The State of the Hong Kong Property Market (6)

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Posted by oldmanlowski (733 days ago)

Hong Kong is a unique property market that is unlike almost any other for several reasons. Just because people might not be gambling on buying right now, doesn't mean prices are going anywhere. Hong Kong owners tend to be pretty strong-willed (and greedy), and will not sell if they are not getting the price they want. That changes if they must sell, but as we've seen from data numerous times Hong Kong property owners have more savings and smaller outstanding mortgages than owners in most markets. If jobs start being lost that can change, but where are they going? Downsizing? Surely that on a mass-scale would result in huge demand and buoyed prices at the lower end?

I'm no investor and maybe I don't understand the wider picture well enough to speculate like this, but as far as I can imagine if this mega global doom spiral that many say they are seeing happen right now actually happens, Hong Kong property would not be the worst place to have your money. Yes, HK property may well be affected, but is it not true that the majority of other options would see equal or worse effect?

The way I see it, Hong Kong property has two key things going for it:

1) Everyone needs a roof over their head. The world economy might slow down in a disater-like manner, but people still need housing. Hong Kong is a market short (supposedly) on supply, in the midst of a continent that is set for big economic growth (relative at least) one way or another, with fantastic infrustructure, and also with a legal and banking system based on Western standards.

2) The Hong Kong Government is the most fiscally healthy government in the developed world. Not only does it have zero sovereign debt, it actually has a big surplus. This help paint a stable and safe picture of Hong Kong.

In the disater scenario it can't be the worst option surely?

On a side note, I'd like to add that Shenzhen is NOT cheap. Prices are not far behind Hong Kong. I've even been told several times prices are higher in certain comparable areas (whether it is right or not I don't know). If a place as corrupt , scary and difficult to invest in as China can be so close to Hong Kong prices... then HK looks like a bargain to me! Unless the China market bursts, it will surpass HK in the blink of an eye when it's had its soft landing, and then as a foreign investor or company where would you rather invest or set up, especiall if you consider that all the the time it is getting easier and easier to do business between HK and China Mainland.

Posted by xpatwilier (728 days ago)

Hi Ed

I actually do read what you write and I actually enjoy the discussions on this forum.

Which of my arguments is weak?
- that QE does not drive HK property prices?
I actually agree that QE is one of the factors driving prices up. However, I also place it in the context of low leverage for property in HK, which provides a stronger foundation against panic selling. It also means that for the next few years, interest rates will remain low, which further alleviates pressure for people to panic sell. So we do have a perverse situation which few people have seen in their lifetimes. Perversity does not mean imminent disaster however.

- that the global economy is not 100% addicted to money printing?
I don't think you should over generalize. Many HK people I know are not reliant on cheap money for flat purchases. The middle class friends each have only one (or two properties) and are not aggressively hoarding a portfolio. In the UK, my friends could get 110% mortgages and hardly had enough money to make the down payment.

- that if the property market falls the value of your property falls even if you don't sell it?
During Lehman, the headline low prices were not representative of the general market. For a true property market fall, you need high volume AND high drops to show that this reflects the market in general. In fact, I have not followed property recently as I find the yields too low. However, it is clear to me that prices in middle class areas like Tai Koo are very firm and asking prices have actually gone up recently. Based on your argument of mark-to-market, we would actually be doing better now!

- that QE could continue to drive HK property prices higher?
This is likely... I agree this will happen.

- that recessions in HK's biggest export markets are a huge risk for our economy and could drag down our property market?
I also agree, but there needs to be a cycle of recession --> foreign businesses leaving HK --> mass unemployment --> failure to pay mortgage financing, etc. for there to be a massive property plunge. As always, timing is everything. I don;t think that we are at that stage of the cycle yet.

- that China has 65 million empty apartments which suggests a very dangerous situation?
Please don't treat China as one entity. There are massive differences between regions in China. Different local government policies and definitely different growth dynamics at play, etc. In Western China, e.g. Chongqing, there is a massive demand for urban housing, estimated at 500K to 1M migrants into the urban area per year. Just because some town near Mongolia is a ghost town does not represent China as a whole. Similarly, talking about Northern England and London as if they are the same English area is flawed.

Where are most professionals heading nowadays? To China and Asia. I have many friends who are moving to HK/China because their companies feel that growth in UK, Europe, Ireland is non existent and are aggressively setting up branches here.

Of my friends, who stretch from lower to higher middle class, not one is overstretching themselves. For the poorer friends, they are resigned to renting; the middle class ones own their flats outright or substantially; the upper class ones have properties already, ALOT of cash ready and have ceased to buy at these high levels. So it seems that the whole situation is in a stalemate with no pressure on sellers to bale out.

And that's what you need for the market to crap out. Forced selling at high volumes through fear or inability to pay...

Posted by yellowtip (722 days ago)

Hi everybody,

I sold my property a little over a year ago, made a big chunk of cash, and then started renting.

As so many at the time, I was expecting the market to correct so decided to play the waiting game...

So far the waiting game hasn't paid off and after a small dip in prices, they have started rising again.

In short: I'm back to where I was a year ago.... and a little over year worth of rent lighter. Honestly, I have no regrets, as I rented cheap and consider it an insurance expense for averting risk.

Having said that, I don't want to be renting forever, so time to reevaluate the situation. I've listed some of my observations below. Please feel free to comment.

The good:

- The HK property market seems pretty strong at the moment. Resilient against the troubles in the US and Europe and with a very healthy mortgage market (40%-50% mortgages seem to be the norm). Definitely no sign of a credit bubble here.
- More and more people seem convinced that all the money printing going on in US and Euro is actually helping to inflate property prices in HK (safe haven for wealth?), so with a very high likelihood of more money printing in US and Euro in the coming few years, and low interest environment, things seem to look very good for HK property (?).
- CY Leung seems to be doing everything he can to avoid any kind of correction in the property market. He'll likely keep the current mortgae requirements in place, add a bit of HOS to the mix, but I suspect he'll leave it at that.
- The supply of new housing seems to be very tight, so demand is likely to continue to outpace supply.

