YellowTip

Dr.B.

Thanks for the advice. I might just head over there during the weekend to have a look.

Just to share some quick feedback I received from my HK colleagues about this place:

• They don't like it that much since it still has the old HOS image/stigma attached to it.
  
• Also, they indicated that together with Whampoa, these are housing enclaves of companies like TATA (TCS) and Infosys who place their Indian staff there. (nothing wrong with that, but my HK colleagues market that as a negative)
  
• Bus connections from that area to HK island and other parts of HK are actually very good.
  

First of all, I'm not sure about the accuracy of this information, but it could explain the lower than average price.

I was also considering to buy a small unit at Harbour Green. Prices there are around 10K/ft so, still within a reasonable price range. The nice thing about this place is that it has quick (and covered) access to the Olympic MTR station. That gets me to work in Central in about 20 minutes... without getting wet during the raining season.

If I remember correctly, you live next to the Imperial Cullinan development. How is that turning out to be? Our discussions a year ago concluded that it was a terrible location, tightly squeezed between OSS and TLB. Now that development is almost complete, do you still feel the same, or does it actually not look too bad? Secondary asking prices are between 13K and 15K/ft. You feel it's over priced?

Another brief one - also posted on AX:

 

YT,

The size might suit you, but maybe not the location.

 

Nevertheless, I will suggest you look at Harbour Place in Hung Hom. You can pick up a 770 sf flat there at under HKD 8,000 psf.

 

The big feature is the SHKP clubhouse. Transport connections will improve in the future.

 

(This is one of the options that we have considered.)

=== ===

 

Because of its history, Harbour Place has appreciated little since its launch.

At current prices of $8,000 psf, I think it is fairlky valued, and maybe undervalued:

 

Formerly called Hung Hom Peninsula (Chinese: 紅灣半島) and built on the reclaimed land of Hung Hom Bay, it was an HOS estate comprising 2,470 flats completed by the Hong Kong government in 2002. Since the government decided to suspend the scheme, Hung Hom Peninsula was sold to Sun Hung Kai Properties and New World Development in February 2004. In November 2004, the developers decided to demolish and rebuild the buildings.

 

The environmentalists, legislators and citizens were worried about the waste pollution and strongly opposed the plan. One month later, due to public concerns, the developers decided not to demolish the buildings and renovate existing flats and upgrade facilities instead. In 2008, the extensive renovation and refurbishment of what was once a public housing estate into a luxury residential complex was completed and the flats were sold to the public.

 

/source: http://en.wikipedia.org/wiki/Harbour_Place

DrBubb,

I've been considering your idea of downsizing for some time. Not just as a strategic move, but also because the bigger properties are out of my range.

I did it already for my rental this past year (living in a tiny 675ft apartment) and will consider to buy something similar in size.

Still...with things going south in China... I'm very hesitant to buy anything.

For the past year I kept most of my money in cash on the bank. While everybody around me is telling me that I'm crazy to do that ( --> inflation ), those very same people have lost upwards of 10% this past year on the stock market.

I very much look forward to your extended post.

That's a good analysis, YellowTip.

 

I wonder how many will see it and comment?

 

I will give you two posts, in reaction to it: A quick one, and a Longer, more considered one.

 

My quick comment is:

========

Have you thought of downsizing?

That is, buying something, but maybe smaller and cheaper than you had before.

 

This way, if the market drops, you will have something to gain.

 

But if it keeps rising, you will not find youself left behind.

 

Cyclically, I think the market could have another 2-3 years, and maybe more.

And we haven't yet seen the "crazy blow-up phase" which normally marks a long cycle high.

That's why I suggest still owning something.

 

On the other hand, it is hard to see how HK will escape getting some sort of downturn,

if China and the global economy turn sour in 2013-14.

 

Where to buy, if you downsize, is a whole different discussion, and that is one I am

pondering myself right now.

Hi everybody,

As some of you might remember, 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.

