WEBVTT - Global Real Estate Is Far From Falling Off a Cliff 0:00:02.480 --> 0:00:07.119 You're listening to Asia Centric from Bloomberg Intelligence, the podcast 0:00:07.160 --> 0:00:10.160 that pulls back the curtain non global business so you 0:00:10.280 --> 0:00:14.400 can invest better across the Pacific rim. I'm Tom Corbett 0:00:14.400 --> 0:00:15.400 in Hong Kong. 0:00:15.440 --> 0:00:18.840 And I'm John Lee. The world's leading real estate markets 0:00:18.880 --> 0:00:22.960 have been testing the stamina of even the most experienced investors. 0:00:23.120 --> 0:00:27.440 Rising interest rates, too much debt, and eye popping price 0:00:27.520 --> 0:00:31.600 wings have shaken up commercial and residential real estate from 0:00:31.720 --> 0:00:34.639 China to Europe, to the US and beyond. 0:00:35.080 --> 0:00:37.519 Here in Hong Kong, rates have put a chill on 0:00:37.600 --> 0:00:41.960 home sales and prices, with some mortgages sleeping underwater, and 0:00:42.000 --> 0:00:46.479 commercial real estate still struggles with pandemic effects and geopolitical threats. 0:00:46.840 --> 0:00:51.040 Is the real estate route almost over for global cities? 0:00:51.200 --> 0:00:53.880 What will a recovery look like? And what are the 0:00:54.000 --> 0:00:57.920 long term risks and opportunities. Let's bring in someone who 0:00:58.000 --> 0:01:02.440 knows real estate as well as anyone. Peter church House, 0:01:02.480 --> 0:01:06.039 a veteran property consultant at port Wood Capital. 0:01:05.840 --> 0:01:09.560 And Patrick Wong, senior property analyst with Bloomberg Intelligence. 0:01:09.680 --> 0:01:11.640 Peter and Patrick, it's great to have you. 0:01:12.000 --> 0:01:14.400 Thank you, thanks very much, lovely to be back. 0:01:14.360 --> 0:01:17.280 Hi, Peter. Central Banks around the world have been hiking 0:01:17.319 --> 0:01:21.080 interest rates in an unprecedented pace. The Fed in particular 0:01:21.120 --> 0:01:23.920 has hike winterest rates by almost five hundred basis points 0:01:23.920 --> 0:01:27.800 in two years. Global housing prices have started to fall 0:01:28.440 --> 0:01:32.520 in your forty year experience. How serious is this housing 0:01:32.560 --> 0:01:34.200 downturn compared to other cycles. 0:01:34.640 --> 0:01:37.319 Well, to be honest, think about it, the global real 0:01:37.440 --> 0:01:41.600 estate market has been fairly homogeneous if you look at it. 0:01:41.680 --> 0:01:45.959 Over the last decade since the global financial crisis, central 0:01:45.959 --> 0:01:49.080 banks around the world cut interest rates pretty much universally 0:01:49.520 --> 0:01:54.320 to very low levels and for many countries record low levels. Now, 0:01:54.520 --> 0:01:59.240 that created obviously very good conditions for real estate generally 0:01:59.280 --> 0:02:02.720 around the world, and we did see prices picking up 0:02:02.960 --> 0:02:06.840 in most countries around the world residential, commercial, even retail 0:02:06.920 --> 0:02:10.480 and so on. And of course what didn't happen during 0:02:10.520 --> 0:02:14.120 that period is we didn't really see a major construction boom. 0:02:14.600 --> 0:02:17.359 Most times in the past when we've seen low interest 0:02:17.440 --> 0:02:20.680 rates like that, we've seen a massive increase in construction, 0:02:21.080 --> 0:02:24.079 which has led ultimately to a massive oversupply of real 0:02:24.160 --> 0:02:28.120 estate in various forms. This cycle has been quite different. 0:02:28.480 --> 0:02:30.840 So as we're going into a slow down as interest 0:02:30.919 --> 0:02:34.600 rates rise, we are not seeing around the world, massive 0:02:34.919 --> 0:02:39.399 problems with excess supply in certain cities, yes, like San 0:02:39.400 --> 0:02:43.320 Francisco in the commercial market, but certainly not in the 0:02:43.360 --> 0:02:46.720 residential markets around the world. So that I think has 0:02:46.760 --> 0:02:50.799 been a very positive outcome of this last decade, and 0:02:51.040 --> 0:02:54.440 that in one sense, will suggest that we may not 0:02:54.639 --> 0:02:58.119 see a massive crash in real estate prices as we've 0:02:58.160 --> 0:02:59.240 seen in other cycles. 