Traineeinvestor's diary - HK and Far East Focus

[Traineeinvestor]

ABC (Agricultural Bank of China) now has approval from both the Russian and the Chinese regulatory authorities to open a branch in Moscow: http://iis.aastocks.com/20141224/002083796-0.PDF

 

While not particularly significant in in itself, it is further evidence of the failings of American foreign policy and the process of turning the RMB into an alternative settlement currency to the USD.

[drbubb]

Any thoughts on Tung Chung?

 

> post#333 : http://www.greenenergyinvestors.com/index.php?showtopic=13789&page=17

 

Could this be a buying window?

[Traineeinvestor]

Given the government's track record of making wildly inaccurate budget forecasts and equally impressive record of squandering taxpayer's money, I place precisely zero reliance on the forecast of budget surpluses.

 

HK already has more people living in free or heavily subsidised housing that in private sector housing - when will it stop?

 

No new thoughts on Tung Chung - between the low yields, double stamp duty, likely increase in supply and possible interest rate increases, I still prefer equities to real estate at the moment. I'm having a look at shipping stocks at the moment (517, 2343, 368) - well down at or near 52 week lows in line with the BDI but they have been very cyclical. Possibly still some milage in the PRC banks as well.

[drbubb]

As an ex-Shipping banker, I can tell you that Shipping is likely to suffer from over-supply of ships for some years.

 

The industry has a track record of wildly over-building. In good periods, shipowners order like mad, expecting the good rates to continue. And it takes years to work off the over-supply

 

I saw the showflat today, and was not impressed. The layouts are very crowded, and the towers are very close together. You have to be a keen fan of SHKP flats to want these flats at this price, I think.

[Traineeinvestor]

Shipping has certainly been a very cyclical industry - looking at the gyrations in the BDI (and other shipping rates) over the last few years would suggest the possibility that we have reached another short term bottom. I don't expect the over supply to do away, but there will be opportunities for investors. Discounts to NAV are pretty high.

 

MTR to Kennedy Town has mostly replaced the bus ride to and from the office - fast, efficient and cheap.

[drbubb]

the point is, the same shipping demand of several years ago, will bring lower rates, because of vastly increased supply

 

(sorry if you think this is obvious)

[Traineeinvestor]

SHK sold all 300 flats in it's latest Tung Chung development in less than 7 hours: http://www.scmp.com/property/hong-kong-china/article/1673612/first-flats-market-year-sun-hung-kai-properties-sold-out-7

 

"Properties on sale included flats with one or two bedrooms and net floor areas ranging from 408 to 645 sq ft, priced at HK$4 million to HK$6 million.

Many buyers had their eyes on the smaller one-bedroom flats, which had sold out by early afternoon, according to the property agents.

The cheapest flat was a 412 sq ft unit on the first floor priced at HK$4.09 million before the discount - or HK$9,948 per square foot in terms of saleable area. After the discount of up to 10.5 per cent, the price would be HK$3.66 million, or HK$8,904 per square foot."

13,800 people registered as prospective buyers of the units.

This bit at the bottom of the article caught my attention:

"Midland Realty expected average home prices in the New Territories to go up by 10 per cent over the next year, passing the HK$10,000 per square foot mark."

[drbubb]

Yep. Looks like we are headed into a Top.

 

The prices are not as attractive as I first thought - an average of almost $11,000 pssf is not particularly cheap.

Good luck to those who bought

[drbubb]

WARNING !

2015-17 : we are now in the Window for a Cyclical Peak in HK property

 

[Traineeinvestor]

Thanks for posting.

 

It would be interesting to adjust the Centreline Index for inflation to see just how how far above the 1997 peak the market really is. Cumulative inflation has been a touch over 20% since 1997. Take 20% off the current level for inflation, add in net rentals (or imputed rent for owner occupiers), depreciate the 1997 property by 18 years and discount for the improved quality/better facilities of more recent buildings and there is not a lot of real return for people who purchased at the peak (possibly none). The chart is a salutary lesson on the dangers of paying too much for any asset.