The Bad:

- I do quite a bit of business with mainland companies, and please believe me when I say that they are hurting. Their share prices have been eroded in the past year and their sales pipeline is looking meager. The kind of deals and discounts we're able to get from them is AMAZING... all pointing to the fact that these Chinese companies are pretty desperate for business at the moment. Of course, these very same companies and their government maintain their almost psychotic story of strong growth and crazy profit forecasts, but reality is that many of them are losing money.
- Before,during and even after CNY this year, I could barely walk through Canton rd. in TST. It was so over crowded with mainland shoppers that I avoided going there like the plague. I've been there several times in the past few months, and things almost seem quiet. Sure, there's still shoppers, but I can now comfortably walk, sales people are willing to help non-mainland shoppers again and I can easily get a taxi.
- All eyes are focused on the Euro crisis now, but things in the US are far from solved. The Euro governments are printing, lying and deceiving like crazy to try and prevent a breakup. In the US the same is going on to boost voter confidence for the presidential elections. I still believe that China *heavily* depends in exports to these economies for its own survival. I for one don't subscribe to the idea that China's internal demand is in a position to counter a severe drop in exports.

The Ugly:

- While many believe that HK people have confidence in the property market and are starting to buy again, I have come to know them in a slightly different way. HK people are not as stone cold as their counter parts on the mainland think they are. HK people in the property market like to play the game of chicken. When the first person blinks (buyer/seller), the rest quickly follows. The problem is that there haven't been any major blinking events to drive the market sharply either way. This explains the still historically low transaction volumes (they have gone up recently, but are historically still very low) and relatively stable prices (between 12 months ago and today, prices I have been tracking have remaining more or less the same, but currently in a continuing upward trend).
- So to me, the big question is, what could potentially be a major blinking event? I see two:
- Upward: The US and Euro continue their path into a depression, but China's internal demand (by some miracle) is able to support the economy and related GDP growth. Honestly, I see this as unlikely.
- Downward: As the US and Euro continue their path into a depression, China experiences a shock as internal demand is not strong enough to support the economy. When this happens (if it hasn't started already), at some point, mainland Chinese people need to repatriate their money in order to keep their business going / pay off their dept. I read somewhere that there are approximately 245K empty apartments in HK (mostly owned by Mainland people). If these were to suddenly come onto the market, you have the perfect blinking event: massive supply of apartments suddenly comes onto the market. Very likely at or below market prices. I fear that this could trigger a massive sell-off, taking the market down a good 30+ %.

So gentlemen, please load your guns and start shooting. Am I missing some critical angles or facts? Is my downward blinking event very unlikely to happen, or am I stating the obvious?

Just to make the story complete, I have enough cash to make a 40-50% down payment (depending on the price of course) and a stable job. Will buy if it makes sense, but don't want to buy at the top of the market.

Posted by yellowtip (722 days ago)

Elsdon,

The HKD-USD Peg is a very interesting one. I fear however that for the same reasons you state it will negatively impact the property market, it will very likely not happen in the short term. Personally I see this happening perhaps in 10 years time with some kind of migration mechanism. The only reason I can see why this would happen earlier is if the US would go into a total meltdown, resulting in a massive depreciation of the USD. The US would rather start a big war before it would let that happen ;)

I totally agree with you that most property owners in HK are not billionaire investors. It's the average working Joe that needs two salaries and alot of hard work to make the mortage payments. The same average Joe is borrowing heavilly these days from friends / family / loan sharks to make the 30%-40% deposit. Still I don't see a serious rise in interest rates appearing any time soon. This current low interest rates should continue for the next couple of years at least.

What I feel people like Ed often underestimate in HK is the psychology of the masses. While most people in Hk are living in their home, they are also speculators at the same time (the SSD does NOT change this dynamic). When there's a buzz that people are buying again (as is the case today), everybody feels that itch of being left behind and starts to look for buying opportunities (yes... I too feel a slight itch). For the same token, when there's a downward blink event... people often fall over each other to sell their properties in a hurry. Not because the fundamentals have suddenly changed, but because everybody around them seems to be selling. All this behaviour is always heavilly fueled by property agents looking to earn a quick sales comission.

I always find it interesting when people say that in 2008, while prices went down, people simply weren't selling. Well... the middleclass building I was living in at the time, there was plenty of panic selling going on. I also heard that Kowloon station had a major sell-off at the time.

To me, it's that high potential for downward blink events...and low potential for upward blink events that makes me extremely hesitant to pull the trigger on a new apartment pucrchase...

OTP,

The downsizing suggestion is definitely something I am considering. I did it already for my rental this past year (am living in a tiny 675ft apartment), and will indeed consider it as an intermediate purchase.

Posted by traineeinvestor (720 days ago)

OffThePeak - apologies, but I have to very strongly disagree with the suggestion that the banking industry "benefits from special privileges" - sure there are some things that banks can do that no one else can do (like take deposits) but that is no different from saying doctors or lawyers benefit from special priviliges and therefore should pay a higher rate of tax than everyone else. We don't want unregulated persons to have the right to take deposits any more than we want unqualified people being able to call themsleves doctor and practice medicine. Both groups pay a very high price for their "special privileges" - banks are required to have huge amounts of capital and pay deposit protection insurance (among other things) and doctors are required to spend many years studying and training before being allowed to run amok with the surgical tools. Similar comparisons can be made for other industries. Historically, special/punituve taxes always have predictable and negative consequences - some recent examples are the mining tax introduced in Australia which has already seen several projects put on hold with consequent loss of job opportunities, France's refining tax (which looks set to result in loss of jobs, increased imports and lower tax revenues for France) and the UK's higher stamp duty on properties valued at more than GBP2 million (recently reported as producing lower revenue because it resulted in fewere transactions). Going back a bit further, the Bush senior's very popular taxes on the rich in the form of special taxes on various luxury items such as boats resulted in a collapse of the local boat building industry with consequent loss of jobs, loss of tax revenue and increased imports. The list is endless.

As far as assymetry is concerned, there is a degree of truth in what you say but (and it is a very big but) the same is true of every industry. Lots of industries and non-banking companies pay big bonuses (not just banks) and there is no clawback there - only waiver in bad years in some cases. In fact, the banking industry is already better in this respect than many others - they already do a three year vest (which means the vesting conditions have to be satisfied for at least two years for them to collect everything) - I'm not aware of any other cases where a vesting schedule for bonuses is used on a widespread basis.

