(From a thread on GEI ):



Okay. Superficially, my investing may seem similar to TTRTR. We are both long property.
But, I reckon there are a number of important differences:

+ I start from the notion that property is a cyclical sector, and I want to "catch the sweet spot", and be out before the peak. That doesnt mean that I won't get stuck in after the top (as TTRTR seems to), but at least I will be very alert for signs of a peak. I will be looking for another market to move into (the US?) before the top is in here. I have typically gotten out of cyclical moves "early": UK property in 2001 to move into gold, catching its low. And in the past year, I have been diversifying away from mining (which could still have years to go), to get into property here. TTRTR hasnt shown any cyclical nimbleness. He is a self-confessed "long term bull on property"- in denial of cycles.

+ The fundamentals underlying this boom are different than they were in the UK. Rents are rising fast in HK (up 10-15% per annum or more), while in the UK, rents seemed to be stagnant for years. Also rates are falling fast, driven lower by US cuts. At the peak in London, rates had been rising for many months. The Builders are a good bellwether here also. Their sharp moves up attracted me in. They ae now off their highs, but my reading of the charts is that their is yet another surge ahead for HK property developers. If tehy break down instead,I will redouble my alertness.

+ I regard TTRTR as a speculator who stumbled into property investing, following a societal bandwagon, driven by wildly aggressive lending by banks (like NRK.) He got carried away, and started believing EA hype. Of course, there are many investors here too, but most investors got burned by the 70% drop from 1997 to 2003, and that is within their recent memory. The result is more caution, especially amongst the banks, who ae reluctant to lend more than 70%. All of my loans were in the region of 65% - 70%, and with price appreciation my portfolio is now sitting at near 50% Loan to Value, with no MEW-ing, at least not yet.

+ I welcome bear arguments, especially those that are backed up by facts, and figures. I dont want to miss the turn, so bear arguments will help me stay alert, and not miss something. The possible scenario you point to: a surge up, followed by a sharp fall, is possible, and could be triggered by: a re-pegging of the HK dollar, or a turnaround in rates from a falling trend to a rising trend. Do people here see other ways that could happen?

Compare charts:
............. UK Property ........................................................... : ......... UK Builder: Taylor Wimpey (TW.L)
..

............. HK Property ........................................................... : ......... HK Developer: Henderson (HK:12)
..

Compare and contrast this comment from Midland Realty, with what you might get from UK estate agents:

"End-user demand on supply shortage and improved affordability
Pessimists have raised worries of a bubble burst with the local property market despite the presence of negative interest rates and other favourable factors. However, I would like to emphasise that the Hong Kong market has strong and sound fundamentals. There are three major supporting factors:

1. Hong Kong is a high savings society. The total personal savings with local banks are estimated at HK$6,000 billion.
2. The indebtedness of local families is low. The mortgage-to-income ratio has declined steadily to about 30%.
3. Land Registry records showed a low volume of confirmor-related transactions in 2007, indicating that just 1.6% of home purchases involved short-term speculators during the year.

An economic cycle has to go through a number of financial crises, big and small. During a market slump, average investors are often polarised into two major categories – the extreme pessimists prefer to hold cash on hand and on the defensive; the ultra-aggressive ones on the opposite camp are prepared to fight back hard to regain their lost ground. Hong Kong’s property market is characterised by a supply shortage, strong demand from end-users, low level of indebtedness and high savings rate. Buying into Hong Kong property assets appears to be a good bet."

/source: http://www.midland.com.hk/eng/market_views/080125.shtml

Im not au fait with the HKmarket...but how insulated is its growth generating sectors from the credit crunch, a global decline or the onset of global fear???

No Bubble, No Crash.

HK is not in bubble territory (yet). The homeowners and the banks have been far more disciplined (see comments from Midland Realty, above. That's why I am investing: the market here moved into the "sharp upwards phase' pof the cycle last year, in the second half. With most HK household under-borrowed there may be a long way to go- at least many months, and possibily many years.

