Posted by
OffThePeak
12 yrs ago
Lantau/Lamma : Bear beats Bull (original title)
(this thread was actually kicked off by a SCMP article, and a posting on the Main Property thread):
Posted by traineeinvestor (3 hrs ago)
=== TI / QUOTE ===
The SCMP Money Post carried a bull v bear piece on the HK property market.
The bull case was written by Eric Wong of Bricks & Mortar Management (never heard of him/it) and essentially bases the bull case on low interest rates, property being more attractive than bonds or bank deposits, currency debasement and inflation. Threats of rising interest rates are dismissed saying "low rates will stay for a while". He concludes by saying that HK property will fall, but only after another 20%+ rise over the next few years.
The bear case is written by Nicole Wong of CLSA who points out that the government is trying to deflate the market, lack of either absolute or relative value in the market, the supply/demand imbalance changing and the expectation that interest rates will rise. She predicts a 1% pa increase for the next three years and suggests looking elsewhere for real estate investments.
My view: HK real estate is expensive in both absolute and relative terms and there are better investments elsewhere.
- Trainee Investor
=== UNQUOTE ===
The most memorable part of Ms Wong's argument was this line:
" Chief Executive Leung Chun-ying's policy address in January proposed - amongst other measures - a giant reclamation, filling the gap between Lamma and Lantau islands. "
Wow - that would be truly huge...
MAP : http://english.cri.cn/mmsource/images/2009/03/12/Map_NewTerritories.jpg
We need to track this !
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The other part of my title was "Bear beats Bull"
I think this was justified.
Eric Wong (her brother?) may or may not be right about "another 20%+ rise over the next few years", but his argument was weak.
I don't know how others feel about it, but I really dislike misleading sound bites like these:
"Property is a great hedge on inflation... rental income rises alongside inflation (as any leaseholder knows)"
Look, this is JUST-NOT-TRUE! - and am am tired of needing to dis-abuse garbage soundbites like this, but here 'goes again:
+ Sometimes rents and property prices rise with inflation, and
+ Sometimes they do not, rising either faster or slower.
As Nicole Wong rightly points out, HK property prices have risen MUCH FASTER than inflation: "between 2004 and 2012, the price of a typical middle-income class apartment in Hong Kong (eg a 600 sq ft unit in Taikoo Shing) rose 137 per cent to HK$6.3 million."
Well if property (and rents) can rise faster than inflation, then they can rise slower too. Isn't that obvious?
My view is that Property is rising faster than inflation because rates are too low. If they are bumped up to levels above inflation, then property prices will slow, and they may even swing into reverse.
We have seen that before !
Another part of the "Bear beats Bull" story was the revelation about a possibel gigantic landfill between Lantau and Lamma.
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Here's what landfill looks like (when underway):
http://www.epd.gov.hk/epd/misc/ehk05/english/hk/images/pic02.jpg
It is a slow process, and it must settle before it can be built upon
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@ OffThePeak - agree completely on the inflation issue. At the risk of over simplifying, starting valuations matter. If/when we hit a period of high interest rates, given current valuations and absent some contraint on supply or new source of demand, it would be surprising if prices did not fall. What constiutues "high" interest rates and how big the fall would be one I have no idea.
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Exactly.
And Nicole Wong also nailed the Valuation problem.
I do hope we will find out more about this landfill idea. In the long term, it could have a huge impact.
I still think the way to hold the market down short term, until the new supply kicks in, is to "license" Industrial properties for residential usage under 3-5 year licenses. The license would require inspection, and certain safety ,easures, as well as costing a land premium Rental to be paid each year to the government.
And a renewal beyond that would cost more money, and could be withheld, if the market slides.
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The easier, cheaper and better solution in the longer term is to abolish village housing and use that land for high rise development.
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A landfill between lamma and lantau? what a joke. That would totally destroy a valuable ecosystem. The sea floor of the lamma channel is a mud flat intertidal, and key breeding nursery for HK fish populations. Hk just outlawed the fishing trawlers, and now they suggest to landfill the entire area? its like one policy erases the benefit of the other! I sincerely hope this landfill never becomes a reality.
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I can see CY doing something mad like this but I don't think it's going to happen in the next 15 years.
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Some of the most valuable land in the SAR is landfill.
Actually: MOST of the most valuable land in the SAR is landfill.
So why not go on landfilling ?
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Ed
12 yrs ago
I reckon HK should not only fill in the Lantau/Lamma channel... the govt should also fill in the entire harbour and pile on a few hundred more skyscrapers...
After all it's a diseased cess pool...
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It is slowly moving that way, Ed.
Bernie Lo used to call Victoria Harbor, "the Victoria River" because it has become so narrow.
How would you have the govt increase Land supply?
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TI offered to end lowrise village housing. I agree.
It sounded good and fair then (to many), but not anymore.
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Ed
12 yrs ago
I like the term gutter... or ditch....
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The water has become very choppy in Victoria Harbour since the IFC and West Kowloon reclamations. Could you imagine what it would be like if they filled in the sea between Lamma and Lantau. It would be like Cape Horn.
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Hugie
12 yrs ago
15 or 16 years ago I read an article in scmp stating that the lands dept wanted to make Mui Wo 5 km inland! They never give up!
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