Speaker 1: You're listening to Asia Centric from Bloomberg Intelligence, the podcast
Speaker 1: that pulls back the curtain non global business so you
Speaker 1: can invest better across the Pacific rim. I'm Tom Corbett
Speaker 1: in Hong Kong.
Speaker 2: And I'm John Lee. The world's leading real estate markets
Speaker 2: have been testing the stamina of even the most experienced investors.
Speaker 1: Rising interest rates, too much debt, and eye popping price
Speaker 1: wings have shaken up commercial and residential real estate from
Speaker 1: China to Europe, to the US and beyond.
Speaker 2: Here in Hong Kong, rates have put a chill on
Speaker 2: home sales and prices, with some mortgages sleeping underwater, and
Speaker 2: commercial real estate still struggles with pandemic effects and geopolitical threats.
Speaker 1: Is the real estate route almost over for global cities?
Speaker 1: What will a recovery look like? And what are the
Speaker 1: long term risks and opportunities. Let's bring in someone who
Speaker 1: knows real estate as well as anyone. Peter church House,
Speaker 1: a veteran property consultant at port Wood Capital.
Speaker 2: And Patrick Wong, senior property analyst with Bloomberg Intelligence.
Speaker 1: Peter and Patrick, it's great to have you.
Speaker 3: Thank you, thanks very much, lovely to be back.
Speaker 2: Hi, Peter. Central Banks around the world have been hiking
Speaker 2: interest rates in an unprecedented pace. The Fed in particular
Speaker 2: has hike winterest rates by almost five hundred basis points
Speaker 2: in two years. Global housing prices have started to fall
Speaker 2: in your forty year experience. How serious is this housing
Speaker 2: downturn compared to other cycles.
Speaker 3: Well, to be honest, think about it, the global real
Speaker 3: estate market has been fairly homogeneous if you look at it.
Speaker 3: Over the last decade since the global financial crisis, central
Speaker 3: banks around the world cut interest rates pretty much universally
Speaker 3: to very low levels and for many countries record low levels. Now,
Speaker 3: that created obviously very good conditions for real estate generally
Speaker 3: around the world, and we did see prices picking up
Speaker 3: in most countries around the world residential, commercial, even retail
Speaker 3: and so on. And of course what didn't happen during
Speaker 3: that period is we didn't really see a major construction boom.
Speaker 3: Most times in the past when we've seen low interest
Speaker 3: rates like that, we've seen a massive increase in construction,
Speaker 3: which has led ultimately to a massive oversupply of real
Speaker 3: estate in various forms. This cycle has been quite different.
Speaker 3: So as we're going into a slow down as interest
Speaker 3: rates rise, we are not seeing around the world, massive
Speaker 3: problems with excess supply in certain cities, yes, like San
Speaker 3: Francisco in the commercial market, but certainly not in the
Speaker 3: residential markets around the world. So that I think has
Speaker 3: been a very positive outcome of this last decade, and
Speaker 3: that in one sense, will suggest that we may not
Speaker 3: see a massive crash in real estate prices as we've
Speaker 3: seen in other cycles.
Speaker 2: Economists and analysts, we're talking about a fixed rate mortgage
Speaker 2: cliff where homeowners would see their mortgage payments balloon after
Speaker 2: their role their fixed rate or honeymoon rates, but this
Speaker 2: never really happened. What's your view.