Incidentially, there have been reports which show that the three most overcompensated groups of workers (in the US at least) are (i) government workers (ii) bankers (loosely used to apply to the finance sector generally) and (iii) CEOs. As far as the latter two groups are concerned, it really should be up to shareholders to reign in the excesses. As far as government workers are concerned, something clearly needs to be done - it wouldn't surprise me to learn that the excesses of the civil servants over the years cost us far more than any bank bail out.

In terms of making the banks accountable, we should bear in mind that most of the large failures in the US which resulted in public funds being put on the table did not involve banks - Lehman, Bear Stearns, AIG, LTCM etc - almost none of them were banks. This is unlike the bailouts of the 1980s when banks like Citigroup and Bank of America needed support. So calls to reintroduce selected parts of Glass Stegal are not supported by history. The simple solution to bank regulation is (IMHO):

1. back stop for small and medlium depositors - if a bank goes under they get repaid in full up to whatever level is set (currently too low in my view). This is paid for by a levy on the banks (as at present). The big boys can look after themsleves - and this serves the useful role of keeping the moral hazard on the table

2. adequate collateral for all advances - this would vary depending on the underlying asset (Basel III, HK's FRR etc. The bottom line is that "skin in the game" is important

3. additional haircuts for both secured and unsecured advances to non-banks with more than a certain amount of leverage. Leverage would take into account non-nettable derivative positions - this would make it much harder for situations like Lehman to arise again. If we get the regulations right, it would simply become too expensive to lend to a company that was geared 40:1

4. there would also be protection for customer assets which are or should be in segregated accounts (e.g. securities in a broking account). In theory we have this now but as MF Global showed, there are gaps here

5. governments would have the right to step in and buy assets at agreed values - the reason we need this is to prevent a domino effect whereby forced liquidation of the assets of one institution places pressure on others (as happened in the Great Depression). There would be a similar step in ability for clearing and settlement of obligations

6. oherwise if a bank goes down, the chips fall where they may. Shareholders, tier 2 and subordinated debt holders and employees would take the first (and biggest hits). In effect these are the people who run the banks - if they want to gamble with they capital, let them.

Posted by traineeinvestor (720 days ago)

Again, I'll have to diasgree with some of what you are saying - the medical profession get huge handouts from taxpayers in most countries either directly or through subsidies paid to patients and pharmaceutical companies. I haven't looked it up, but I would wager a cold beer or two that the medical profession (broadly defined) gets far more from taxpayers than the banking industry ever did and my a pretty massive margin. The same can be said for education, law, and several other industries. A fair chunk of the taxpayer's money ends up inflating the incomes of people who wrok in those industries above what they would be without the taxpayer support. The difference is that some industries get it continuously (and we don't complain too much) and some banks only get bailed out once in a generation or so.

If a teacher, a lawyer, a doctor, a civil servant or anyone else does a bad job they still get to keep the money they earned from doing that bad job even though they failures may have cost children a decent career, a client their freedom, a patient their life etc. Why should everyone else get a free ride and not the bankers?

As to abuses, it is beyond debate that some bankers have committed acts of folly (rarely criminal) and have effectively been paid for doing so. The same is true of many other people - most of all the regulators and civil servants. If we want to penlise people who mess up, let's be fair and penalise everyone on the same basis.

Banks being run for the benefit of the banksters? This is often depressingly true, but it is not confined to the banking industry. Look at all the overpaid CEOs and the overpaid civil servants. If we are going to get mad at people who should be looking after their stakeholders (and we should) we need to treat everyone in the same way. Selectively bashing some members of society and not others because it is popular or people are angry is a very bad precdent - it's no different from any other tactics used by politicians and hate mongers throughout history to set people against each other to further their own agenda.

Looks like SCB is about to be the latest victim of America's political witch hunting industry. God only knows what the rest of the world puts up with some of the $%*#@ comming out of Washington.

I'm going to sign off on my participation on this issue here - I don't think there's much more to add to what has been said and we seem to have strayed quite some distance from " the state of the Hong Kong property market"

best
traineeinvestor

Posted by OffThePeak (720 days ago)

Elsdon,
I do think that bankers do benefit society, but only if they limit their role to providing service to it, rather than acting as predators.

I think Kevin Philips came up with a good measure. He said that when finance represented 15-20% of total profits, it was probably behaving in a healthy way, not over-stretching. In 2006-7, I think that financial co's made 33% of S&P500 profits. And that was indicative of predatory behavior, and financing speculation. Shortly after that, the property market and the stock market collapsed.

Bankers are overpaid, certainly. And so are Doctors and Pharmacists in the US. The American medical system is badly in need of over-haul. So is Defense, and the American living arrangement. These four areas are draining a huge amount of wealth from the US Middle Class. And Americans are brainwashed to keep them ignorant of these rather obvious facts.

This was discussed in two articles from last year:
08/24/2011 - Part 1 : http://www.financialsense.com/contributors/dr-bubb/2011/08/24/america-has-huge-holes-in-its-pockets
08/31/2011 - Part 2 : http://www.financialsense.com/contributors/dr-bubb/2011/08/31/america-has-huge-holes-in-its-pockets-part-2
EXCERPTS:
Holes in American Pockets: The biggest hole - Health care

I believe there are four big holes in the pockets of most Americans. Through these holes wealth is draining away, and that wealth drain is severely hampering the US economy, and preventing it from growing. Some of the holes are contained within the Federal budget, and some are in the personal expenditures of individual Americans. Hundreds of billions, or even trillions, of dollars are being lost each year in wasteful, non-productive expenditures. Fortunately, the drain represented by this malinvestment could be reduced if the nature of the excess spending problem was better understood and intelligently addressed. In fact, it will be nearly impossible to properly manage the US debt problem without simultaneously addressing the chronic wasteful spending which is making Americans poorer each year.
. . .
In a few words: American doctors are paid more, they require more procedures for their patients, and they prescribe more expensive branded drugs. This happens partly because doctors are incentivized by drug companies and equipment manufacturers to behave this way. Generic drug makers spend little time and money promoting their cheaper drugs to physicians. Big pharma is constantly promoting the relative advantages of their branded drugs. Doctors naturally want to minimize possible lawsuits from litigious US patients. And if branded drugs appear to have fewer side effects, and more procedures reduce the risk of a mistaken diagnosis, then many doctors will take the easier path, without thinking a minute about how that increases costs for taxpayers. Congress does nothing to stop this reckless spending, because they too are beneficiaries of pharmaceutical company contributions, and are heavily visited by lobbyists from the drugs and insurance industries. And of course, the lawyers have their lobbyists too. Within Washington, there are 35,000 registered lobbyists, and that number has doubled in the last five years. As Bill Moyers has put it: "Amazingly, in Washington, there are approximately 65 lobbyists for each member of the House."

