Bidding High in Hong Kong

The city, Asia’s tax-free wine hub, rivals London and New York in auction sales.

On April 24, 2008, about 200 excited bidders crowded into an underground bunker that once housed World War II explosives for the first Hong Kong wine auction in almost a decade. Bonhams’ sale at a Crown Wine Cellars storage facility in the exclusive suburb of Shouson Hill featured the red carpet, staged photos, private VIP room and celebratory atmosphere of a Hollywood premiere.

One collector, determined to win the last sale lot, bid HK$8,000 ($1,030) for 1994 Taylor Fladgate Vintage Port. (The number 8 is considered lucky in China.) When someone else bid HK$8,888, the original bidder countered with HK$18,888 to make sure he got it, says Frank Martell, international director of fine wine at Bonhams.

Less than two years later, Hong Kong has become an auction hub that rivals London and New York. Five major houses now hold regular sales, and they’re pulling in record prices for the hottest labels.

What pushed this vibrant city into the wine big leagues was its decision to abolish all taxes on wine on Feb. 27, 2008. Bonhams announced its sale, in the works for months, 15 hours later. Acker Merrall & Condit followed with an auction that May; Zachys, that October; Christie’s, that November; and Sotheby’s, in April 2009. Sotheby’s combined April and October sales this year brought in more than $14 million, including a record- breaking price for an imperial (which holds as much wine as eight regular-sized bottles) of 1982 Chateau Petrus: $93,077.

Auction houses now frequently send their highest-value lots -- top Bordeaux with impeccable provenance -- to Hong Kong. “People in Asia are willing to pay the highest prices,” says Jamie Ritchie, head of Sotheby’s North American wine sales. Auctions are packed with bidders and full of drama. Chinese buyers -- locals as well as those from Beijing and Shanghai -- often wait as long as possible to bid, adding to the excitement. Malaysia, the Philippines, Singapore and Taiwan are also represented.

Sophisticated Hong Kong has long had highly knowledgeable Bordeaux lovers with extensive cellars, such as Henry Tang, the city’s chief secretary. Most of them made their purchases in the U.S. and the U.K. and kept their wines there to avoid paying taxes. In the past few years, an increasing number of Asian buyers regularly snapped up many of those sales’ most expensive lots.

Now, more and more newbies, especially from mainland China, are eager to bid in Hong Kong. “They start with the best; it’s like buying a Lamborghini as your first car,” Martell says.

The highest-status wine is first-growth Ch. Lafite Rothschild. Despite the financial crisis, the wine’s price rebounded more quickly than any other after a dip at the end of last year. According to the October Market Report from London-based electronic wine exchange Liv-ex, 1998 Lafite, for example, was up 17.5 percent in September from August.

Just about everyone in this city has a story about an obsessed Chinese Lafite buyer. When Martell dined with three Hong Kong wine merchants recently, they discussed one collector who pestered each of them for three months to track down cases of 1982 Lafite. He wiped out their stocks. It turned out he’d closed a multibillion-dollar deal by deftly distributing bottles. In China, offering Lafite telegraphs respect, so it’s the currency of choice to thank a government official and de rigueur for corporate entertaining. Stardust has also fallen on the chateau’s second wine, Carruades de Lafite, which sometimes trades for higher prices than first-growth Ch. Mouton Rothschild.

“It’s a feeding frenzy, a complete fantasy now,” says David Elswood, head of international wine sales at Christie’s, who was just off the plane from Hong Kong when I reached him by phone in London. “Wine is like a new toy. Collectors who haven’t tasted Petrus think they have to have it at any cost. I predict a shakeout in the next year or two.” Novice bidders love the thrill but often pay twice a wine’s retail price, says Jo Purcell, head of Farr Vintners’ Hong Kong branch.

Auctions are only part of Hong Kong’s wine boom, says James Miles, a Liv-ex director who grew up in the city and regards it as his home. “The retail market is 10 times larger,” he says. U.K. merchants such as Farr Vintners used to sell some 40 percent of their stock to U.S. trade and private customers; now those sales have shifted to buyers in Hong Kong. Those merchants sold $80 million of still wine to Hong Kong’s five top importers in the first seven months of 2009 -- more than in all of 2008 and nine times what was sold in 2006.

Nick Pegna, who runs London-based merchant Berry Bros. & Rudd’s Hong Kong shop, says finding authentic stocks to meet the demand is getting difficult. Besides Lafite, new buyers want Bordeaux - - Chateaux Cheval Blanc, Latour and Petrus -- plus Domaine de la Romanee Conti Burgundies and California cult cabernet Screaming Eagle. At one-third the price of Lafite, 1982 Mouton Rothschild is a good buy -- for now. And Burgundies, most agree, don’t sell for as much as they should.

Government and business leaders intend to keep Hong Kong the wine center of Asia. “We’re set to surpass London in wine auction sales this year, and we’re neck and neck with New York,” says Raymond Yip, assistant executive director of the Hong Kong Trade Development Council.

Within a year, the council plans to launch certification standards for wine storage facilities. And the second annual Hong Kong International Wine & Spirits Fair is set for early November. “We’ve only touched the tip of the iceberg here for wine,” Yip says.