Of course, a global crash and global recession would have some big impact here too. But HK starts out with some good-looking fundamentals: "Hong Kong is a high savings society... The indebtedness of local families is low" ... while the fundamentals are poor in the US and the UK. (Why do you think I am over here?)

There are very few factories left making anything here in Hong Kong and its main lifeline seems to be that countries and companies use it as a viaduct for Chinas exports (container shuffling in and out is big here). Thus I think any global decline in exports will affect that side of Hong Kongs business.
Not that I think that this will affect property prices much! As has been identified on other Hong Kong threads many people here are cash rich and averse to paying mortages. I think people here take their money out of the stock market and put it into property when the stock markets fluctuate wildly.

DrBubb has pointed to cycles in UK property and tries to apply those principles here too.
I think this fails to appreciate a few points:
The political elite here are oh so very very cosy with the big 4 or 5 developers that its frankly sick-inducing. This cosy, you scratch my back, and I will scratch yours between government and developers doesn't exist in the UK or many other places in the west (IMHO). The government restricts land supply 100% (they are the only true owners of land in HK). The big developers get all they want in a hush-hush rota sytem at "open" auctions. Both sides are happy. Government gets a very high price for the effectively leasing the land and developers just add on their building costs to a market who have little choice but to lump it. So overall I think there is a big difference (between HK and UK) is the relationship the developers have got with the Government here. Its in both their interests to keep prices high. They do this plain and simply by restricting the land supply.
Granted the people here are more switched on to the stock market than in the UK but I doubt it will affect property prices. Most property here is bought with a whacking deposit or with no mortagage at all! Obviously DrBubb thinks that the property cycle here is at a different stage from the UK's but I dont see it as clearly as that.

Another point about property prices might be:
Hong Kong is the first place of refuge to rich mainlanders that have been allowed to leave China. There is a growing percentage of mainlanders here that bring their wealth and plonk a whack of it in property. This supply of rich Chinese will continue for the foreseeable future.

Countries and companies will continue to access China through Hong Kong and all these "executives" need a nice place to stay keeping prices high.

So to answer your question, in a less rambling way, I think that Hong Kong property prices are supported more by demographics (immigration) and incestuous relationships between HK govt and builders than perhaps industry.

Agreed on the mass market properties but parts of the luxury market are starting to look quite expensive. Luxury flats have really moved up sharply in the first couple of months of this year.

Out of curiosity, I've also recently looked at a number small SOHO flats and they're getting pretty expensive too. A huge number of 500 sf flats are asking for $25-35K per month in that area - I expect they're anticipating further rent rises? But they do seem to have priced in all the good news and any future good news!

If HK is headed into a bubble, then "the sky's the limit", and with a falling HK dollar and a still-bomming economy, the rental market could continue upwards for awhile yet.

Having said that, I am not buying on HK Island. I think there are better bargains elsewhere, like:

+ Tung Chung, where I have been paying an average of less than HK$3,000 psf, and
+ West Kowloon, especially around Olympic, where I think some flippers are now offering units
in The Long Beach at attractive prices. (My flat there, high floor with some 750 sf, will rent for
about hk$20,000 per month, I reckon. It's an easy 7 minute commute to Central-HK by MTR,
after a 5 minute walk. Why would anyone want to pay more to live in a dreary midlevels flat?)

Photos:
The Long Beach, next to One SilverSea, at Olympic station
..

View from a Long Beach flat - on a typical hazy day.
( That's Sorrento to the right, with One SilverSea to the extreme right.)

( Island Harbourview is on the left side, not as high. )

There's more about this on the KOwloon thread on GEI.

Just my HK2 cents worth,

I have my doubts about investing in the 'new' areas where there is massive supply (such as Tung Chung, Olympic, etc). These will be hit hardest during the next downturn, in my opinion, as they were during the last (Tung Chung, Tseng Kwan O, etc). The quality of construction at Olympic, for example, is downright shoddy (I viewed a number of 'new' flats there a while back). Moreover, developers are currently marketing 'new' flats at 20-30% premiums (average for HK over the past 2 years) to comparible secondhand prices of similar properties in the vacinity. Shades of UK newbuilds? (oversupply, shoddy construction, bought mainly by mainland Chinese speculators). I would be very wary about 'investing' in such areas ... you don't want to be left holding the bag there when the music stops (very quickly, usually, in Hong Kong's case).