0:03:00.200 --> 0:03:03.399 Economists and analysts, we're talking about a fixed rate mortgage 0:03:03.400 --> 0:03:07.080 cliff where homeowners would see their mortgage payments balloon after 0:03:07.120 --> 0:03:10.000 their role their fixed rate or honeymoon rates, but this 0:03:10.160 --> 0:03:11.919 never really happened. What's your view. 0:03:12.440 --> 0:03:15.320 Well, in the US, of course, fixed rate mortgages run 0:03:15.400 --> 0:03:18.560 for twenty to thirty years, so if you've taken on 0:03:18.600 --> 0:03:20.960 a mortgage in the last five years, you're not going 0:03:21.040 --> 0:03:24.680 to fall off any cliff anytime soon unless you sell 0:03:24.720 --> 0:03:27.960 your property and then get another mortgage. You will buy 0:03:28.000 --> 0:03:29.919 another property and then you're going to be paying the 0:03:30.000 --> 0:03:33.760 higher mortgage. What we see in other Western countries is 0:03:33.800 --> 0:03:35.600 that a lot of people do take out three to 0:03:35.680 --> 0:03:39.200 five year fixed rate mortgages, and those are going to 0:03:39.200 --> 0:03:43.440 be starting to reseet in the coming year or so, 0:03:43.880 --> 0:03:48.200 one guesses. But having said that it's unlikely that we're 0:03:48.240 --> 0:03:52.040 going to see a major series of defaults in the 0:03:52.040 --> 0:03:56.360 residential market, largely because for several reasons so far at least, 0:03:56.760 --> 0:03:59.800 is that unemployment is still very low. People have all 0:03:59.800 --> 0:04:03.880 got jobs. Secondly, in many countries, they don't have a 0:04:03.880 --> 0:04:06.960 lot of other debt, maybe with the exception of the US, 0:04:07.000 --> 0:04:10.200 where there's a lot of credit card debt, education debt, 0:04:10.360 --> 0:04:13.240 university debt, and so on. And again you couple that 0:04:13.400 --> 0:04:17.080 with the thought that for most central banks like the 0:04:17.080 --> 0:04:20.919 FED and the Bank of England and the Eurozone, interest 0:04:21.000 --> 0:04:24.680 rates probably have pretty much peaked or maybe have a 0:04:24.680 --> 0:04:27.000 little way to run. But we're not going to see 0:04:27.000 --> 0:04:29.919 the interest rates that we saw in the early eighties 0:04:30.320 --> 0:04:33.000 under the Volkar regime, where we went to sixteen seventeen 0:04:33.279 --> 0:04:36.640 eighteen percent from six or seven percent. So I think 0:04:37.040 --> 0:04:40.200 the interest rate cycle isn't going to be as debilitating 0:04:40.480 --> 0:04:42.640 as it has been in the past. 0:04:42.640 --> 0:04:46.000 Peter church House, you just struck a rather optimistic or 0:04:46.040 --> 0:04:49.279 an upbeat sounding tone. We talked about interest rates, you 0:04:49.320 --> 0:04:51.840 mentioned those in the nineteen seventies. We do have an 0:04:52.000 --> 0:04:56.960 entire generation of investors today who've never seen interest rates 0:04:57.000 --> 0:04:59.520 as high as they are, or at least rise as 0:04:59.640 --> 0:05:03.240 quickly as they have. They've never seen this somewhat unique 0:05:03.320 --> 0:05:06.520 set of conditions. You must talk with younger investors when 0:05:06.560 --> 0:05:08.440 they come up to you and ask you about it. 0:05:08.480 --> 0:05:11.599 Do you tell them what this tool shall pass this time? 0:05:11.640 --> 0:05:13.000 It's different or not different? 0:05:13.400 --> 0:05:16.760 Well, every time is different, which is always we have 0:05:16.880 --> 0:05:19.440 to learn from We have to learn from history also. 0:05:20.320 --> 0:05:23.320 So I get asked the question a huge number of 0:05:23.360 --> 0:05:27.720 times from people of all ages and occupations and stripes. 