(Americans are brainwashed to not know and not care about these outrageous matters, so I suppose they deserve to have their wealth drained until they wake up - And that is an important reason I have continued to stay away: I am not a sleepwalker.)

Posted by naseerhk (714 days ago)

(China Daily, August 10, 2012)Rising supply and anticipated interest rates hikes are likely to put downward pressure on housing prices by 2015, according to international property consultant Cushman & Wakefield.

The number of new homes completed in Hong Kong is on an overall upward trend in the next few years, from the estimated 11,890 units in 2012, 14,930 units in 2013 and 12,500 units in 2014, and is likely to peak at around 25,100 units by 2015, said the property advisory.

“Given that interest rates are also expected to hike up from 2014, it will impose pressure on property prices in Hong Kong combined with the substantial increase in home supply at that time,” said Vincent Cheung, national director of Valuation and Advisory Service of Cushman & Wakefield.

“Developers, however, will likely adjust the supply by postponing the launch of new properties accordingly to counter the pressure,” Cheung told at a media briefing on Thursday.

But the near-term home prices in Hong Kong are unlikely to stay in line with the advisory’s previous forecast on the market. In January 2012, Cheung told China Daily in a telephone interview that property prices in Hong Kong had reached a deadlock, and were expected at the most to decline by 15 percent in the mass market this year.

According to the data released by Cushman & Wakefield on Thursday, home prices in Hong Kong gained 6.6 percent in the first half of 2012. Cheung says prices will stay flat for the rest of the year, estimating that they would increase by an overall 6.9 percent in the mass market this year from a year earlier.

Despite home prices remaining firm in the city, transaction volume in the first half has declined over 22 percent over last year due to the market’s lukewarm sentiment. But since the new Chief Executive took office last month, the market turned warm again, with transactions climbing 8 percent in July over the same period in 2011, according to the property advisory.

Rents, however, only expanded 4.0 percent over the first six months, at a slower pace compared with the home prices in Hong Kong.

“It added pressure to rental yields”, Cheung said. “We anticipate the home price growth to moderate in the second half of 2012 while rents achieve sustained growth — which is likely to grow at an overall 5.6 percent for the full year, causing yields to rise by 3 percent,” said Cheung.

In a Knight Frank report released on Thursday, the firm said the residential market sentiment “weakened further over the past month”, as the secondary market remained quiet while primary sales rebounded.

“We expect luxury residential prices to drop by up to 10 percent over the next 12 months, while mass residential prices could drop by up to 15 percent during the same period,” said the report.

Deutsche Bank said in June that property prices in Hong Kong “may fall as much as 20 percent in the next 12 months” as the supporting pillars for the residential market over the past two years are weakening.

(The Standard, August 9, 2012)Shop rents skyrocketed as many international brands squeezed into prime shopping districts such as Central, Causeway Bay and Tsim Sha Tsui. This has triggered a trend for relocation, with top brands starting to move north in search of cheaper rents and closer proximity to well-heeled mainland customers.

For example, Prince Jewellery & Watch Co is paying monthly rent of HK$2.5 million for a few hundred square feet at its Causeway Bay location on Russell Street, according to market sources.

In comparison, its newly leased 6,000-square-foot premises at Landmark North in Sheung Shui will only cost about HK$1 million per month.

So it is small wonder well-known retailers have been branching out to shopping malls in Tai Po, Yuen Long, Tuen Mun and Sheung Shui.

Kitty Yau Yuen-ling, assistant sales director of the Hong Kong commercial department at Centaline Property Agency, said rents in Central have risen to nearly HK$1,000 psf.

"Some shop owners double rents during contract renewal, which scares a lot of tenants," Yau said. "The market situation in the retail sector has worsened this year, and the consumption demand of individual visit scheme tourists is low. More international brands may choose to relocate their stores rather than renewing their contracts at their current locations.''

Swedish apparel chain H&M's flagship store, opened in 2007 on Queen's Road Central, is to be replaced by the Spanish clothing brand Zara.

H&M will close its shop there after the fall next year due to soaring rents. The Wall Street Journal reported that Zara will take over the 30,000-sq-ft space for US$1.4 million (HK$10.92 million) per month - double what H&M now pays.

Meanwhile, various brands have made their way into malls near the border, where facilities such as Tai Po Mega Mall - the area's largest with nearly 600,000 sq ft of retail space - are aggressively changing their tenant mix to attract both local customers and big- spending mainlanders.

French brand agnes b plans to open an agnes b Delices chocolate shop this quarter, followed by a Sport b casualwear outlet at the end of the year.

Bourjois Paris, Crabtree & Evelyn and The Body Shop are among the personal-care product and cosmetic brands in the mall, developed by Sun Hung Kai Properties (0016).

Frequent shopping tours are organized to lure thousands of residents from Shenzhen, Dongguan, and Guangzhou, who are expected to spend HK$4,500 to HK$8,000 per person.

Maureen Fung Sau-yim, Sun Hung Kai Real Estate Agency general manager for leasing, expects pedestrian flow to rise 10 to 15 percent to 77 million at Tai Po Mega Mall, with sales revenue climbing 12 to 15 percent year-on-year to HK$2.6 billion.

"There is great potential for the shopping malls in the New Territories to develop. A larger customer base can be achieved, as the shopping malls improve their tenant mix and increase various tourist-based promotions,'' Fung said.

At Yuen Long Plaza, another SHKP development, 15 new tenants - including jewelers, audio/visual, and personal-care product retailers - have been signed up this year to tap mainland customers. The mall has even partnered with Kowloon Motor Bus to provide free rides between Yuen Long and Shenzhen for shoppers spending HK$400 or more.