Speaker 3: Well, in the US, of course, fixed rate mortgages run
Speaker 3: for twenty to thirty years, so if you've taken on
Speaker 3: a mortgage in the last five years, you're not going
Speaker 3: to fall off any cliff anytime soon unless you sell
Speaker 3: your property and then get another mortgage. You will buy
Speaker 3: another property and then you're going to be paying the
Speaker 3: higher mortgage. What we see in other Western countries is
Speaker 3: that a lot of people do take out three to
Speaker 3: five year fixed rate mortgages, and those are going to
Speaker 3: be starting to reseet in the coming year or so,
Speaker 3: one guesses. But having said that it's unlikely that we're
Speaker 3: going to see a major series of defaults in the
Speaker 3: residential market, largely because for several reasons so far at least,
Speaker 3: is that unemployment is still very low. People have all
Speaker 3: got jobs. Secondly, in many countries, they don't have a
Speaker 3: lot of other debt, maybe with the exception of the US,
Speaker 3: where there's a lot of credit card debt, education debt,
Speaker 3: university debt, and so on. And again you couple that
Speaker 3: with the thought that for most central banks like the
Speaker 3: FED and the Bank of England and the Eurozone, interest
Speaker 3: rates probably have pretty much peaked or maybe have a
Speaker 3: little way to run. But we're not going to see
Speaker 3: the interest rates that we saw in the early eighties
Speaker 3: under the Volkar regime, where we went to sixteen seventeen
Speaker 3: eighteen percent from six or seven percent. So I think
Speaker 3: the interest rate cycle isn't going to be as debilitating
Speaker 3: as it has been in the past.
Speaker 1: Peter church House, you just struck a rather optimistic or
Speaker 1: an upbeat sounding tone. We talked about interest rates, you
Speaker 1: mentioned those in the nineteen seventies. We do have an
Speaker 1: entire generation of investors today who've never seen interest rates
Speaker 1: as high as they are, or at least rise as
Speaker 1: quickly as they have. They've never seen this somewhat unique
Speaker 1: set of conditions. You must talk with younger investors when
Speaker 1: they come up to you and ask you about it.
Speaker 1: Do you tell them what this tool shall pass this time?
Speaker 1: It's different or not different?
Speaker 3: Well, every time is different, which is always we have
Speaker 3: to learn from We have to learn from history also.
Speaker 3: So I get asked the question a huge number of
Speaker 3: times from people of all ages and occupations and stripes.
Speaker 3: I'm looking at buying a property, of buying my first
Speaker 3: house or buying another house, What should I do? Well,
Speaker 3: that's always a very difficult question because you don't know
Speaker 3: the personal situation of each person. But what I do
Speaker 3: say to people often, particularly in Hong Kong, where the
Speaker 3: property market is usually very tight and it's very hard
Speaker 3: often to find the property that you want. And if
Speaker 3: it means that you can afford to put down the
Speaker 3: deposit and you can afford to pay the coupon the
Speaker 3: interest rate, then probably you should take the plunge. If
Speaker 3: you're looking at a long term situation where you and
Speaker 3: your family want to live in your own home. If
Speaker 3: you're looking at an investment to buy a property for
Speaker 3: a quick flip, or to invest for a few years
Speaker 3: and sell on and make a profit. That's a different question.
Speaker 1: Peter church House point well taken. Patrick Wong with Bloomberg
Speaker 1: Intelligence your team wrote recently about Hong Kong's negative equity mortgages.
Speaker 1: In more popular parlance, they're known as underwater mortgages where
Speaker 1: the amount, oh the balance is actually higher than what
Speaker 1: the property is worth. We've seen the pace pick up
Speaker 1: in Hong Kong that was a big issue in the
Speaker 1: United States back during the two thousand and seven two
Speaker 1: thousand and eight crisis. Talk about underwater mortgages in Hong Kong.
Speaker 1: Are they really that unusual and is it really that
Speaker 1: big a problem?
Speaker 4: Yeah, I think that is an interesting point to look
Speaker 4: at because for the past decade in Hong Kong, we
Speaker 4: also see the situation that the mortgage is basically the
Speaker 4: long term watery, so it's pretty low right, So basically
Speaker 4: we have the lots of mortgages. They're really willing to
Speaker 4: like having more home mortgage and larry. It's also come
Speaker 4: to an interesting point that the interest way is going up.