0:05:28.200 --> 0:05:30.400 I'm looking at buying a property, of buying my first 0:05:30.400 --> 0:05:33.600 house or buying another house, What should I do? Well, 0:05:33.960 --> 0:05:36.279 that's always a very difficult question because you don't know 0:05:36.520 --> 0:05:39.440 the personal situation of each person. But what I do 0:05:39.560 --> 0:05:43.200 say to people often, particularly in Hong Kong, where the 0:05:43.240 --> 0:05:46.640 property market is usually very tight and it's very hard 0:05:46.800 --> 0:05:49.720 often to find the property that you want. And if 0:05:49.760 --> 0:05:52.960 it means that you can afford to put down the 0:05:53.000 --> 0:05:56.560 deposit and you can afford to pay the coupon the 0:05:56.640 --> 0:06:00.600 interest rate, then probably you should take the plunge. If 0:06:00.600 --> 0:06:03.120 you're looking at a long term situation where you and 0:06:03.160 --> 0:06:05.560 your family want to live in your own home. If 0:06:05.600 --> 0:06:07.919 you're looking at an investment to buy a property for 0:06:07.960 --> 0:06:10.880 a quick flip, or to invest for a few years 0:06:10.920 --> 0:06:13.760 and sell on and make a profit. That's a different question. 0:06:14.200 --> 0:06:18.120 Peter church House point well taken. Patrick Wong with Bloomberg 0:06:18.200 --> 0:06:23.560 Intelligence your team wrote recently about Hong Kong's negative equity mortgages. 0:06:23.839 --> 0:06:27.680 In more popular parlance, they're known as underwater mortgages where 0:06:27.680 --> 0:06:30.400 the amount, oh the balance is actually higher than what 0:06:30.400 --> 0:06:34.160 the property is worth. We've seen the pace pick up 0:06:34.680 --> 0:06:36.960 in Hong Kong that was a big issue in the 0:06:37.080 --> 0:06:39.280 United States back during the two thousand and seven two 0:06:39.320 --> 0:06:43.080 thousand and eight crisis. Talk about underwater mortgages in Hong Kong. 0:06:43.160 --> 0:06:45.800 Are they really that unusual and is it really that 0:06:45.839 --> 0:06:46.680 big a problem? 0:06:46.839 --> 0:06:49.000 Yeah, I think that is an interesting point to look 0:06:49.040 --> 0:06:52.359 at because for the past decade in Hong Kong, we 0:06:52.480 --> 0:06:56.000 also see the situation that the mortgage is basically the 0:06:56.080 --> 0:06:59.880 long term watery, so it's pretty low right, So basically 0:07:00.160 --> 0:07:04.080 we have the lots of mortgages. They're really willing to 0:07:04.440 --> 0:07:08.360 like having more home mortgage and larry. It's also come 0:07:08.400 --> 0:07:10.880 to an interesting point that the interest way is going up. 0:07:10.960 --> 0:07:13.120 At the same time we see the government also doing 0:07:13.200 --> 0:07:15.920 quite a lot of morgage easing over the past couple 0:07:15.960 --> 0:07:19.120 of years. And the challenge I think we could see 0:07:19.200 --> 0:07:21.840 is that if the situation like that, like we have 0:07:21.960 --> 0:07:25.920 lots of ninety percent five percent cover mortgage room there 0:07:26.160 --> 0:07:29.840 and we also have the price coming down almost twenty 0:07:29.840 --> 0:07:32.600 percent from the peak, right, we could see that cover 0:07:33.000 --> 0:07:36.760 leged mortgage, it could happen further. But having said that, 0:07:36.800 --> 0:07:40.480 in Hong Kong the current situation, we also find lots 0:07:40.520 --> 0:07:44.360 of the homeowners they still can pay the basically the 0:07:44.400 --> 0:07:47.440 mortgage payment every month. Although if it's true that we 0:07:47.480 --> 0:07:51.000 see the mortgage payment every monthday paying, it's getting high 0:07:51.080 --> 0:07:54.400 and high with the mortgage rate heights. So if the 0:07:54.480 --> 0:07:57.480 economy is still doing okay at this point and employmary 0:07:57.520 --> 0:08:01.120 is so low, that's fine, but we all be taken 0:08:01.160 --> 0:08:04.000 to our canda. Certain k could happen over two or 0:08:04.080 --> 0:08:04.559 two four. 0:08:04.920 --> 0:08:08.920 Yeah, Patrick, I think you've described that pretty well. Just 0:08:08.960 --> 0:08:11.880 to put some numbers around that, if you think about 0:08:11.920 --> 0:08:14.680 Hong Kong at the moment, we have something like one 0:08:14.720 --> 0:08:19.120 point three five million homeowners in Hong Kong. At the moment, 0:08:19.560 --> 0:08:24.240 eleven thousand, one hundred of those homeowners are underwater on 0:08:24.320 --> 0:08:27.480 their mortgage. That's less than one percent is about point 0:08:27.600 --> 0:08:31.280 eight of one percent, which is a very very low. Indeed, 0:08:31.840 --> 0:08:34.920 if we think back in history the bottom of the market. 