Article in today's Standard: Homeowners feel pinch as curbs bite

Wong's bullishness comes despite anecdotal evidence that homeowners are cutting their losses.

 

One such case saw a homeowner losing HK$460,000 after selling a 511-square-foot flat at Metro City Phase 1 in Tseung Kwan O for HK$2.94 million, or HK$6,140 psf.

 

"He [the home owner] bought the flat in 1997 - when prices were at their peak - and chose to sell even though he was making a loss because he feared a market downturn," said Ken Wan, a Ricacorp agent in the district.

 

One mainlander sold a 1,303-square-foot flat at the Sausalito in Ma On Shan for HK$8 million, or HK$5,753 per square foot, at a loss of HK$300,000. He bought the flat in 2007.

Are we starting to see the first signs of a sell-off?

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...

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.

From my friend's window in Kowloon:

 

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.

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???

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

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

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.

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?

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?

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.

An interesting article that discusses the bubble in China:

http://www.bloomberg.com/news/2011-05-24/chanos-says-hedge-fund-may-not-be-bearish-enough-on-chinese-real-estate.html

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.... ????

Congratulations Yellow Tip on booking a very healthy profit.

 

I agree with desertorchid and believe we are in the mania phase and many people are feeling priced out of the market. Hk property market can be quite fickle and a catalyst could bring a significant correction to the market - which I think would be healthy to the market. I think we are in the greed stage.

Thanks surfdude. You might be right about the Greed phase. I sure was greedy when I put my property on the market I set a price that was substantially above market price, expecting the property to just sit there for a while. Even the HKProperty agent was telling me that the price was too high and that at this level he would likely not be able to find any buyers. Make a short story even shorter, I sold the property 2 days later at slightly below my asking price.

It sold so fast that I was actually asking myself if I should have priced it even higher... ....greed?

What would be typical signs of the Delusion stage?

In my workplace in HK practically everyone has cashed out of their property investments (sometimes with profits in excess of 4-5 million HKD). No-one is seriously considering buying and their income would be in the top 1-5% in HK. They're effectively feeling priced out. Hong Kong property cannot continue to rise. The only purchases now are from people trading up/sideways having made a profit on their recent sale. The only possibilty is stable prices/ low sales for a number of years as wages inflate. This, IMO is unlikely to happen and a 20%-30% fall is nigh on certain for the next year+.

And here I was thinking something was wrong with me. I too am in that top income segment, and by western standards have a nice amount of equity. Still, I feel like a poor schmuck when looking at properties these days.

The other day I went looking at apartments at the Cullinan (Kowloon Station). A tiny tiny 850 Ft. apartment at a low level without a view is going for 20M. So when I sarcastically asked the agent if I needed to pay down 10M for this place he looked at me with this strange look like, "Dude, you don't have that kinda cash???". Gotta love these property guys

As far as trading sideways/up goes, I'm in a position to do that, but I'm just not sure if it would be a clever move. If a correction were to come next year, I'd lose my current profit and probably more.

Guess for now I'll just rent something 'cheap' for a year and see what the market will do. Am Actually looking at some apartments at Le Bleu Deux in Tung Chung. To be honest, I'm a bit apprehensive about moving this far away from Kowloon/HK but people I talk to say Tung Chung actually has a nice and convenient living environment. Anyone here living in TC, I would love to hear your impression of TC and Le Bleu Deux.

Gentlemen, this very interesting thread has been inactive for quite a while now. From the other posts, it seems people are more interested in the state of the London property market than anything else.

I for one have just sold my HK property to cash in the 60% profit that I built up over the last 3 years. I know, it's not the usual story one hears of making over a 100% profit in less than a year, but my gut feeling always tells me that those cases are highly exceptional and more than often exaggerated.