Speaker 4: At the same time we see the government also doing
Speaker 4: quite a lot of morgage easing over the past couple
Speaker 4: of years. And the challenge I think we could see
Speaker 4: is that if the situation like that, like we have
Speaker 4: lots of ninety percent five percent cover mortgage room there
Speaker 4: and we also have the price coming down almost twenty
Speaker 4: percent from the peak, right, we could see that cover
Speaker 4: leged mortgage, it could happen further. But having said that,
Speaker 4: in Hong Kong the current situation, we also find lots
Speaker 4: of the homeowners they still can pay the basically the
Speaker 4: mortgage payment every month. Although if it's true that we
Speaker 4: see the mortgage payment every monthday paying, it's getting high
Speaker 4: and high with the mortgage rate heights. So if the
Speaker 4: economy is still doing okay at this point and employmary
Speaker 4: is so low, that's fine, but we all be taken
Speaker 4: to our canda. Certain k could happen over two or
Speaker 4: two four.
Speaker 3: Yeah, Patrick, I think you've described that pretty well. Just
Speaker 3: to put some numbers around that, if you think about
Speaker 3: Hong Kong at the moment, we have something like one
Speaker 3: point three five million homeowners in Hong Kong. At the moment,
Speaker 3: eleven thousand, one hundred of those homeowners are underwater on
Speaker 3: their mortgage. That's less than one percent is about point
Speaker 3: eight of one percent, which is a very very low. Indeed,
Speaker 3: if we think back in history the bottom of the market.
Speaker 3: In two thousand and three, we had over one hundred
Speaker 3: and ten thousand households underwater. But what was the percentage
Speaker 3: of non performing loans? People didn't stop paying their mortgages.
Speaker 3: The percentage of non paying mortgages was about one point
Speaker 3: two or one point four percent, a very very tiny proportion.
Speaker 3: So Hong Kong people typically, even if the underwater, continue
Speaker 3: to pay the mortgage. In many other parts of the world,
Speaker 3: particularly in the US and so on, people just hand
Speaker 3: the keys back to the bank and say it's yours, buddy,
Speaker 3: I'm leaving. But people in Hong Kong don't do that.
Speaker 3: And so I'm reasonably encouraged by Hong Kong consumer behavior
Speaker 3: in that sense. And also, I very strongly doubt whether
Speaker 3: we're going to see one hundred thousand people underwater in
Speaker 3: their mortgages. Given that the average loan to value ratio
Speaker 3: in Hong Kong is about fifty five percent and about
Speaker 3: sixty percent of homeowners don't even have a mortgage.
Speaker 1: What do you think explain to that? Peter church House
Speaker 1: that people still pay their mortgages, that the non performing
Speaker 1: mortgage ratio stays law are much lower than in the
Speaker 1: United States, as we've seen.
Speaker 3: To what do you attribute that well, I think people
Speaker 3: in Hong Kong have grown up with huge volatility in
Speaker 3: the past. If we go back to the early eighties,
Speaker 3: when I arrived here in nineteen eighty, residential property prices
Speaker 3: went up by between one hundred and one hundred and
Speaker 3: twenty five percent per annum for three years.
Speaker 1: That's remarkable, that's huge. That makes it one of the
Speaker 1: most volatile residential real estate markets in the world, doesn't.
Speaker 3: It Absolutely correct? And at that time I estimated that
Speaker 3: only about four or five percent of households could realistically
Speaker 3: afford to service a mortgage, And of course the inevitable happened.
Speaker 3: We saw a crash of mega proportions in the real
Speaker 3: estate market. It went down by seventy odd percent between
Speaker 3: early nineteen eighty one and the middle of nineteen eighty
Speaker 3: four over that three year period, and a lot of
Speaker 3: people were wiped out. So as a result of that,
Speaker 3: Hong Kong people, I think have learned not to take
Speaker 3: on too much debt, both at the household level and
Speaker 3: at the corporate level. So that's why you see people
Speaker 3: here quite resistant to loading themselves up with debt, whereas
Speaker 3: households in Australia, New Zealand, England US load themselves up
Speaker 3: with debt like crazy.