0:08:34.960 --> 0:08:37.840 In two thousand and three, we had over one hundred 0:08:37.880 --> 0:08:41.920 and ten thousand households underwater. But what was the percentage 0:08:41.920 --> 0:08:46.439 of non performing loans? People didn't stop paying their mortgages. 0:08:46.800 --> 0:08:51.120 The percentage of non paying mortgages was about one point 0:08:51.200 --> 0:08:55.160 two or one point four percent, a very very tiny proportion. 0:08:55.320 --> 0:08:59.600 So Hong Kong people typically, even if the underwater, continue 0:08:59.640 --> 0:09:02.440 to pay the mortgage. In many other parts of the world, 0:09:02.800 --> 0:09:05.800 particularly in the US and so on, people just hand 0:09:05.840 --> 0:09:07.800 the keys back to the bank and say it's yours, buddy, 0:09:08.000 --> 0:09:10.880 I'm leaving. But people in Hong Kong don't do that. 0:09:11.040 --> 0:09:15.720 And so I'm reasonably encouraged by Hong Kong consumer behavior 0:09:15.760 --> 0:09:18.680 in that sense. And also, I very strongly doubt whether 0:09:18.679 --> 0:09:21.400 we're going to see one hundred thousand people underwater in 0:09:21.440 --> 0:09:24.640 their mortgages. Given that the average loan to value ratio 0:09:24.640 --> 0:09:29.400 in Hong Kong is about fifty five percent and about 0:09:29.440 --> 0:09:33.440 sixty percent of homeowners don't even have a mortgage. 0:09:33.120 --> 0:09:35.319 What do you think explain to that? Peter church House 0:09:35.559 --> 0:09:39.679 that people still pay their mortgages, that the non performing 0:09:39.800 --> 0:09:43.240 mortgage ratio stays law are much lower than in the 0:09:43.400 --> 0:09:44.840 United States, as we've seen. 0:09:45.520 --> 0:09:47.840 To what do you attribute that well, I think people 0:09:47.920 --> 0:09:50.720 in Hong Kong have grown up with huge volatility in 0:09:50.760 --> 0:09:53.400 the past. If we go back to the early eighties, 0:09:53.440 --> 0:09:58.800 when I arrived here in nineteen eighty, residential property prices 0:09:58.840 --> 0:10:01.480 went up by between one hundred and one hundred and 0:10:01.520 --> 0:10:04.839 twenty five percent per annum for three years. 0:10:05.040 --> 0:10:07.679 That's remarkable, that's huge. That makes it one of the 0:10:07.720 --> 0:10:11.199 most volatile residential real estate markets in the world, doesn't. 0:10:10.960 --> 0:10:15.040 It Absolutely correct? And at that time I estimated that 0:10:15.160 --> 0:10:18.880 only about four or five percent of households could realistically 0:10:18.920 --> 0:10:22.840 afford to service a mortgage, And of course the inevitable happened. 0:10:23.120 --> 0:10:26.160 We saw a crash of mega proportions in the real 0:10:26.240 --> 0:10:29.760 estate market. It went down by seventy odd percent between 0:10:30.480 --> 0:10:34.080 early nineteen eighty one and the middle of nineteen eighty 0:10:34.080 --> 0:10:37.120 four over that three year period, and a lot of 0:10:37.160 --> 0:10:39.679 people were wiped out. So as a result of that, 0:10:39.760 --> 0:10:43.160 Hong Kong people, I think have learned not to take 0:10:43.200 --> 0:10:46.360 on too much debt, both at the household level and 0:10:46.440 --> 0:10:49.400 at the corporate level. So that's why you see people 0:10:49.440 --> 0:10:53.760 here quite resistant to loading themselves up with debt, whereas 0:10:53.920 --> 0:10:58.640 households in Australia, New Zealand, England US load themselves up 0:10:58.640 --> 0:10:59.800 with debt like crazy. 0:11:00.160 --> 0:11:03.400 Peter, there seems to be a shortage of rental properties 0:11:03.440 --> 0:11:06.400 around the world, despite the fact that home prices seem 0:11:06.480 --> 0:11:09.120 to be falling. How do we get into this situation? 0:11:09.559 --> 0:11:13.640 Yeah, that's an amazing question because when we started seeing 0:11:13.720 --> 0:11:17.560 rising interest rates, I didn't expect to see rents in 0:11:17.679 --> 0:11:21.680 major cities around the world rising, which is exactly what's happening. 