[drbubb]

Yeah.

Of course that peak in 1997 was a blow-off peak for speculation, and did not represent sustainable prices.

 

What I find interesting is how prices are now rising with Rents, and maybe a bit faster.

And we are seeing yields at an average of about 3-3.5%, which after management fees, is about the same level

as interest rates.

 

This argument, which sees that net living costs are similar to interest rates, means that a Rise in Interest Rates,

could quickly lead to lower prices

 

I am increasing fed up with the Estate Agents, who do not know their clients, and will TELL ANY LIE,

to get their clients in to see a flat. This happened last weekend, and this weekend's "tourists" just left.

 

We asked them ahead of time: "who is the client who you want to show our Flat to?"

 

We were told:

"They are Local HK People, looking to buy for own use... They know the building."

 

So who did they bring?

Mainland chinese, who seemed to have never been in the building before.

The agents were pointing out the building around, as they would to any tourist.

 

We have a pretty good idea of the value of our flat, and I think I am going to turn down all

who want to look, unless the agents can really convince us that they have potential buyers

with a genuine and accurate idea of what they are looking at.

[Traineeinvestor]

^{My faith in the integrity of real estate agents is exceeded only by my faith in civil servants and politicians.}

 

^{That said, it is puzzling - unless the agents genuinely believes that there is at least some chance of the prospective buyer and seller coming together to do a deal, why would they waste their time ?}

 

^{Sad to see Dymocks IFC is closing - things have been reduced to the stage where the only reason left for visiting IFC is to catch the airport express.}

[drbubb]

"That said, it is puzzling - unless the agents genuinely believes that there is at least some chance of the prospective buyer and seller coming together to do a deal, why would they waste their time ?"

 

It has a Unique View, and would be very easy to sell at Bank Valuation (which does not value the View)

 

 

And Because the property below is said to be for sale, WITH TENANT, and cannot be viewed.

And also: because many LB landlords are tired of having their flats used as Show Flats,

and so the agents find it tough to get ANY flats to view

 

The really irritating things are:

+ How most viewers look at the flat, like tourists, most interested in standing at the Bay Window, and looking down

+ The appalling lack of ANY feedback from the agents

 

I am considering charging HK$150 per view.

If the agents want to use it as a showflat, they can pay for the privilege.

 

This comes from a guy who has sold 10 HK flats already, and finds this latest experience unique.

If you think I am miss-reading the situation, I would appreciate any comments

[Traineeinvestor]

Sounds like you are reading it right (although looking out the window and down at the neighbouring buildings to check for risk to the view is a must for any buyer).

 

How many agents do you have it listed with? Maybe ditch one agent as an example? Or just send them an e-mail asking them to filter viewers better? Another approach is to limit viewing times - a few hours once or twice a week?

[leviathan]

I wouldn't charge for viewing although I understand your frustration with agents. Instead I would make the property harder to view by restricting times when it can be shown. That should filter out most of the speculative time wasters and leave those who are genuinely interested in viewing. It also makes the agents think twice about contacting you if they are flying a kite.

 

Picking up on what you said about a number of the flats being advertised sale with lease - am I correct in assuming that when a property is advertised this way an offer is made without the property being seen and hence the tenant being made aware? Do you know if the Tenancy Agreement is disclosed prior to an offer being made or just the financial details eg monthly rental and tenure? I'd appreciate any light you can throw on the sale with lease procedure.

[Traineeinvestor]

I can't speak for all owners, but my standard lease includes a clause allowing me to show a property to prospective purchasers on reasonable notice at any time during the lease. If someone asked to see the lease before signing an offer, I would agree to that (PDPO language is also in the lease although such consent would be implied under the PDPO anyway).

 

One additional point about showing the flat only during fixed times - if a number of agents show up at once, it may create the impression that your flat is sought after and there is competition for it.