Fung expects pedestrian flow at Yuen Long Plaza to reach 47 million for the whole year, up 10 to 15 percent from last year, with sales revenue jumping 12 to 15 percent to HK$700 million.

At Sino Group's Tuen Mun Town Plaza, H&M, Zara and Lancome have recently opened stores, with Rolex, Tudor, NSK, Estee Lauder and Marks & Spencer following suit later this year.

Tuen Mun Town Plaza has always been well-patronized by mainland customers under the individual visit scheme, as the mall is only a 15-minute drive from Shenzhen Bay Port, said Ronnie Chan Yam-ling, general manager of Sino Property Services.

In the second quarter next year, SHKP will open a new shopping mall atop Tuen Mun West Rail station, named V City.

"Various renowned tenants and brands have signed contracts with us, with 80 percent of the brands making their initial presence in Tuen Mun, such as agnes b and Haagen-Dazs,'' said Jimmy Wong Chin-wah, executive director of Sun Hung Kai Real Estate Agency.

Landmark North - another SHKP development - recently saw five international watch brands interested in leasing retail space.

"We want to expand our sales network outside Central, Tsim Sha Tsui and Causeway Bay, to make shopping more convenient for mainland customers, who make up 80 percent of all our customers,'' a Prince spokesman said.

"As a lot of potential customers live in Shenzhen Nanshan district, we will gradually develop our network in the New Territories in the future.''

Shop rents skyrocketed as many international brands squeezed into prime shopping districts such as Central, Causeway Bay and Tsim Sha Tsui. This has triggered a trend for relocation, with top brands starting to move north in search of cheaper rents and closer proximity to well-heeled mainland customers.

For example, Prince Jewellery & Watch Co is paying monthly rent of HK$2.5 million for a few hundred square feet at its Causeway Bay location on Russell Street, according to market sources.

In comparison, its newly leased 6,000-square-foot premises at Landmark North in Sheung Shui will only cost about HK$1 million per month.

So it is small wonder well-known retailers have been branching out to shopping malls in Tai Po, Yuen Long, Tuen Mun and Sheung Shui.

Kitty Yau Yuen-ling, assistant sales director of the Hong Kong commercial department at Centaline Property Agency, said rents in Central have risen to nearly HK$1,000 psf.

"Some shop owners double rents during contract renewal, which scares a lot of tenants," Yau said. "The market situation in the retail sector has worsened this year, and the consumption demand of individual visit scheme tourists is low. More international brands may choose to relocate their stores rather than renewing their contracts at their current locations.''

French brand agnes b plans to open an agnes b Delices chocolate shop this quarter, followed by a Sport b casualwear outlet at the end of the year.

Bourjois Paris, Crabtree & Evelyn and The Body Shop are among the personal-care product and cosmetic brands in the mall, developed by Sun Hung Kai Properties (0016).

Frequent shopping tours are organized to lure thousands of residents from Shenzhen, Dongguan, and Guangzhou, who are expected to spend HK$4,500 to HK$8,000 per person.

Maureen Fung Sau-yim, Sun Hung Kai Real Estate Agency general manager for leasing, expects pedestrian flow to rise 10 to 15 percent to 77 million at Tai Po Mega Mall, with sales revenue climbing 12 to 15 percent year-on-year to HK$2.6 billion.

"There is great potential for the shopping malls in the New Territories to develop. A larger customer base can be achieved, as the shopping malls improve their tenant mix and increase various tourist-based promotions,'' Fung said.

In the second quarter next year, SHKP will open a new shopping mall atop Tuen Mun West Rail station, named V City.

"Various renowned tenants and brands have signed contracts with us, with 80 percent of the brands making their initial presence in Tuen Mun, such as agnes b and Haagen-Dazs,'' said Jimmy Wong Chin-wah, executive director of Sun Hung Kai Real Estate Agency.

Landmark North - another SHKP development - recently saw five international watch brands interested in leasing retail space.

"We want to expand our sales network outside Central, Tsim Sha Tsui and Causeway Bay, to make shopping more convenient for mainland customers, who make up 80 percent of all our customers,'' a Prince spokesman said.

"As a lot of potential customers live in Shenzhen Nanshan district, we will gradually develop our network in the New Territories in the future.''

(China Daily, August 9, 2012) China won’t relax housing curbs until the health of the industry improves, according to Yu Liang, president of China Vanke Co, the biggest developer by market value traded on the nation’s exchanges.

The government controls to cool the property market won’t be relaxed soon, Yu said during a press conference in Hong Kong.

The developer reported on Monday that first-half profit climbed 25 percent as the company cut prices to boost sales amid government controls.

“For the central government to begin relaxing the measures, the industry must first return to a healthy state,” said Yu. “I don’t have a definite answer for when that will happen.”

Separately, Shanghai Securities News reported that an unidentified government ministry official suggested on Wednesday that China will be able to expand property market controls if home prices rebound.

The government may further tighten property lending and increase land supply, speed up a property tax trial, as well as expand home purchase restrictions, the newspaper cited an unidentified official as saying.

(China Daily, August 7, 2012) Residential property prices have climbed up 10.7 percent year-to-date (YTD), with transactions also up on improved investment sentiment. I believe government policy will continue to focus on demand as local end-users are still driving the market.

Looking into the second half of the year, slowing economic growth may bring down office rents and residential prices, yet residential and retail rents are likely to remain buoyant due to the home owners’ reluctance to sell and the global retailers’ expansion in the city.

The government’s efforts to boost home supply over the past couple of years seem to be showing some effect, with overall private housing supply increasing. Housing supply accelerated in the second quarter of this year, bringing the YTD figure to 10,200, almost equivalent to the full year’s number of 10,300 in 2011.

However, the YTD housing completion figure of 2,300 is only about 24 percent of the full-year figure of 9,400 units in 2011, representing only 19 percent of the government’s forecast of 11,890 units for 2012, a sign that the housing completions will be faster in the second half of the year than they were in the first half. As such, private housing supply should remain healthy in the second half.

While the city’s home prices are hitting record highs, the waning domestic economy and uncertainty over the new administration’s policy direction could limit the upside for home prices. In this environment a 5-10 percent correction in home prices would be reasonable. However, a sharp decline in prices is unlikely as current home owners are still on low mortgage rates.