0:11:22.120 --> 0:11:25.320 And I think there are several explanations for that. Firstly, 0:11:25.800 --> 0:11:30.760 affordability in major cities is not great, so people are renting, 0:11:30.840 --> 0:11:34.839 not buying. Unemployment is relatively low, so people have all 0:11:34.840 --> 0:11:37.360 got jobs, and a lot of those jobs are still 0:11:37.400 --> 0:11:40.080 in major cities. And there has not been a major 0:11:40.120 --> 0:11:43.400 construction boom in these cities, so there isn't a lot 0:11:43.440 --> 0:11:47.440 of excess supply around. So it's very fascinating to see 0:11:47.440 --> 0:11:49.920 that if you look around the world, even in Hong Kong. 0:11:49.960 --> 0:11:53.080 Now we've seen the last six months rents have picked up, 0:11:53.679 --> 0:11:56.600 prices have gone down, but rents have picked up. If 0:11:56.640 --> 0:12:01.320 you go to Sydney, Melbourne, Auckland, London, most of the 0:12:01.360 --> 0:12:05.960 major cities in the UK, France, Paris, major cities in 0:12:06.000 --> 0:12:10.600 the US, rents edging up, which is against the trend 0:12:10.679 --> 0:12:14.880 of prices. So what that's telling us is that yields 0:12:15.000 --> 0:12:19.839 on investment properties are rising, and that of course reflects 0:12:19.960 --> 0:12:22.559 the rise and interest rates. Well, people expect to get 0:12:22.559 --> 0:12:26.080 a higher yield. It's actually not a bad situation. So 0:12:26.120 --> 0:12:29.320 again it reduces the risk of systemic risk in the 0:12:29.320 --> 0:12:30.720 financial system because of this. 0:12:31.360 --> 0:12:34.840 Yeah, I agree with Peter says that the rental market 0:12:34.960 --> 0:12:37.440 is p is drawn in Hong Kong. Right, of course, 0:12:37.559 --> 0:12:40.240 arts as Hong Kong is also in other major city 0:12:40.320 --> 0:12:43.600 like Sydney or even before like Singapore. And then for 0:12:43.760 --> 0:12:46.000 Hong Kong, I think the good thing is that we 0:12:46.080 --> 0:12:48.560 look at the lumbers is already up almost like five 0:12:48.559 --> 0:12:51.520 to ten percent this year, and potentially we think that 0:12:51.600 --> 0:12:55.000 another five percent could happen in two to four And 0:12:55.040 --> 0:12:57.120 the challenge I think in the past is that we 0:12:57.920 --> 0:13:00.439 they have some properties and our fall for Hong Kong. 0:13:00.480 --> 0:13:02.640 But the things turned around and we see the government 0:13:02.720 --> 0:13:05.120 also willing to attract more talents to come to Hong 0:13:05.200 --> 0:13:08.240 Kong late first line months this year. We already have 0:13:08.640 --> 0:13:11.760 one hundred thousand of the new talents they get the 0:13:11.840 --> 0:13:13.959 visa and then coming to Hong Kong. Of course, lots 0:13:13.960 --> 0:13:16.200 of them from England Chinla, but we also see that 0:13:16.400 --> 0:13:20.360 potentially we could see that we have more and more coming, 0:13:20.520 --> 0:13:22.680 then we'll support the leasing market for the housing. 0:13:23.240 --> 0:13:26.760 So Patrick, in terms of Hong Kong housing prices, what's 0:13:26.760 --> 0:13:28.640 your forecast for next year? Are they still going to 0:13:28.720 --> 0:13:30.400 go down or do you see a recovery. 0:13:30.760 --> 0:13:33.440 One interesting question we just mentioned about the rants is 0:13:33.480 --> 0:13:35.920 going up right, which is really good. But on the 0:13:35.960 --> 0:13:38.800 other hand, I think there's also some potential with about 0:13:38.840 --> 0:13:42.440 the mortgageway going up again. I think recently in September 0:13:42.600 --> 0:13:46.400 we have HBC leading other bands to raise the mortgageway 0:13:46.400 --> 0:13:49.640 by fifty bases points. So that's something that when US 0:13:49.640 --> 0:13:54.040 didn't move up anything, so we also become more cautious 0:13:54.120 --> 0:13:56.839 if Hong Kong could also raise the mortgage way further 0:13:57.240 --> 0:13:59.920 right where we see the high ball Atturney's almost five 0:14:00.160 --> 0:14:04.160 sand and then we also see Portanzoly Toso Bonnu is 0:14:04.200 --> 0:14:07.319 also like four point five to five percent something like that, 0:14:07.400 --> 0:14:10.120 so you can also check it. The mortgageway could increase further. 