My rationale for selling was that the secondary market in HK seems to be stagnating. Just look at this chart for a Le Bleu Deux property in Tung Chung:

http://en.homeprice.com.hk/valuation/Coastal_Skyline/Le_Bleu_Block_2/17/D/4213/

This chart is very similar to valuations of most other properties in HK, ranging from The Cullinan to Harbour Green, etc. This in combination with the reports that secondary market transactions are dropping week over week and the fact that banks are starting to increase their mortgage interest rates, leads me to believe we've hit a plateau. From here the market can either continue to rise again, or it can start to correct downward.

My gut feeling tells me it will go down. No massive correction, but still a 15-20% drop.

While everybody seems to be talking about the interest rates, I'm looking at something totally different that is actually also affecting me personally.

I'm not one of those wealthy property investors with 10+ properties. I do have a very good job that by itself would enable me to get a very high mortgage. I just don't have a lot of equity (at least not by HK standards).

So here's my point:

Property prices have risen so fast that finding something decent for below 6.8M in Kowloon or HK island is becoming increasingly impossible. < 6.8 is the sweet spot where you can get the 70-90% mortgages. The moment you cross that line you're stuck with 40%. Then cross the 12M line, and you're stuck with no more than a 50% mortgage.

The only way around this is by going for a new property and making use of the developer's financing options. The developer will give you some kind of 2nd mortgage at ridiculous interest rates (for The Hermitage in Olympic they were charging 6%+ for the 2nd mortgage).

In addition, the new developments that are coming onto the market are pricing themselves at almost twice the price of the nearby secondary properties. For example, in Olympic, One Silversea, Harbour Green, The Longbeach, etc. are all charging between 9k and 11K per square foot. The new Imperial Cullinan project is expected to start at 20K for their smallest units.

So for the average Joe, even a Joe with very good job, buying property is becoming increasingly impossible. Most people in HK, even ones with good jobs, don't have enough equity to make a 40-50% down payment. The new properties coming on the market are charging crazy high prices, again making it nearly impossible for most people to get into. Then of course, finding something decent for below 6.8M is becoming nearly impossible.

So I feel we're quickly reaching a point where local people in HK can no longer keep the transactions going. Let's not be delusional here and think that those ultra rich Chinese will, cause that's only a small group of people. The vast majority of transactions still needs to come from local HK workingman.

So let's look at that chart again that opened this thread:

Could it be that we're in the "Delusion" phase of the cycle now? You have people asking for ridiculously high prices, often over 20% more than the average bank valuation, and we've reached a point where the buyers are no longer willing to buy at these prices, yet the sellers are not willing to lower their prices.

Still when I read articles in the SCMP and The Standard saying that the property market can be expected to continue a healthy growth for the coming 3-4 years, I wonder of this is the same delusional speak, or whether we're actually just near the end of the "Take Off" stage.

Who dares to comment and share their views on the current situation? My friends are all too chicken to say a damn thing at them moment...

Hi everybody, this will be my first post on this amazing forum. I live and work in HK and am a casual investor. Nowhere near the sophistication levels of people like DrBubb. I am very eager to learn and share my opinions with the other forum members.

+ The "correction" that I am expecting might come from a jump in interest rates, as bond holders and others react to rising inflation, and force Central banks to lift interest rates. I think you will agree that a rise in HK mortgage rates to 2.5 - 3.0% (from present 1%) might bring at least a 10-15% correction in HK property prices. And it could be more than that, if rates go higher.

While I believe a correction in interest rates for HK is needed, I don't see how it can come anytime soon. I don't see the USA increasing their interest rates while their recovery is still shaky. Has HK ever made IR changes separate from US IR changes?

I did notice how Donald Tsang at the end of 2010 warned people not to buy property, because interest rates are expected to rise significantly in 2011. I'm guessing I should take that as clear writing on the wall?

(I may post more later - but I shall be leaving for a trip of several days from tomorrow,)

Do please share more. I'm eager to learn more about your thoughts and analysis of the HK property market in 2011. I too am looking on buying some property in the coming months in the hope they will have a steady rise until they peak in 2015.