Over in the office market, further downside pressure is expected on grade-A office rents due to rising unemployment that may have a latent impact on GDP growth, possibly resulting in financial sector layoffs in the first half of 2012, as well as the relocation of large-sized multinational companies or professional firms from Central and other core business districts in Hong Kong to areas outside the CBD. These factors are likely to weigh on office demand causing vacancy rates for grade-A offices to rise.

Meanwhile, retail rents are supported by international retailers’ expansion in the city. Despite the moderation in both retail sales and rents due to slower spending by mainland visitors, especially on luxury products, global retailers remain optimistic and show no signs of delaying their expansion plans here. As a result, retail rents are expected to rise 15 percent in 2012 versus the 30 percent increase last year.

(The Standard, August 6, 2012) The government plans to provide more than 60,000 public housing and Home Ownership Scheme flats in the next few years in a bid to maintain a healthy property market, the financial secretary said.

``The flats to be launched are expected to balance demand and supply in the short term,'' John Tsang Chun-wah wrote in his blog yesterday.

He said the government is also looking at turning industrial areas into residential use. A plot in Sha Tsui Road, Tsuen Wan, was recently rezoned for public housing and is expected to provide 860 flats by 2016.

``The demand for industrial buildings is declining as Hong Kong shifts its economic model. Those areas are ideal for residential projects,'' Tsang wrote.

His message echoed that of Chief Executive Leung Chun-ying, who over the weekend reiterated his commitment to resuming the HOS, saying the plan was ``inked in bold characters'' in his election manifesto.

Leung last week said the government is looking for new sites for HOS homes. This came after his promise last month that up to 5,000 white-formers - first- time home purchasers meeting the household income limit of HK$30,000 a month - will be allowed to buy HOS flats without paying a land premium.

That immediately pushed up transaction volume and prices of small- and medium-sized flats.

``New HOS homes will be launched in 2016 or 2017 at the earliest, which can provide 17,000 units in the first three years, or 5,000 units per year, '' Secretary for Transport and Housing Anthony Cheung Bing-leung said on Saturday.

He expects speculation on HOS flats to ease as the new supplies come in.

But Cheung Kong (0001) and Hutchison Whampoa (0013) tycoon Li Ka- shing has voiced reservations about expanding the HOS supply, as real estate is a major contributor to government revenue.

``There is demand for HOS homes from the middle class, but the government will decide whether the [increased supply of] subsidized homes goes against Hong Kong's housing policy,'' Li said on Thursday.

However, Leung defended his HOS policy, saying the sale of these flats is also a source of government revenue.

Meanwhile, Tsang said the territory should make use of sites atop and near MTR stations to build more homes.

``Great synergy will come into effect by combining railways and homes,'' Tsang wrote, noting that several sites in the Tsuen Wan West Station area can provide a total of 6,000 units.

MTR Corp (0066) relaunched the tender for its Tsuen Wan West Bayside residential development last month after suspending it in January when bids missed the reserve price. Rebids are being accepted until Wednesday.

Tsang also said the government is considering a total of 2,500 hectares for residential projects, about 10 percent of of the SAR's already developed land.

Posted by Ed (713 days ago)

Better GDP figures? So Germany 'grew' .3% instead of .1%... the EU overall shrunk 0.2%... If that's positive news then I'd hate to see negative...

Here's a reality check re: the EU which is slowly sinking into the mud...

Stop Fooling Yourself... NO Entity On Earth Can Stop This
http://www.zerohedge.com/contributed/2012-08-14/stop-fooling-yourself-no-entity-earth-can-stop

The Financial Decline In Europe Continues

As Industrial Production falls -0.6% in Europe and as the economy shrinks -0.2% there is once again a good reason to pause to consider the ramifications for this going forward.

As part of the data release this morning Germany and France did somewhat better than expectations but it was fairly marginal while the rest of the EU-17 continues to be mired in difficulties.

Overnight LCH increased the margin requirements for both Spain and Italy as the banks of Spain keep increasing their borrowings at the ECB which is now at an all-time record.

More troubling perhaps is the recent release of data from Italy which showed that their sovereign debt had ballooned to $2.437 trillion and the trajectory is more than troublesome. In 2010 and 2011 Italy’s debt was expanding by $7.90 billion per month but in 2012 Italian debt has increased by $11.73 billion per month for a projected $141 billion by the end of this year. In fact the Italian economy is shrinking by about -2.5% while their debt is growing by 5.8% which is the baseline for an unsustainable situation if these trends continue.

To make matters worse Italy’s Industrial Production is down -8.2% from a year ago and down -1.4% in the last month. I think Italy must be reassessed in light of the recent data and I would project further downgrades for the country and an increase in their bond yields as people recognize the severity of their problems.

To me it looks increasingly likely that both Spain and Italy will soon line up at the feeding trough which is going to strain Europe, in my opinion, past the limits of what France and Germany can bear and then all of the superlatives and all of the great hype are going to come face-to-face with a very tough reality I am afraid.

My final comment of the day is that Europe is getting worse and not better.

Whether you turn your attention to Greece, Spain, Italy, Portugal or even Ireland; it is getting worse. Nowhere on the Continent are things improving and even in France and Germany the financial strains are beginning to show.

It is not a question of Euro-bear or Euro-bull; it is just the numbers as they come rolling out month after month. It is the banks, it is the sovereigns and grand visions must, in the end, give way to the facts.

More http://www.zerohedge.com/news/financial-decline-europe-continues

Skip the MSM bs... Zero Hedge is the only financial site that prints the truth.

Posted by ltse (706 days ago)

I am going to deviate from the crowd and look at property prices from a different angle, having done some research, these insights might proved critical as to how asset prices can play out the next 2 years. As you know I am a fan of Bob Prechters work, the idea that social moods influence the markets is fundamental in the Elliot wave theory.

Hence looking at the social dynamics, unless you've been living in a cave, we all know socialism has been the dominant mood globally the past few years (think Hollande, Obama, EU, bank bailouts not to mention CY Leung in HK). I am current residing in Australia and looking at HK on the news with its constant protest over anything and everything as well as the continued dispute between China and Japan over the Diaoyu Island, I believe something has to give. I mentioned socialism because socialism and nationalism are strongly intertwined. With so much pent up anger on both sides, especially on the Chinese and Taiwanese sides I think this dynamite can be set off easily by a politician that is willing to take advantage of this crisis by giving it the needed spark.