0:14:10.280 --> 0:14:12.960 And for us, if we think the home prices we've 0:14:13.000 --> 0:14:16.199 been falling about five to ten percent next year, so 0:14:16.360 --> 0:14:18.240 this is under the bad job that with the mortgageway 0:14:18.240 --> 0:14:21.200 could also slightly increase and then off the rental you 0:14:21.360 --> 0:14:24.560 is still pretty low at this point, but hopefully the 0:14:24.680 --> 0:14:27.080 rants cranning up a bit at least one UMSTA can 0:14:27.200 --> 0:14:28.000 get more rants. 0:14:28.360 --> 0:14:28.560 Yeah. 0:14:28.680 --> 0:14:30.160 On the other side of that as well, on the 0:14:30.200 --> 0:14:34.480 supply side, Patrick, is quite important is that the forecast 0:14:34.640 --> 0:14:38.560 supply of new housing coming under the market is not huge, 0:14:38.640 --> 0:14:42.520 but it's increasing, it's not going down, so that's a 0:14:42.560 --> 0:14:45.360 factor as well. And you might also notice that the 0:14:45.400 --> 0:14:50.080 inventory of unsold property held by the property developers is 0:14:50.120 --> 0:14:53.080 the highest it's been for many years. So there's gonna 0:14:53.120 --> 0:14:55.920 be a little bit of pressure perhaps from the developers 0:14:55.960 --> 0:14:59.000 to maybe cut prices to get rid of inventory. Again, 0:14:59.080 --> 0:15:02.240 it's not massive, but it's a downward pressure, not an 0:15:02.280 --> 0:15:02.920 upward one. 0:15:03.160 --> 0:15:05.440 Yeah. True, it's quite different from the situation on you 0:15:05.480 --> 0:15:08.320 in Lane Light and I believe right, Peter, oh very 0:15:08.400 --> 0:15:08.720 much so. 0:15:10.360 --> 0:15:14.200 Our guests on Asia Centric are Peter church House of 0:15:14.240 --> 0:15:18.480 port Wood Capital and Patrick Wong, senior property analyst with 0:15:18.480 --> 0:15:23.080 Bloomberg Intelligence. Gentlemen, what will it take to pull Hong 0:15:23.240 --> 0:15:26.680 Kong out of its residential property price slump? Is it 0:15:26.840 --> 0:15:29.680 just a matter of interest rates coming back down? And 0:15:29.880 --> 0:15:32.280 what do you think a recovery will look like? 0:15:33.160 --> 0:15:37.400 Well? Maybe if I jump in first. Quite frankly, the 0:15:37.440 --> 0:15:40.720 broader economy is hugely important for Hong Kong. As we know, 0:15:40.880 --> 0:15:43.400 last year the economy contracted by three three and a 0:15:43.440 --> 0:15:47.120 half percent. That clearly is one of the worst contractions 0:15:47.400 --> 0:15:50.000 you would normally expect to see in any economy. But 0:15:50.080 --> 0:15:52.480 we didn't see it complete crash in the property market, 0:15:52.720 --> 0:15:56.960 even with interest rates rising, so unemployment is still relatively low. 0:15:57.440 --> 0:15:59.240 What we are going to see, I think a very 0:15:59.240 --> 0:16:02.640 big positive for Hong Kong will be what goes on 0:16:02.720 --> 0:16:05.960 in the Greater Bay Area to our north. We keep 0:16:05.960 --> 0:16:09.640 hearing endless stories of massive investment being pushed into the 0:16:09.640 --> 0:16:14.040 Greater Bay Area for technology, creating a huge technology hub, 0:16:14.120 --> 0:16:18.680 AI hub, med tech, robotics, whatever you want to name it. 0:16:18.680 --> 0:16:21.600 It's going to happen there, and Hong Kong will inevitably, 0:16:21.680 --> 0:16:25.320 I think, continue to play a role as a conduit 0:16:25.760 --> 0:16:31.640 of skilled capital and so on to that growth node. Also, 0:16:31.760 --> 0:16:36.240 we're going to see I suspect a growing need for 0:16:36.840 --> 0:16:41.280 asset management for Chinese assets in the North, and Hong 0:16:41.360 --> 0:16:45.600 Kong will likely set itself up as a place where 0:16:45.640 --> 0:16:50.680 those assets can be managed, both in wealth management, institutional 0:16:50.760 --> 0:16:55.080 asset management and also in things like insurance services. That 0:16:55.120 --> 0:17:00.240 will provide a fillip to high end job growth, I think, 0:17:00.240 --> 0:17:03.040 which will have an impact and a follow on impact 0:17:03.320 --> 0:17:04.719 into the residential market. 