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Hong Kong property outlook - and Data Base

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Thelliand,

 

That's scary. That 1997 article is eerily similar to the current reality.

 

I definitely recognize what you're saying about these ghost estates. I noticed the same at The Harbourside (Kowloon Station). The number of empty flats there is amazing. And yes, since the mainlanders see these flats as assets, they'll sell them in a heartbeat, at a lower price, if they get spooked somehow.

 

Surfdude, thanks for the input on TC and LB2.

 

I was having lunch with a friend today. She is an investment manager for UHNW (ultra high net worth) people, mainly from mainland China. While I don't know much about the investment business, I consider her to be pretty knowledgeable and well informed. She too believes that a serious correction is on the horizon. She's even going as far as predicting that the correction will be triggered from events in China.

 

According to her, the bubble we're seeing in HK is very small compared to the one in China. Especially cities like Beijing and Shanghai are true danger zones with hyper inflated land/property prices from government stimulus money. Even her mainland clients are cashing out their investments in fear of a correction.

 

Anyway, please consider her opinions as pure 'lunch talk' without any facts to back up her opinions, but interesting nevertheless.

 

An interesting indicator she mentioned was that of IPO's. When the number of IPO's starts to increase rapidly, a correction in the market is likely to occur. She claims the same happened in 1997.

 

What I find strange though is that while many of the signals seem to be pointing to a correction, why are the property developers paying record prices at the land auctions? According to the newspaper articles, they claim that for those sites developers need to sell the units at higher than current market prices in order not to lose money. Surely these powerful and influentlial developers know more than we do about the current state of the market.... ????

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Many good points raised and I am enjoying the discussion.

 

Not sure if you noticed the editorial on page 2 of today's Standard but guess who was pictured - none other than Tung Chee-hwa and the topic mirrored the aticle Thelliand's posted yesterday. Indeed, Property is cyclical and we are approaching that part of the cycle when government are taking actions to meet the housing needs of the populace just like back in 1997.

 

Yes, property developers are buying at sky high prices but I think they hold a more long term view for their business and they will happily increase their land bank and sit on it if there is a correction until we are back in the sweet spot of the cycle. They will continue to sell their existing built property inventories at these sky high prices for as long as they can. Given a long enough time horizon they will make money on the land deals they are brokering now.

 

IPO's could also be a good bell weather with a multitude of them listing during exuberant times - many recent IPO's have been opening poorly though - Glencore, Hui Xian property Reit... Wish I had bought into Milan Station though...

Certainly, there were plenty of IPO's in 2008. A glut you could say and few to none in 2009.

 

China indeed could be the catalyst. Did you notice Joseph Yam's comments that China will make a determined fight against inflation and return to positive real rates of interest by year's end? They will continue to raise interest rates along with other measures to reach this goal. The easy money could be drying up in China resulting in lower bids on property.

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Not sure if you noticed the editorial on page 2 of today's Standard but guess who was pictured - none other than Tung Chee-hwa and the topic mirrored the aticle Thelliand's posted yesterday. Indeed, Property is cyclical and we are approaching that part of the cycle when government are taking actions to meet the housing needs of the populace just like back in 1997.

 

Interesting article indeed. Yet in the same newspaper, you can read how SHK sold out their i.UniQ appartments in record time. Are all these buyers ignorant, or are we the ignorant ones? :rolleyes:

 

IPO's could also be a good bell weather with a multitude of them listing during exuberant times - many recent IPO's have been opening poorly though - Glencore, Hui Xian property Reit... Wish I had bought into Milan Station though...

Certainly, there were plenty of IPO's in 2008. A glut you could say and few to none in 2009.

 

Yeah, I got burned on that Hui Xian IPO. I just subscribed to the MGM IPO with the hope of making up for my Hui Xian losses.

 

I also remember an extremely high rate of IPOs in the US and Europe just before the IT crash in 2001.

 

China indeed could be the catalyst. Did you notice Joseph Yam's comments that China will make a determined fight against inflation and return to positive real rates of interest by year's end? They will continue to raise interest rates along with other measures to reach this goal. The easy money could be drying up in China resulting in lower bids on property.

 

From what I understand, China increasing their interest rates will only further fuel the bubble here in HK. One of the attractive points for mainlanders right now is that they can borrow money in HK at far lower rates and with much greater ease than in China. The HK banks are facilitating this by offering them all sorts of cheats to let them use their China assets as security for a mortgage in HK (a banking crisis in the making).

 

Of course, China increasing their interest rates will/should cool down the Chinese economy, which in turn should impact HK.