My Mid-Levels flat may be 'dreary', but it takes me just 5 minutes to get to work and is 2 minutes walk from Soho/LKF. The construction is also very good, and its in an established residential area located just 8 minutes walk (via the escalator) to Exchange Square. It has also appreciated significantly faster than these 'new' flats over the past few months. Rental demand is very strong, and I get 2-3 unsolicited calls a week from agents asking if I want to sell my place.

Some people (mainly Mainland investors) may be swayed by glitzy marketing brochures and persuaded to pay a huge premium for a new flat in an untested area; others stick to tried and trusted areas, where demand may be more predictable and stable. Each to his/her own, I guess ...

I looked at Tung Chung, but bought another dreary flat in Mid-Levels. A 20% return in 3 months is anything but dreary.

Okay.
But you are out-of-date on other areas:

+ TC's "excess supply" is gone. Low prices, and good marketing last year have bought waves and waves of new tenants and new buyers. I would say that the number of empty flats at CC has dropped from 40%+ when we moved in, to under 10% today. And prices are rising fast. Our place (where we live) is up from $3.45mn to maybe $4.9mn today- so that's something like 50% in a year. And the other flats we have here are also moving up by maybe 1% per week, similar to other good areas of HK. The only other potential supply is the "mid-rises" near the Novotel. We have heard that they may be put on the market at something like HK$5,500 psf- which is miles ahead of current prices. If they sell well, then that will tend to drag up secondary market prices with it. So we expect to see our main property go to perhaps $5.8 -6.0mn by year end, if current trends continue.

+ Olympic is an interesting case. When LB came on the market, pundits said it looked overpriced, by perhaps the 20% that you mentioned. But that was mainly a comparison with with the next-door tower of Island HarbourView, which is surrounded on three sides by other buildings. Since then, IHV prices have shot up dramatically, and it is now hard to find anything decent below $8,000 psf. By comparison, some of the flats at LB look underpriced. That's because a large number of people bought to flip. And those flippers are now facing a completion deadline of mid-April, so quite a number of flats have recently been put on the market at prices in the region of HK$7,000- 7,500 psf. Once the deadline has passed, and people can start viewing flats in LB, I expect prices to go up. We viewed a number of lats at IHV, and i think the quality of construction at Hang Lung's LB looks better. In the long run, both properties will do rather well IMHO, because they are only one MTR stop away from Kowloon Central. With over 20,000 people slated to be employed at the ICC ontop of KC, i think there will be plenty of demand from professionals working in that location, as well as those who are willing to commute a little further from Central.


Photo: That's Island Harbourview to the left, and One SilverSea to the right

+ Prices in One SilverSea are $11,000-12,000 psf, for the Seaside view, 20-25% less on the back
+ A marina for yachts, and sailboats is planned for the water area sometime in the future
+ HK Island is visible in the distance on a clear day

There are plenty of agents servicing Olympic and KC also, and no doubt the action will pick up dramatically when people start moving into the lower floors at ICC around mid-year. (It is located right behind OneSilverSea, next to the Sorrento project, which you can see in the photo. ICC may be tall enough to be seen over OSS when the tower is complete in 2010.)

BTW, have you see Gordon Tse's article in SCMP about two weeks ago? He is bullish on the mass market, and his picks for top perfiormance include Tsing Yi, and Tung Chung. It amazes me how many people on HK Island have an opinion about TC and havent been here in ages. By comparison, I joined a friend visiting from London as agents took us around to 5 or 6 flats in Mid-levels. We were shown flats costing HK$13- 14mn, with prices in the region of $11,000- 12,000 psf. Most looked dreary or dated, and I think the attractiveness of the Olympic flats will win over buyers and tenants, especially when they are working in ICC, and have a shorter commute. Globakl economic factors may put a cap on housing allowances, so the luxury end may lose its outperformance relative to the mass market.