0:17:04.840 --> 0:17:07.680 Yeah. I also agree with that, and interestingly, I think 0:17:07.760 --> 0:17:11.199 apart from the mortgageway or interest way increased recently, another 0:17:11.280 --> 0:17:14.119 point I want to say is about the situation we 0:17:14.240 --> 0:17:18.720 have Hong Kong become more mainland slication that is the 0:17:18.840 --> 0:17:22.359 terms that we use in the latest for Hong Kong Singapore, 0:17:22.960 --> 0:17:26.120 and that is really interesting one because I would say 0:17:26.119 --> 0:17:28.479 that for Hong Kong, we also see more and more 0:17:28.560 --> 0:17:31.840 mainland talents coming to Hong Kong. So that is also 0:17:31.880 --> 0:17:35.879 important to support over economy, and not just about the 0:17:35.880 --> 0:17:39.399 housing market the ranks, but also about support them. Like 0:17:39.440 --> 0:17:43.439 the workflow here, the workforce is very important and like 0:17:43.520 --> 0:17:47.360 concerstion setup for example, we need more and more workers 0:17:47.440 --> 0:17:50.000 and unfortunately in Hong Kong. In the past, the population 0:17:50.160 --> 0:17:54.120 also cover stabilized at some point or even coming time 0:17:54.200 --> 0:17:56.879 a little bit. So this time I think we have 0:17:57.000 --> 0:18:01.320 more population info drive the market Tolmow, and then then 0:18:01.359 --> 0:18:04.480 it's also impottern to drive to a back to a 0:18:04.640 --> 0:18:05.600 more healthy level. 0:18:06.160 --> 0:18:06.400 Yeah. 0:18:06.640 --> 0:18:09.280 Adding to that, I think the one thing that has 0:18:09.320 --> 0:18:13.520 always concerned me in Hong Kong is that affordability for 0:18:13.600 --> 0:18:15.960 housing is very bad. It's one of the worst in 0:18:16.000 --> 0:18:19.520 the world. Pretty much anybody knows that, and that really 0:18:19.600 --> 0:18:24.320 is a result of government policy. And that policy is 0:18:24.359 --> 0:18:28.000 basically to drip feed land onto the market at a 0:18:28.119 --> 0:18:33.880 rate which almost guarantees that land praces remain relatively high, 0:18:34.080 --> 0:18:39.360 which means that in the end product also remains relatively high. 0:18:39.680 --> 0:18:43.280 So we end up within a very difficult affordability situation 0:18:43.760 --> 0:18:46.639 in Hong Kong, to the extent that something like forty 0:18:46.680 --> 0:18:50.000 five or fifty percent of the population cannot afford to 0:18:50.080 --> 0:18:51.000 own their own home. 0:18:51.800 --> 0:18:54.760 Peter, there's another segment of the property market that seems 0:18:54.800 --> 0:18:57.760 to be really suffering, and that's obviously office. We just 0:18:57.800 --> 0:19:01.240 had we work far for bankruptcy. What's your view there 0:19:01.280 --> 0:19:03.240 in terms of the Hong Kong commercial space. 0:19:03.800 --> 0:19:07.959 Yeah, the commercial market definitely seems a little on the 0:19:07.960 --> 0:19:11.359 soft side, and it's really started as a product of 0:19:11.760 --> 0:19:16.280 COVID and even pre COVID. Really historically, the office market 0:19:16.359 --> 0:19:20.679 in Hong Kong has maintained vacancy rates of under five percent, 0:19:20.760 --> 0:19:22.800 some of the lowest in the world. They are now 0:19:22.840 --> 0:19:25.560 running at about thirteen percent, which I think is the 0:19:25.640 --> 0:19:28.080 highest I can remember. In the time that I've been here, 0:19:28.680 --> 0:19:31.840 We've seen office rentals correct by about thirty thirty one 0:19:31.920 --> 0:19:36.720 percent over the last two and a half to three years. So, yeah, 0:19:36.720 --> 0:19:40.240 we've got an oversupply situation in the office market, and 0:19:40.280 --> 0:19:43.199 if we look the next couple of years, we're going 0:19:43.240 --> 0:19:47.520 to see an increase in production or completions of office space, 0:19:47.520 --> 0:19:50.960 So that tends to actually make the situation a little worse. 