 

I too am loving the discussion here. Would be interested in Dr.Bubbs take on the whole situation.

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I am also amazed at how people line up for hours and spend their life savings on tiny apartments on offer from SHK or Cheung Kong but HK is ruled by the herd mentality. I wonder if these people will be buying high and selling low as many did in '97 and then in '02-'03.

 

Perhaps we are entering the delusional stage where people are still chasing profits. Personally I thnk it is bad to enter a market which has been going up for some time with the thinking of not wanting to miss out on the potential gains - seems just mad to me. Better to wait for a healthy correction and then enter the market when it stabilizes.

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I am also amazed at how people line up for hours and spend their life savings on tiny apartments on offer from SHK or Cheung Kong but HK is ruled by the herd mentality. I wonder if these people will be buying high and selling low as many did in '97 and then in '02-'03.

 

Perhaps we are entering the delusional stage where people are still chasing profits. Personally I thnk it is bad to enter a market which has been going up for some time with the thinking of not wanting to miss out on the potential gains - seems just mad to me. Better to wait for a healthy correction and then enter the market when it stabilizes.

 

 

Just to play devil's advocate on this point:

Many of those people buying now are arguing that we just had a correction in the property market (2008) and that we still have at least 4-5 years of growth ahead of us before things stabilize or correct. According to them, we're only in the take-off phase now.

 

What be the counter argument for that?

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Just to play devil's advocate on this point:

Many of those people buying now are arguing that we just had a correction in the property market (2008) and that we still have at least 4-5 years of growth ahead of us before things stabilize or correct. According to them, we're only in the take-off phase now.

 

What be the counter argument for that?

 

Fred Harrison has written a detailed book showing how property cycles around the world generally follow an 18 year period. The top in Hk during the last cycle was July 1997, the real bottom was the SARS low in 2003. The Take-off phase started from there. I agree there could be a few more growth years before we hit the blow off top but we are not far away. People buying in now are taking on a lot of potential risk as we are getting late in the cycle.

 

I believe patience is the order of the day.

 

Read in the paper today that many Chinese firms can't get financing from the Mainland and are turning to Hedge Funds to help them meet margin calls. Some are borrowing at the extortinate rates of 60% per annum.

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Fred Harrison has written a detailed book showing how property cycles around the world generally follow an 18 year period. The top in Hk during the last cycle was July 1997, the real bottom was the SARS low in 2003. The Take-off phase started from there. I agree there could be a few more growth years before we hit the blow off top but we are not far away. People buying in now are taking on a lot of potential risk as we are getting late in the cycle.

 

I believe patience is the order of the day.

 

Read in the paper today that many Chinese firms can't get financing from the Mainland and are turning to Hedge Funds to help them meet margin calls. Some are borrowing at the extortinate rates of 60% per annum.

 

 

Fully agree, patience is golden. Still patience is a difficult thing to have in a place like HK.

 

One thing I have observed many times in HK is that the market is extremely quick to react (both to the up and down side). Things can all be chugging along fine, and just a slight trigger can send markets down in a matter of weeks.

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What I find strange though is that while many of the signals seem to be pointing to a correction, why are the property developers paying record prices at the land auctions? According to the newspaper articles, they claim that for those sites developers need to sell the units at higher than current market prices in order not to lose money. Surely these powerful and influentlial developers know more than we do about the current state of the market.... ????

 

I don't think the property developers have much more idea than others. Or certainly have no interest in undermining the market, regardless of their private thoughts.

 

The story of the Chinachem building in Repulse Bay highlights that.

 

Found this story about the building from 5 years ago.

http://www.asiasentinel.com/index.php?option=com_content&task=view&id=291&Itemid=32

 

Even after that article, it was unoccupied until maybe last year when it was converted to serviced apartments ("The Lily").

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Interesting article in today's Standard:

 

"Developers are introducing a deferred payment scheme and offering price discounts to lure potential homebuyers - as academics believe this is an indication the property market has peaked and is in danger of falling soon."

 

"All these new payment methods are indicating the property market is going to fall soon," said Chong Tai-leung, executive director of the Institute of Global Economics and Finance, at Chinese University of Hong Kong.

 

Full article:

http://www.thestandard.com.hk/news_detail.asp?pp_cat=30&art_id=111766&sid=32597249&con_type=1

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2icboki.gif

ccli_chart.png

 

Interesting to look at these two pictures side by side. I'm a long distance HK property owner with a luxury investment property on the island in mid levels near the new Azure building on Seymour Road. I post from time to time and follow this thread and the thread on Hong Kong Asia expat. I'm trying to hold my nerve and not sell atm like yellow tip as I also bought in 2008 and am sitting on a similar profit percentage 2/3's geared so in excess of a 150% return on equity. My target is to sell in 2012 but am aware property can correct very quickly and wipe out any theoretical equity gain in a matter of weeks.