[drbubb]

Thanks.

We tend to do that - lump them together, since it means Tidying the flat only once

[leviathan]

Thanks for the response TI. My Tenancy Agreement (TA) includes two provisions

i) During the two months immediately preceding the determination of the tenancy to permit persons with written authority from the Landlord or their agents at all reasonable times upon reasonable prior notice and appointment to enter and view the said premises or any part thereof.

ii) To allow access to appointed agents to enter and view the said premises on one pre-arranged day in any calendar month should the Landlord notify the tenant in advance that the property is being marketed for sale.

So my TA does not sound as flexible as your standard lease regarding access. Like you I would disclose the TA prior to the prospective buyer prior to them signing an offer letter.

[Traineeinvestor]

HSBC has taken a beating (for good reason). However, its trailing yield is now approaching 6% which is higher than the PRC banks after the 10% NRWT is taken into account) which should lend support to the share price. I purchased some yesterday at $65.50

[Traineeinvestor]

With the recent run up in the local share market, I decided it was time to take a little money off the table and sold some of my shares in Sinolink Holdings (HK:1168) at HKD0.80 on Friday and a few more this morning at HKD 0.82. Average purchase price (including transaction costs) was HKD 0.63.

 

I still hold most of them given my opinion (with which the market clearly disagrees) that the shares are worth somewhere between HKD 1.30 and HKD1.40 ( crude valuation = (cash-liabilities) * 0.8 + (real estate) *0.5).

[drbubb]

Well done, TI.

 

How much longer do you think the HK rally will last?

Do you share my concerns about a possible de-pegging of the HK Dollar within this year

[Traineeinvestor]

Hi Dr B

 

I have no idea how much further the rally in HK stocks will go. On valuation grounds, it still looks fair value (in absolute terms) and good value (relative to the PRC and the US) - but that does not mean it's going to keep going up. That being said, I've sold a very little and would certainly sell a bit more if it keeps rising.

 

I do not expect the HK/US peg to go this year. There have been on and off rumours about de-pegging every few years since I arrived in HK in 1992. One year, there was even a run on bank deposits as people panicked and sent money out of HK in anticipation of the HKD being devalued. I have to ask myself why this year would be any different? Sure, a case can be made that China stepping up on the international stage may lead to a political need to de-peg but equally an argument can be made for China wanting to preserve stability and keep the peg as is. Also, remember that if the peg went now, the HKD would rise (see HKMA interventions) and that would make China's exports less competitive - another reason why China would not want the peg to go.

 

All that being said, it will go sometime. My point is that predicting when is not going to be easy.

[drbubb]

I do not expect the HK/US peg to go this year. There have been on and off rumours about de-pegging every few years since I arrived in HK in 1992. One year, there was even a run on bank deposits as people panicked and sent money out of HK in anticipation of the HKD being devalued. I have to ask myself why this year would be any different? ...

Thanks for the explanation.

 

I wonder how much HKD money the HK Govt will spend (on US$) defending the peg.

As I type this, I see an FX rate of : HK$7.7502, and the LOD was $7.75.

 

So the TEST is once again underway.

Maybe they will move the band to HK$7.70 to get some relief.

In the past (2005), they have moved the band of the opposite side by a similar increment.

[Traineeinvestor]

The HKMA injected more money into the market to defend the peg today. I also have to wonder how much of a role the southbound leg of the HK-Shanghai stock linkage is having - it could end up being the most attractive way for PRC nationals to get money out of China and, if so, it is pretty much a bottomless pool of money that could flow into HKD and the HK stock market. (Or maybe I don't know enough about how it works - more homework needed!)

[Traineeinvestor]

I sold the rest of my shares in Sinolink Holdings (HK:1168) yesterday at $1.01. While the shares are undervalued on any objective measure, given the HK market surge over the last few months, I decided it was time to take a bit of money off the table - at the end of the day, the market will always be smarter than I am.

 

Where to invest the money is the next question.