0:19:51.560 --> 0:19:53.280 The next two or three years, we're going to see 0:19:53.359 --> 0:19:56.600 supply pick up to north of two million square feet 0:19:56.880 --> 0:20:00.280 at a time when we've already got record high vacancy rates. 0:20:00.680 --> 0:20:04.719 So that suggests unless we get a massive surge in 0:20:04.720 --> 0:20:09.720 the economy and a massive surge of inflow of service workers, 0:20:10.000 --> 0:20:13.040 then we're going to see vacancy rates continue pretty high 0:20:13.320 --> 0:20:16.359 and see a continuation of soft rints certainly over the 0:20:16.359 --> 0:20:17.600 next one to two years. 0:20:18.280 --> 0:20:20.240 Yeah, I think. Then the other point I want to 0:20:20.240 --> 0:20:22.880 make here is about the occupancy of the little buildings, 0:20:22.920 --> 0:20:26.320 because we also find that the occupancy going up a 0:20:26.359 --> 0:20:29.199 little bit just for those little buildings, it's not as 0:20:29.280 --> 0:20:31.560 quick as before like in the past. I think back 0:20:31.600 --> 0:20:34.119 to like five years ago when Swie Properties have the 0:20:34.200 --> 0:20:37.520 one typo pace in Corey Bay competer it's all one 0:20:37.560 --> 0:20:41.160 hundred percent p lease earlier before the competition, but now 0:20:41.280 --> 0:20:44.240 for two typo paces project also another one million square 0:20:44.280 --> 0:20:47.240 feet project, but the occupancy rate is still less than 0:20:47.320 --> 0:20:50.800 sixty percent after he competed for quite a bit of months. 0:20:50.960 --> 0:20:54.000 Then we also see the Henderson in Central it's also 0:20:54.080 --> 0:20:57.080 just approaching fifty percent. Please, But of course it's really 0:20:57.119 --> 0:21:00.440 good when we see the over occupancy way it is 0:21:00.600 --> 0:21:03.280 less than ninety percent for the whole Hong Kong. So 0:21:03.640 --> 0:21:06.520 it's something that ever we see before that heap situation, 0:21:07.160 --> 0:21:09.439 and I guess it's also a cover a bit of 0:21:09.680 --> 0:21:12.800 cyclical for the inchest way going up possibly a reason 0:21:13.280 --> 0:21:15.919 and then also the structural reason we've like the pandemic 0:21:16.040 --> 0:21:19.240 after that is the return to office from home policy 0:21:19.320 --> 0:21:22.119 that how changes it also makes lots of banks they 0:21:22.119 --> 0:21:24.680 also think about using the hot dass and then also 0:21:24.720 --> 0:21:26.920 cutting down the space a bit. We also see the 0:21:27.040 --> 0:21:31.440 copic demands not as strong as before, so that's another problem. 0:21:31.560 --> 0:21:34.040 Yeah, I think also you could add to that list, 0:21:34.160 --> 0:21:36.120 which is a pretty long list, I have to say, 0:21:36.400 --> 0:21:40.439 you could add to geopolitics. China is not flavor of 0:21:40.440 --> 0:21:45.040 the months these days with the Western businesses. The propensity 0:21:45.160 --> 0:21:48.160 to invest in Hong Kong, invest in China by foreign 0:21:48.240 --> 0:21:51.720 companies has dropped off markedly. We've seen one hundred and 0:21:51.760 --> 0:21:54.800 twenty thousand people flow out of Hong Kong twenty twenty 0:21:54.800 --> 0:21:59.280 two twenty one. We've seen significant numbers of companies relocate 0:22:00.119 --> 0:22:04.320 central portions or perhaps all of their offices to other locations, 0:22:04.359 --> 0:22:09.320 particularly to Singapore. So the geopolitical situation is having a 0:22:09.359 --> 0:22:11.720 bit of a negative impact on the market. But again 0:22:12.359 --> 0:22:16.320 my sort of suggestion is that that's going to be 0:22:16.400 --> 0:22:20.720 filled up by rapid investment in the Greater Bay area 0:22:20.800 --> 0:22:22.679 over the course of the next two or three years. 0:22:22.960 --> 0:22:25.199 So that I think is going to fill up a 0:22:25.200 --> 0:22:27.600 lot of the gap that's been left by foreign companies 0:22:27.640 --> 0:22:30.160 and foreign investors who have left Hong Kong. 0:22:30.720 --> 0:22:33.600