 

My personal target on the Centaline idex is 113 we are at 99 now so another 15% or so up from here. Having studied Harrison and others there does appear to be a final blow off top winner's curse phase which to my mind we entered at the start of 2011 as much of the 2009 -10 rise was correcting the mid cycle correction of 2008. The current land sale prices fit with Harrison's theory that land is scarce and hoarded and rises before property and as land increases in value it is demanded by banks as collateral which in turn enables banks to lend more against it. At the end in winner's curse land increases almost vertically. Is this not we are seeing reflected in the premium of primary prices sought over secondary market values and the land auction results.

 

Harrison then desrcibes prices being tipped over by Interest Rates being increased causing loan defaults. This is where the HK market is hardest to call. Because HK govt has intervened in the market through imposing a tax on short term sales thereby reducing speculator purchases and demanding higher loan to values we have fewer speculators who might otherwise be unable to pay higher loan rates. We also have slowly rising HK mortgage rates but no evidence of rising US IR's with employment and housing trending down again in the US. Given this I think we may end up with a longer term cycle in HK than would otherwise be the case and adequate profits secured for the developers in the meantime. Key risk is China not the US in my opinion then.

 

FInal issue I think is what are you going to do with the money if you sell. As an investor I would be looking to hold in a mix of gold and cash until I could identify something better to do with the money. I would not buy back in to HK property as either the market ends up crashing and therefore you are looking at a long period to make your next profit by investing or its still rising in which case you are chasing the market up further.

 

Those two charts side by side say we are at the greed stage to me and some more inflationary policies in US and/or China will take prices higher still and yields into the impossible area of 2.5% or possibly even lower. At the moment my yield is 3% and that is with a 20% increase in my tenant's rent earlier this year. I

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I meant to add affordability is very stretched now a yield compression from 3% to 2.5% implies a further 15% increase or so in prices from here. That's how I call it. In 2007 I was lucky to sell an investment property in the spring in London. I did as yellow tip put it on around 10% above market prices and within 2 months the prices had risen and we were able to get full asking. Three months later Northern Rock happened and the market went into reverse. Unless rents can continue their rise I can't see how prices can keep going much longer and rents themselves must surely be capped by reference to salary increases and general affordability?

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Where do these predictions come from?

 

HK Property stocks have performed terrible this year.

 

There's hardly any movement in the secondary market due to unrealistic prices.

 

The HSI has been performing poorly lately.

 

Yet property prices will steam upwards another 14% by the end of this year??? :blink:

 

What am I missing here?

 

 

H.K. Home Prices to Rise Extra 14%: Credit Suisse

 

Hong Kong secondary home prices will rise a further 14 percent by the end of the year, Credit Suisse Group AG said, driven by a widening in negative real interest rates, a weaker dollar and buying by mainland Chinese.

 

“While there is risk of rising mortgage rates, we believe the extent is not likely to be significant enough to derail demand,” Cusson Leung and Joyce Kwock, analysts at Credit Suisse, wrote in today’s report. Transaction volumes in the secondary market remain “relatively sluggish” due to lack of available units for sale, they wrote.

 

The analysts said their top pick is Sun Hung Kai Properties Ltd. (16) for its “quality” commercial properties, followed by Cheung Kong Holdings Ltd. (1) and Sino Land Co. Developers are “suitable more for short-term trading given the uncertainty in 2012 and 2013 for which visibility is very low,” they wrote.

 

Source: Bloomberg

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Also remember a post of Dr. Bubb talking about property stocks acting as early indicators.

Cheung Kong peaked 1st Dec 2007 then bottom of property market Nov 2008.

Maybe Cheung Kong's peak was 14th Jan 2011, then bottom of market Dec 2011? Seems too fast to me, but possible I guess.

The peak in HK Property stocks was Long ago - and there has been a longer than normal time delay

 

The Builder bellwether is working better in the UK and the USA

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+ I try to analyze property markets within an 18 year cycle, which I have described elsewhere on this thread, and also on YouTube. It basically consists of 14 years up, and 4 years down - though these time frames can "morph" somewhat depend on the general economy and longer cycles.