Make no mistake, if China and Japan goes to war, the real reason isn't over the islands, though that will be used as a disguise.The real intention is to avoid economic collapse on both sides. Allow me to explain, remember Charles Nenner's cycle works is predicting a major war in 2013? Since the world operates based on an infinite growth model ie continuous debt, what more better way to get deeper into debt than war?

Japan which has experienced deflation for nearly 2 decades and has debt to GDP ratio of 230%, which is worst than the United States.

http://en.wikipedia.org/wiki/Japan_public_debt

China which is heavily dependent on export will have major civil unrest on its hands if the United States doesn't continue to get further in debt to finance consumption, the problem is though they are again reaching the debt ceiling by the end of year, and if they raise it, they will bump into it again later, last time there was major resistance in the House against raising it, that it wasn't until the last minute the bill was past, fiscal conservatives are having the balance of power. My argument is, for these nations to prevent major economic collapse, they will have to get much deeper into debt but without public opposition, that is where the blindless of nationalism can play a role, I mean how many American soldiers were killed in Iraq thinking they were defending their country? or think 9/11, the element of surprise, invaded Afghanistan with full support from the public, certainly not far fetched. All it takes is for one side to fire an arrow.

Interestingly with China, it has excess capacity of males in their population to "dispose", below is a MUST WATCH interview with hedge fund manager David Murrin, also search for his name on youtube for other videos. He's gives a great insight into the global dynamics of war.

http://www.youtube.com/watch?v=NCEnuycMN9M

How does this impact property? well if your long oil and gold then perhaps you may benefit, with the potential of nuclear threat from Japan and China, I don't think buying property will the first thing on peoples minds. God, I hope I am wrong on this.

Posted by traineeinvestor (705 days ago)

I have looked at Pretcher's work. I have also read one of his books (junk) and for a while add access to some of his news letters. He is, without doubt, one of the worst charlatans in the financial services industry. A simple google search for "Robert Pretcher track record" will produce page after page after page of links to stories about how bad his track record is. The following is a very small sample (all taken from the first page of hits):

From Business Insider: http://articles.businessinsider.com/2011-02-25/markets/30072830_1_predictions-stock-market-robert-prechter

How he got it wrong in 2009 (yet again): http://www.erictyson.com/articles/20090616

A review of his stock market calls - not merely utterly wrong but even more dangerous than most because he advocates high amounts of leverage: http://avaresearch.com/avanew/articles/713/The-Embarrassing-Track-Record-of-Robert-Prechter-Part-1.html

A review of his predictions from 1985 to 2009 showing that anyone who followed his predictions would have lost more than 98% of their money:http://www.lesjones.com/2010/06/02/lousy-track-record-for-robert-prechter-and-elliott-wave-international/

And this one from zero hedge on Pretcher's call to short gold back in 2003 when it was USD350 per oz - he called for it to drop to USD253 and possibly below USD200: http://www.zerohedge.com/article/robert-prechter-dollar

I could go on and on. Blunt fact: Pretcher is just plain awful. To paraphrase one of the comments - he's not even as reliable as a broken clock.

Of the other forecasters mentioned, Dent is also seriously awful and mostly wrong - and yes I have read two of his books and looked into his track record in detail - it's as bad as Pretcher's. InvestmentU points out that he is worth listening to as a contrary indicator becuase he is so utterly wrong so often: http://www.investmentu.com/2009/October/harry-dent.html Plenty of other observers have said the same.

Faber I take seriously, he has a good track record:http://www.marketsurfer.com/?p=605 . Of the names mentioned, he is the only one I would listen to at all.

Peter Schiff also has a lousy track record (far more often wrong than right): http://seekingalpha.com/currents/post/187101 and there are plenty of other links I could post as well.

I am less familiar with Charles Nenner but he appears to have got some things right and some things wrong, including this: http://www.youtube.com/watch?v=7vcTm4XE4EA A mixed bag but certianly not good enough to waste time listening to.

Which gurus are woth listening to? In no particular order: Buffet, Soros, Fuller, Faber, Price, Napier (and Ed of course!). I have mixed thoughts on Rogers, Abby Joseph Cohen and have now taken Gross off my list.

As for astrology, I am not interested in even considering someone who uses it to make forecasts.

Posted by Remmy (703 days ago)

Ed - Regarding your question "how do you expect China exports to recover given that the EU is sinking deeper into recession and the US is barely growing?"

My view on markets for most assets (and indeed also the overall economic outlook for a country like China) is relatively simple. They are in a constant state of flux, rising or falling, like the tide of an ocean coming in, or going out. The trap many investors fall into is thinking that a trend that they can see (whether negative or positive) will continue (when in fact it’s actually almost exactly the opposite).

So, for example say the tide is going out – the lower the water level goes, the more the “typical investor” will be able to say “See, it will keep falling, the water level is dropping!”. Whereas of course it’s exactly the other way around. That is, the lower the tide is, the more likely it is to have reached “bottom” and in fact is going to rise!

It’s a mistake that leads to both bubbles (eg gold, NASDAQ in 2000, HK property is 1997), and also to reverse bubbles, where people are overly pessimistic (eg China stocks right now, based on a view that "things are getting worse in China") which to me provides excellent opportunities for investors who take advantage of such trends to buy an undervalued asset as a “contrarian”.

It sounds scary to say "The EU is sinking deeper into recession". When in fact, the way I look at it, the EU has sunken about as deep as it can go, and in fact is already on the way to recovery (it won't of course be apparent until people, in hindsight look back on this current period of time).

In my case, I am super bullish on HK listed China stocks, including those of exporting compnies, for this reason.

Over layered onto an overall cycle, there of course specific factors that also have short term influence. And to use the tide example again, consider perhaps the analagy of a person building a little dam on the beach our of sand. It might slow the tide slightly, but it will not, in the long term affect the overall trend. Nevertheless, for a shorter termed investor, such an “interference” might provide a quick opportunity, if times right.

