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Fergus Fung swipes his card across a sensor and waits as his face is scanned by a computer to verify his identity. A steel door opens, and the Hong Kong entrepreneur enters a vault that holds his treasures: bottles of high-end Bordeaux and Burgundy. This is the Hong Kong Wine Vault, where the temperature is a constant 13C, the humidity is 75 percent, and the insulation on the walls, ceiling, and floors is 4 inches thick. “The facial recognition thing is a bit gimmicky,” says 35-year-old Fung, founder of the WOM guide to Hong Kong restaurants. “But with any wine cellar, security is a key issue.”
Hong Kong Wine Vault is one of more than 15 repositories for high-end quaffs set up in the past three years in the city. Since Hong Kong axed wine duties in 2008, it has overtaken London and New York as the world’s biggest auction market for top wines such as Château Lafite, Domaine Romanée-Conti, and Krug. Imports surged to $858 million last year, from $185 million in 2007. Auction house Sotheby’s (BID) hasn’t had an unsold bottle in the city in its last 15 auctions and broke the world wine price record in October with three bottles of 1869 Château Lafite-Rothschild that fetched HK$1.8 million ($230,930) each. “It’s exploded, and you need logistics to support that,” says Robert Sleigh, who runs Sotheby’s Asia wine business. “Now there are world-class wine storage facilities in Hong Kong.”
The city needs them. Temperatures can soar to 35C, with relative humidity near 100 percent, factors that could render a $75,000 bottle of Château d’Yquem undrinkable. Hong Kong storage costs—roughly $26 to $110 per 12-bottle case per year—is a pittance compared with the cost of a fine wine. Moreover, in a city where 99 percent of the population lives in apartments, few collectors have cellars.
Still, it wasn’t until the government cut the wine duty to zero from 40 percent in February 2008 that the storage business took off. Imported wine in China is taxed at 45 percent including customs duty, while the U.K. charges 41.7 percent in excise duty and value-added tax. Hong Kong’s lack of a tax has drawn wine customers from the mainland, which has some of the biggest buyers among its 1.1 million millionaires. “Half our customers are [mainland] Chinese,” says Thomas Shum, manager of The Cave, which opened last December.
“There’s no question, a ton of wine came over to Hong Kong that was traditionally kept in London,” says John Kapon, chief executive officer of New York-based Acker Merrall & Condit, the world’s largest wine auction house. “Once the tax was removed, people wanted their wines at home.”
For speculators, the climate-controlled vaults can mean a difference of thousands of dollars in the value of their bottles. Provenance, or the history of how and where a bottle is kept, is important because it’s impossible to know the quality of a wine without opening it. Visible inspections provide limited protection against counterfeits, and even bona fide vintages could be ruined by heat or humidity during handling.
A 1982 Château Lafite-Rothschild, which received a perfect score of 100 by wine critic Robert Parker, with good provenance sells for more than $12,000 per bottle, while one of dubious heritage may fetch $500, says Greg De ’Eb, general manager of Crown Wine Cellars, which opened its first cellar in Hong Kong in 2003, 60 feet underground in a former munitions bunker. Crown now has three sites, including a $10 million, 44,000-square-foot facility that houses two of the three record bottles of Lafite. Their exact location is kept secret even from their owner, De ’Eb says.
Many of the new vaults offer more than storage, with some selling wine or offering club facilities that members can use for entertaining. Still, some collectors are keeping their bottles in Europe, says William Chan, senior wine consultant at the Hong Kong unit of London-based Berry Brothers & Rudd, which charges about $17.60 per case annually to store wines in its U.K. vaults. “There is still a perception that storage facilities in Europe are more developed,” he says.
To compete, Hong Kong’s government introduced quality standards for the industry in 2009. For WOM’s Fung, the reason for storing locally is simple. “Storage here is three times the price of the U.K., so if you are buying wine purely for investment I would advise not to store it in Hong Kong,” he says. “I chose accessibility over cost—I love to drink.”
The bottom line: China’s 1.1 million millionaires are fueling the wine trade in Hong Kong, which removed taxes on imports in 2008. Wine storage is booming.