 

 

Interesting Bubb, I'd love to get your take on the Irish property market. We had 14 years of rapidly rising property prices from 1994 - 2008, and we have had nearly four years of even bigger falls from 2008 to now. House prices have dropped between 40-50 percent since 2006 and are now back to 2001 levels. It has been argued that the falls have been so big because Irish banks are trying to reduce the size of their loan book and are not lending for property. The level of mortgage lending in Ireland fell from EUR 40 billion in 2006 to just EUR 2 billion in 2010 - that's a 95% drop in lending! So virtually the only buyers out there are the cash buyers who are bottom feeding. How much further do you think prices can fall?

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Interesting Bubb, I'd love to get your take on the Irish property market. We had 14 years of rapidly rising property prices from 1994 - 2008, and we have had nearly four years of even bigger falls from 2008 to now. House prices have dropped between 40-50 percent since 2006 and are now back to 2001 levels. It has been argued that the falls have been so big because Irish banks are trying to reduce the size of their loan book and are not lending for property. The level of mortgage lending in Ireland fell from EUR 40 billion in 2006 to just EUR 2 billion in 2010 - that's a 95% drop in lending! So virtually the only buyers out there are the cash buyers who are bottom feeding. How much further do you think prices can fall?

It is hard to make much of a comment without seeing long term charts going back 2-3 Long cycles.

 

You say:

"Falls have been so big because Irish banks are trying to reduce the size of their loan book ."

 

And that is the action that usually leads to the bottom - forced selling 3-5 years after the peak.

 

Even so, the lows might stretch to 6-7 years, or property might "bump along the bottom" for most of/ all of the first 7 years of the next cycle. We saw something like that in Japan after its long cycle peak.

 

/note: I will also post this on the Irish property thread

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From my friend's window in Kowloon:

Looking down on: One of the most expensive flats in Asia ?

LBIC-BirdsEye1c.jpg

 

A local agent has told me that the Flat under construction in the photo is being offered (by SHKP) at HK$50,000 psf.

 

That's:

+ US$ 6,400 per sf

+ GBP 3,900 per sf

 

Hong Kong property prices are mad. Let's see if the builder can achieve anywhere near that.

 

Until a few months ago, the most expensive flat ever sold in Asia was HK$45,000 psf

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From my friend's window in Kowloon:

LBIC-BirdsEye1c.jpg

 

A local agent has told me that the Flat in the photo is being offered (by SHKP) at HK$50,000 psf.

 

That's:

+ US$ 6,400 per sf

+ GBP 3,900 per sf

 

Hong Kong property prices are mad. Let's see if the builder can achieve anywhere near that.

 

Until a few months ago, the most expensive flat ever sold in Asia was HK$45,000 psf

 

Ahhh... Imperial Cullinan. The latest over hyped new property in Hong Kong.

 

The developer squeezed it on a small plot between The Long Beach and One Silversea. For most of the day, the building is entirely overshadowed by One Silversea. All apartments have their neighbors in very close proximity at One Silversea staring into their living rooms.

 

Still, SHK is going to charge such ridiculous prices. They actually are asking a substantially higher price than current market prices for apartments at the Cullinan above Kowloon station.

 

It just makes absolutely no sense for such a development at this location.

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Ahhh... Imperial Cullinan. The latest over hyped new property in Hong Kong.

 

The developer squeezed it on a small plot between The Long Beach and One Silversea. For most of the day, the building is entirely overshadowed by One Silversea. All apartments have their neighbors in very close proximity at One Silversea staring into their living rooms.

 

Still, SHK is going to charge such ridiculous prices. They actually are asking a substantially higher price than current market prices for apartments at the Cullinan above Kowloon station.

 

It just makes absolutely no sense for such a development at this location.

Imperial Culinan has a showflat (or model at least) in Shenzhen, which opened before the one in ICC

which opens next week, I believe.

 

You can see OSS in the photo - just to the right. It is taller than IC.

The "favored" Tower 8 of Imperial Cullinan is the one in the photo.

It has a "better" view some think, but mostly blocks LB, apart from my friend's flat.

Hong Kong Island is behind in the distance.

 

The rest of Long Beach will go on sale soon.

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Imperial Cullinan is now looking "cheaper!"

Acccording to reports today, a house on the peak sold at HK$96,000 per sf.

 

The LUXEHOMES section of today's SCMP says:

 

West Kowloon Rules

 

"West Kowloon has outperformed other luxury districts in price gains, according to Savills. The property consulting firm says prices in West Kowloon have surged 138.8 per cent since 2008, better than the second best performers, Happy Valley and Jardine's Lookout."

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HK Land sale misses record - site on HK Island : Borrett Road

 

Pre-auction estimates had been up to hk$ 15 Billion, a new record

 

The site comes with a Maximum Gross floor area of 435,292 sf, is below the fog lne, and offers panoramic views.