But, hey, in the end: you "pays your money, and you takes your choice", and all of HK is likely to move up sharply in 2008, if the trends in place continue.

(also posted on GEI's Kowloon thread, so some may want to check the further info there.)

Ouch! They're really getting $11K psf for a flat overlooking an industrial harbour? That new build stuff is like buying sausage meat by the pound. I'm sure you'll do well out of it but no thanks.

You can buy a racetrack view in Happy Valley for under $10K psf including renovations. I'm with PeteHK on this one - I personally find Central/Midlevels anything but dreary. It's convenient, vibrant and 'feels' like HK. It's also an area where you can actually find unique properties which can be renovated to really add value to the proposition. And that can provide some pretty good yields.

It must be nice to look out the window and see green grass- whatever happens when you go
down to street level.

Still, I dont think eother of you "gets" the West Kowloon "luxury corridor" concept yet.
Visit Elements, above the KC mtr stop, look at the views there, and consider the short walk to
the proposed new West Kowloon cultural district, and it may begin to make sense.

Viewing the following videos...
1/ http://www.youtube.com/watch?v=5U6tR9IUZuY
2/ http://www.youtube.com/watch?v=vPbt27mH2Bc
3/ http://www.youtube.com/watch?v=58NkyAkXjNM
4/ http://www.youtube.com/watch?v=5U2kBCZlcbA
View: http://www.youtube.com/watch?v=m2UrllyxVkA
Comparing Kowloon's ICC, HK's IFC, and Shanghai's IFC:
http://www.youtube.com/watch?v=OSCryzcS4eY
(Note: ICC will be the 4th tallest building on the planet, and largest in Hong Kong)

These may help too. But some won't get it until ICC is finished, and the bankers that work there
start appreciating the 45 minute "fast train" to Guangzhou, and the easy journey to the airport.

One SilverSeas view (of ICC and Victoria Harbor) is quite sensational, whatever you think of the
vessels sitting in the taiphoon shelter.

I see a bright future, whatever the HK Island "traditionalists" may feel. And this comes from someone
who lived on Barker Road (on the Peak) for 4 years in the early 1980's. I know HK, while you guys
dont know Lantau, or Kowloon.

( I suppose the mods moved this, because of the HK theme. That's fair enough.
But the UK side of the comparison is also interesting. And this was pursued in a follow up
comment on GEI, which I reproduce below):



1/
I think there is a real possibility of a 50% or greater correction in the UK, in which case TTRTR may much of his
"paper wealth" fade away, and if his equity declines, he will have less flexibility, and may find that the MEW-ing
that he may have done in the past will become impossible in the future. He will also remain exposed to rising
rate, and (shock horror!) falling rentals, if thinghs get really bad in the UK. Who wants to live through such
erosion

2/
A meltdown period just like I have described for the UK was experienced in HK from 1997 to 2003, when prices
fell by 69% from peak to trough. That has left the banks here more conservative, which is why we are unlikely
to see a bubble driven by aggressive bank finance. The other thing is, HK households rebuilt their savings during
the slump. They have healthey amounts of cash, and little debts. This could fuel a boom which could conceivably
take HK property to a peak which would again make it the most expensive property in the world, while London
falls back from that status*.

I am expecting a long 16-18 year cycle from that 2003 low. But as we saw in the UK and the US (and in the gold
market in its last boom too), there may be a ratrher severe mid-cycle correction, as there was in the US before
2001, when prices bottomed, and then started shooting up again, as money got very cheap. I dont want to hold
a large HK property portfolio through such a dip. My plan is to sell down, and get debtfree, in anticipation of
such a move. I already have two properties on the market, at prices which represent a 50% uplift from what
we paid for them. (My gf is part owner in several of the properties, but not all.)

===
* Some laughed at me, when i made that ptrediction a year ago. They arent laughing anymore,
except the extreme thickos, and there are people like that, as I discovered on SP.