Speaker 2: Peter, there seems to be a shortage of rental properties
Speaker 2: around the world, despite the fact that home prices seem
Speaker 2: to be falling. How do we get into this situation?
Speaker 3: Yeah, that's an amazing question because when we started seeing
Speaker 3: rising interest rates, I didn't expect to see rents in
Speaker 3: major cities around the world rising, which is exactly what's happening.
Speaker 3: And I think there are several explanations for that. Firstly,
Speaker 3: affordability in major cities is not great, so people are renting,
Speaker 3: not buying. Unemployment is relatively low, so people have all
Speaker 3: got jobs, and a lot of those jobs are still
Speaker 3: in major cities. And there has not been a major
Speaker 3: construction boom in these cities, so there isn't a lot
Speaker 3: of excess supply around. So it's very fascinating to see
Speaker 3: that if you look around the world, even in Hong Kong.
Speaker 3: Now we've seen the last six months rents have picked up,
Speaker 3: prices have gone down, but rents have picked up. If
Speaker 3: you go to Sydney, Melbourne, Auckland, London, most of the
Speaker 3: major cities in the UK, France, Paris, major cities in
Speaker 3: the US, rents edging up, which is against the trend
Speaker 3: of prices. So what that's telling us is that yields
Speaker 3: on investment properties are rising, and that of course reflects
Speaker 3: the rise and interest rates. Well, people expect to get
Speaker 3: a higher yield. It's actually not a bad situation. So
Speaker 3: again it reduces the risk of systemic risk in the
Speaker 3: financial system because of this.
Speaker 4: Yeah, I agree with Peter says that the rental market
Speaker 4: is p is drawn in Hong Kong. Right, of course,
Speaker 4: arts as Hong Kong is also in other major city
Speaker 4: like Sydney or even before like Singapore. And then for
Speaker 4: Hong Kong, I think the good thing is that we
Speaker 4: look at the lumbers is already up almost like five
Speaker 4: to ten percent this year, and potentially we think that
Speaker 4: another five percent could happen in two to four And
Speaker 4: the challenge I think in the past is that we
Speaker 4: they have some properties and our fall for Hong Kong.
Speaker 4: But the things turned around and we see the government
Speaker 4: also willing to attract more talents to come to Hong
Speaker 4: Kong late first line months this year. We already have
Speaker 4: one hundred thousand of the new talents they get the
Speaker 4: visa and then coming to Hong Kong. Of course, lots
Speaker 4: of them from England Chinla, but we also see that
Speaker 4: potentially we could see that we have more and more coming,
Speaker 4: then we'll support the leasing market for the housing.
Speaker 2: So Patrick, in terms of Hong Kong housing prices, what's
Speaker 2: your forecast for next year? Are they still going to
Speaker 2: go down or do you see a recovery.
Speaker 4: One interesting question we just mentioned about the rants is
Speaker 4: going up right, which is really good. But on the
Speaker 4: other hand, I think there's also some potential with about
Speaker 4: the mortgageway going up again. I think recently in September
Speaker 4: we have HBC leading other bands to raise the mortgageway
Speaker 4: by fifty bases points. So that's something that when US
Speaker 4: didn't move up anything, so we also become more cautious
Speaker 4: if Hong Kong could also raise the mortgage way further
Speaker 4: right where we see the high ball Atturney's almost five
Speaker 4: sand and then we also see Portanzoly Toso Bonnu is
Speaker 4: also like four point five to five percent something like that,
Speaker 4: so you can also check it. The mortgageway could increase further.
Speaker 4: And for us, if we think the home prices we've
Speaker 4: been falling about five to ten percent next year, so
Speaker 4: this is under the bad job that with the mortgageway
Speaker 4: could also slightly increase and then off the rental you
Speaker 4: is still pretty low at this point, but hopefully the
Speaker 4: rants cranning up a bit at least one UMSTA can
Speaker 4: get more rants.
Speaker 1: Yeah.