Cheung Kong won the auction at: HK$ 11.65 billion (= US$1.5 billion), that's HK$26,763 per sf, third highest on record.

 

"This is a super-luxury location", said Victor Li, CK's deputy chairman

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Imperial Culinan has a showflat (or model at least) in Shenzhen, which opened before the one in ICC

which opens next week, I believe.

 

You can see OSS in the photo - just to the right. It is taller than IC.

The "favored" Tower 8 of Imperial Cullinan is the one in the photo.

It has a "better" view some think, but mostly blocks LB, apart from my friend's flat.

Hong Kong Island is behind in the distance.

 

The rest of Long Beach will go on sale soon.

 

Yes, T8 will indeed offer a somewhat better view when looking in between OSS and IHV, but just look at the numbers:

 

The smallest 850sqf unit is estimated to sell between 20 and 25M. Probably slightly higher than those units at the Cullinan.

 

1. At those prices (more than twice the prices at OSS), do you really think there's much room for those prices to increase over the next few years?

 

2. The people that can afford to pay these kind of prices, do you really think they would accept living in a tiny 1 bedroom apartment at a sub-par location?

 

At some point, one would think we would reach a psychological breaking point where people just don't see the value anymore. Honestly, I think we already reached that point 8 months ago, but current levels are insane.

 

At one point I found myself seriously considering buying a 850sqf unit at IC. But then when I realized I'd be paying 2M Euro's for a super tiny apartment in a not very interesting location.... I quickly woke up.

 

Ps.

Judging from your post, it seems you're interested in buying? If so, please enlighten me. Perhaps I'm just being too pessimistic.

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HK Land sale misses record - site on HK Island : Borrett Road

 

Pre-auction estimates had been up to hk$ 15 Billion, a new record

 

Cheung Kong won the auction at: HK$ 11.65 billion (= US$1.5 billion), that's HK$26,763 per sf, second highest on record.

 

"This is a super-luxury location", said Victor Li, CK's deputy chairman

 

Funny enough, I was chatting with this mainland Chinese guy last night. Very sharp guy with an MBA from USA and a very wealthy family with strong ties to the Communist party (or so he said). Lives in GZ.

 

Anyway, he was in town for 2 weeks, looking to buy properties for his family here.

 

Obviously I asked him if he didn't think prices had already peaked. The confidence in his answer really took me by surprise.

 

He said it was very simple: The Chinese government would not allow the market to crash here (I've heard that one before), since so many politicians and influential people bought property in HK. Also, he said, there's so many people in China who dream of buying property in HK. That demand would continue to fuel HK property market for years to come.

 

He had absolutely no fear of a correction any time soon.

 

While my first reaction was that he was yet another brainwashed China guy with a very single sided view on reality. I can't help myself from thinking that perhaps we're all being too paranoid and pessimistic ... ???

 

I guess only time will tell...

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Ps.

Judging from your post, it seems you're interested in buying? If so, please enlighten me. Perhaps I'm just being too pessimistic.

LOL.

Aun contraire! More interested in selling. I own property nearby.

And I want to see how far these new developments will carry the valuation.

 

Actually, I think Long Beach represents the best value in relation to its neighbors, especially when you take into consideration the superb clubhouse, which has been voted one of the "Top 10 Best" in Hong Kong.

 

The confidence in his answer really took me by surprise.

 

He said it was very simple: The Chinese government would not allow the market to crash here (I've heard that one before), since so many politicians and influential people bought property in HK. Also, he said, there's so many people in China who dream of buying property in HK. That demand would continue to fuel HK property market for years to come.

 

He had absolutely no fear of a correction any time soon.

I'm with you - I think he is nuts.

 

It was the mainland Chinese who sold in panic in West Kowloon in late 2008, and made the area "ground zero" in the 2008 property crash.

But they are good and useful buyers. If my place goes for my target price or higher, it may be thanks to a mainland buyer, possessing the sort of confidence you have described.

 

But - who knows - maybe I am the one who has it wrong.

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"Collections" coming to Hong Kong

==========

 

All the stuff that is overpriced, and cannot be sold elsewhere is finding its way to Hong Kong

 

This week, or next, we see :

 

+ The London Collection,

 

+ The Vancouver Collection

 

+ Various other "opportunities" in KL, and Melbourne, Australia.

 

 

Friends tell me that those other markets have peaked, and I find it a bit insulting that the agents think they can sell overpriced "collections" now in Hong Kong. Better leave your checkbook at home !

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