Dr Bubb

We corresponded briefly towards the end of last year when I first visted HK and I'd be interested in your views plus any others with such knowledge of HK property market.

I have recently signed a provisional sales and purchase agreement for a 1173 sq ft high floor apartment in a newish block well located in Mid levels west adjacent to escalators. The purchase price was Hk$12.8 m making a purchase price of HK10,900 per square foot.

I would expect to hold the investment for a minimum of two years and would expect to achieve a rental yield of around 4% against a loan of of 70%LTV at an IR of just over 3%. Assuming all of the above I would hope that a modest 10-15% rise in prices each year should equate to a 40-50% return on equity each year whilst minimising any negative cash flow on the transaction. I hope this kind of price growth will be achievable in the current market assuming supply remains constrained and IR's remain relatively low.

The two things that have attracted me to the transaction are firstly that I have four months before completion meaning that both prices and rents should rise in the interim period with only a small level of equity commitment and secondly the valuation has been confirmed by both mortgage companies I'm looking at including HSBC who I'm told are often conservative in their valuations.

I'd be grateful for any views on the investment and also any advice and/or links on the best mortgage provider particularly for a non-resident investor as with a long period to completion I want to ensure I get the most competitive mortgage on offer.

Thanks for any views and assistance.

Freedom finder

I would give you a longer answer on GEI, but briefly here...

+ I think the market rise is faster than that, maybe approx. 1% per week
+ The gains will fizzle out at some point, maybe later this year
+ If the US starts raising rates to protect the US dollar, then the boom in HK property will be at risk
+ New properties under construction is low now (near 10,000), but I think this will start rising soon

Also, I am a contrarian on the HK Luxury market. I think the mass market may be stronger, as the "average person" moves to take advantage of low rates, while the high end is constrained by downwards pressure on housing allowanbces, as big banks and otehr multimational firms try to economise. Few people are talking about this, but I think the big boys will catch on to this soon, and be red-faced about their predictions of luxury-end outperformance. Please note, I could easily be wrong about this, but it is how I am betting.

WAIT AND SEE? In front of Budget speech, or still too cold?

Per SCMP
+ About 30 units were sold in the primary market over the weekend (vs. 50 previous, & 30 in the holiday weekend)
+ Several projects are about to be launched (like Capitol in TKO)
+ Bellagio at Sham Tseng was one of the best sellers, with 10 last weekend
+ Harbourplace, Hung Hom, sold 6
+ The Capitol attracted an estimated 20,000 visitors to its show flats

: secondary market had estimated sales of 429 units (previous: 476 units)
: HK-46 units, K-141, NT-242

Despite falling transactions, average cost edged up by 0.9 percent, 27th consecutive week of gains

Dr Bubb

Thank-you for you response. I suspect you are correct on a number of counts. The market is rising faster currently probably as you say about 5% a month. I would hope that will cement gains of 10-15% by the end of June. I also hope that the next move in US interest rates will be down. Recent currency trades seems to suggest a further fall in the US$ as traders anticipate further US interest rate cuts. Whether this will materialise or not remains to be seen but before completion a fall in US$ IR's plus the dollar itself would be most welcome - post completion a rise in the dollar as IR falls bottom out would also be helpful. The one advantage of HK island luxury seems to be very few new projects coming on stream - more luxury it seems are planned in other areas - agree allowances may be capped and rental growth may dull down but should still grow a little until end June completion date.

This seems to be the beauty of investing - do you look for lead indicators and invest before the crowd - hence locking into spectaculor returns if you call it correct or do you buy in a rising rents and prices market - where equity returns are less spectaculor but more likely to be realised in a faster period of time? I feel I I have enough exposure to the HK market for now. If you look to lead what is the best indicator of a market changing direction - negative real interest rates or do you look for another indicator?