Applying that to your specific question regarding China, I feel we have recovery/growth in the US, we have stabilization in Europe, with a HUGE amount of negativity "priced in", and continued growth in many emerging markets, including across Asia. People, and companies have been "saving cash", hoarding, tightening, not investing, and all these things lead to a "surpus" of inventory in China. Its all like a rubber-band, and can very quickly reverse the other way, which is what I believe is about to happen, perhaps in a few quarters from now.

There are a few other factors that make me think we are close to the perfect time to buy stocks HK stocks listed in China, based on historical data with a realistic chance of certain stocks doubling and tripling within a year from that point). I’ll list some of these out below:

1 – End of this year is a major political change in China. Lead up to that produces uncertainty – after that will come renewed stability, growth and investment. So am buying with a view to hold for at least a year, likely 2 years. (so buy between now and Nov 2012)

2 – 50% of Hang Seng gains historically come between November and February of each year (so buy anytime between now and November 2012).

3 – Buying in times of a perceived crisis creates a “crisis margin”, and selling in times of confidence creates a confidence margin. (Surely now we are more towards “crisis” rather than “confidence” so buy anytime from now and as crisis worsens).

4 – Capital inflow and outflow of Hong Kong means you will get more volatility, both on upside and downside – great for investors who buy when others are selling.

5 – US treasury yields are at record lows, and yield curve likely to lengthen – likely to less that 1% for 10 years. Meaning super cheap borrowing and demand for higher yields (ie stocks). (Also likely meaning Govt in HK will impose high deposit ratios for property (ie less leverage), boosting stocks in terms of relative attractiveness (on the basis that leverage is harder to get for stocks than property).

6 – If/when China has announces stimulus plans, expect China capital to be invested in HK, and in HK stocks potentially significantly boosting HK stocks. And remember also, there is also plenty of stimulus the US and Europe can provide if they wish.

7 – How long was last stock market decline from Lehman’s to bottom – that period may be a guide to next bottom after the “EU crisis”. (around 6 months, so buy Nov 2012). Lehman's shows how very quickly todays markets (or tides) can move from highs to lows.

8 – Hang Seng, and China markets, now have some of the lowest PEs in the world – super cheap by historical standards and close to record historical lows (ie a record low “tide”). Again, to be a strong reason to belive the tide is a rock bottom.

9 – Increased focus on Government taxing in EU and US will lead to money flowing to “low tax”, and “tax-haven” countries, which include HK and Singapore.

10 – People seeking to preserve asset and currency value will also move money from Europe to HK and Singapore.

11 - Euro close to historical lows – look to 1.15-1.20 for an “absolute low” which woudl indicate a "the tide is about to turn" buy signal.

12. - Look for a bottom in China’s quartely GDP and export declines. (Right now GPD at a historical low, and from a historical perspective seems likely to bottom out at 7-7.5% so buy next 3-6 months).

13 – Look for reversal in China FDI declines (now declined for last 9 months).

14 – China stock market was one of the first to recover after last crisis, nearly doubling in the 9 months following 3 months after the Sep 2008.

In summary, when things look at their worst it is often the best time to buy, if you believe that the factors that determine the valuations are cyclical, and on that basis I feel China is close to bottom.

Posted by Remmy (701 days ago)

I think it really makes little sense to call HK property a Ponzi scheme, other then to perhaps create an interesting headline. What is does do though, is risk deterring people who could be buying now, but who are a little uncertain, from buying, and thus risks them being left even further behind if prices continue to rise, remaining slaves to HK landlords.

To the extent that you define a Ponzi scheme as something that requires new buyers to come in and by from existing owners, ANY property in the world, and indeed any asset, whether real or intangible (such as a share traded on the stock market) is a Ponzi scheme. So it makes no sense to single out either “property” or specifically “Hong Kong” property as falling into this category.

True Ponzi schemes work by creating a sense of demand in an asset which has no clear correlation to any realistic value of the asset. Think Tulip mania, or dot com mania back in the year 2000 before the NASDAQ collapse. Think gold, which produces zero return if paid for in cash (and in fact costs money to store and own), and which produces a negative return if you borrow to own it.

Property can be very easily “valued”, and a key factor in valuation is the income that it produces. Property in HK typically yields 3-5%. Cost of borrowing is between 1-1.5%. So, right now, the cost of borrowing is around half the return on the property, and indeed, this by historical standards believe it or not, means HK property is still relatively affordable. It is certainly not “overvalued”.

It also makes very little sense to compare HK property now to valuations in 1997. In 1997, the ratio of cost of borrowing vs return was around 4:1. In other words, the cost of borrowing (assuming you borrowed the entire amount to finance your purchase) was around 4 times more than the income the property produced. Despite people in HK being almost universally bullish on property, the ratios clearly indicated property was overvalued (and of course prices fell). Compare that to now, in 2012. The ratio of cost of borrowing vs return is now around 1:2. In other words, the cost of borrowing (assuming you borrowed the entire amount to finance your purchase) was around half the income the property produces. The ratios clearly indicate property is undervalued (and of course you now have the inevitable consequence of prices rising, despite government efforts to slow the market.)

With regard to the comment that “high prices have created a new affordability constraint, as it now requires a small fortune just for the down payment”, bear in mind that today the deposit requirements are extremely high, due to Government efforts to suppress price rises. People are indeed putting down “real money” to buy, and relying less and less on “borrowed money” as a result. What will happen if/when loan deposit ratio requirements are eventually reduced? Prices will clearly get a boost when this happens, as people are able to deposit a smaller amount in order to borrow to buy. If it happens while rates are still at record lows prices will rocket up. But more likely, it will only happen as rates, eventually rise, and the Government eases off on the requirement as a way of cancelling the effects of the increases cost of a loan, with the view of maintaining its overall objective of stable price growth (perhaps 5-8% per annum over the next 5 years).

Is Hong Kong property at risk of becoming overvalued? Yes, it is possible. As we get monetary easing, lengthened outlook for low borrowing rates, stimulus in US, Europe and China, “hot money” is very likely to keep flowing into HK property. Property prices have around 30% to climb before I think prices get to “fair value” based on the key valuation benchmarks I use. But bear in mind, assets like property are also very prone to surpassing fair value. If prices got to more than 60% above current value I would look at starting to sell. And do you know the irony? If/when prices get to this level, what will most Hong Konger’s be doing? THEY WILL BE DESPERATE TO BUY! Wait and see...