in HK is relatively powerless to address the true causes until Beijing gets tough. It could be a long and choking wait that many could choose not to endure."

The long-term competitiveness of Hong Kong is in "some doubt" due to the poor air quality and potential exodus of highly skilled talent, especially from the financial service sector, who would chose to live elsewhere, the report said.

"Official policy fails to recognise, and ultimately respond, to the competitive threat from Singapore," Merrill Lynch said. Merrill Lynch forecast a 5 percent decline in Hong Kong office rents in 2007 and downgraded the office sector.

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