Changing the subject I sold out two UK London properties one in June 07 one in August 07 and downsized to a smaller holding reducing my equity stake by about 50% - still too high for my liking but nevertheless it gives me accessible equity to play with whilst I have two extension and refurbishment projects underway. I'm quite interested in Malaysia KL luxury market - is this a market you have considered investing in? With a mixed UK, Malaysia mortgage package it strikes me as possible there could be an artibtrage benefit of approaching 10% yield but cost of finance at 5-5.5% as well as access to a market with perhaps further to go than its HK equivalent in terms of capital growth. If you have time i'd be interested in any further thoughts you may have?

Freedom Finder

Personally, I invest before crowd and look for forward indicators.. However this does mean I miss out on mega-runs (never would've gone into UK property after 2002), tho it means I play safe since property is one of the biggest investment a person makes.
i.e. don't think 10-20% gain in HK property ever makes you safe given volatility. By going in before crowd, you get 30-40% in say 1-2 year, which makes me fairly safe.

Forward indicators - GDP growth (and changes in thinking in economy (ie re-invention/CEPA in HK) - eg Macau/Singapore casinos), Unemployment trend, Interest rates (went in HK in July 06, just before rate cuts), Low current house price (Singapore didnt have a proper bounce post 2003/SARS) in 2006. Also currency movements.
You'll need to 'imagine' property will rise 50% in 3 years also - in that way, you may get 100% on completion if things work out even better. "Imagine" means what are the drivers that can make this happen.

Thanks for your comments - very interesting. I recognise I have invested later than might otherwise be ideal in HK but am confident that supply and demand will continue to move prices higher in the short term. I would not feel comfortable investing off plan in HK at the moment as it feels as if developers are pricing in recent levels of gain into new developments.

I'm looking for the next possible investment location as we speak - I'm quite keen on KL Malaysia but feel this may have already moved too fast at the luxury end. I'm interested in sharing any thoughts on markets and opportunities as they develop.

Freedomfinder

The best "leading indicator" that I have found is the share prices of Builders/Developers.
The thrust up over one year ago, and property has followed. HK Property shares are now correcting,
but are (so far) holding key support, and may be getting set for another upward thrust.
The US is likely to cut rates next week, and we may well see that repeated in HK.



Downsizing in the UK makes sense, and getting out altogether may make more sense.
I have heard many people here sing the praises of KL, but havent yet done a study of the market
there yet. Probably, I should take a closer look.

AS BRITS STRUGGLE to hang onto their homes, what is happening in Hong Kong?




WEALTHY - BECAUSE THEY BELIEVE IT MATTERS

Interesting statistic (From China, but it gives the idea):
95 % - Pct. of people surveyed in Shanghai, who
"Strongly believe that wealth can bring happiness" - AC Nielsen, Nov.2006
================================

From today's China Daily:
Over 400,000 millionaires in HK: survey

A survey projected that there were 414,000 (HK$) millionaires in Hong kong,
and a majority owe their wealth to a booming stock market (now correcting.)
Each of these millionaires owns an average hk$9.9 million in assets,
and over the past year (2007), 228,000 peopel became millionaires.

The projected number has fallen back to an estimated 350,000 after the recent stock market correction

Those are "Hong Kong Dollar millionaires", but still, that's not bad in a city of x million.
The majority of millionaires are locals (81 percent), and 15 percent are mainland immigrants.
And most of those immigrant millionaires (81 percent) accumulated their money after arriving in HK.

Wanchai is the district where the most (16.9 percent) millionairescan be found.
Central & Western comes second (16.3 percent)

Thanks to the booming stock market, the number of young (under 30) millionaires doubled,
to one-in-47. In the 30-to-39 age group, one-in-28 is a millionaire.

AGE GROUP... : Pct. 2006 : Pct. 2007 :
21 -29 years.. : ... 1.0% . : ... 2.1% . :
30 -39 years.. : ... 3.5% . : ... 7.6% . :
40 -49 years.. : ... 7.4% . : ... 9.8% . :
50 -59 years.. : ... 6.9% . : . 11.5% . :
60 plus years. : ... 6.1% . : ... 7.1% . :