Speaker 3: On the other side of that as well, on the
Speaker 3: supply side, Patrick, is quite important is that the forecast
Speaker 3: supply of new housing coming under the market is not huge,
Speaker 3: but it's increasing, it's not going down, so that's a
Speaker 3: factor as well. And you might also notice that the
Speaker 3: inventory of unsold property held by the property developers is
Speaker 3: the highest it's been for many years. So there's gonna
Speaker 3: be a little bit of pressure perhaps from the developers
Speaker 3: to maybe cut prices to get rid of inventory. Again,
Speaker 3: it's not massive, but it's a downward pressure, not an
Speaker 3: upward one.
Speaker 4: Yeah. True, it's quite different from the situation on you
Speaker 4: in Lane Light and I believe right, Peter, oh very
Speaker 4: much so.
Speaker 1: Our guests on Asia Centric are Peter church House of
Speaker 1: port Wood Capital and Patrick Wong, senior property analyst with
Speaker 1: Bloomberg Intelligence. Gentlemen, what will it take to pull Hong
Speaker 1: Kong out of its residential property price slump? Is it
Speaker 1: just a matter of interest rates coming back down? And
Speaker 1: what do you think a recovery will look like?
Speaker 3: Well? Maybe if I jump in first. Quite frankly, the
Speaker 3: broader economy is hugely important for Hong Kong. As we know,
Speaker 3: last year the economy contracted by three three and a
Speaker 3: half percent. That clearly is one of the worst contractions
Speaker 3: you would normally expect to see in any economy. But
Speaker 3: we didn't see it complete crash in the property market,
Speaker 3: even with interest rates rising, so unemployment is still relatively low.
Speaker 3: What we are going to see, I think a very
Speaker 3: big positive for Hong Kong will be what goes on
Speaker 3: in the Greater Bay Area to our north. We keep
Speaker 3: hearing endless stories of massive investment being pushed into the
Speaker 3: Greater Bay Area for technology, creating a huge technology hub,
Speaker 3: AI hub, med tech, robotics, whatever you want to name it.
Speaker 3: It's going to happen there, and Hong Kong will inevitably,
Speaker 3: I think, continue to play a role as a conduit
Speaker 3: of skilled capital and so on to that growth node. Also,
Speaker 3: we're going to see I suspect a growing need for
Speaker 3: asset management for Chinese assets in the North, and Hong
Speaker 3: Kong will likely set itself up as a place where
Speaker 3: those assets can be managed, both in wealth management, institutional
Speaker 3: asset management and also in things like insurance services. That
Speaker 3: will provide a fillip to high end job growth, I think,
Speaker 3: which will have an impact and a follow on impact
Speaker 3: into the residential market.
Speaker 4: Yeah. I also agree with that, and interestingly, I think
Speaker 4: apart from the mortgageway or interest way increased recently, another
Speaker 4: point I want to say is about the situation we
Speaker 4: have Hong Kong become more mainland slication that is the
Speaker 4: terms that we use in the latest for Hong Kong Singapore,
Speaker 4: and that is really interesting one because I would say
Speaker 4: that for Hong Kong, we also see more and more
Speaker 4: mainland talents coming to Hong Kong. So that is also
Speaker 4: important to support over economy, and not just about the
Speaker 4: housing market the ranks, but also about support them. Like
Speaker 4: the workflow here, the workforce is very important and like
Speaker 4: concerstion setup for example, we need more and more workers
Speaker 4: and unfortunately in Hong Kong. In the past, the population
Speaker 4: also cover stabilized at some point or even coming time
Speaker 4: a little bit. So this time I think we have
Speaker 4: more population info drive the market Tolmow, and then then
Speaker 4: it's also impottern to drive to a back to a
Speaker 4: more healthy level.
Speaker 1: Yeah.
Speaker 3: Adding to that, I think the one thing that has
Speaker 3: always concerned me in Hong Kong is that affordability for
Speaker 3: housing is very bad. It's one of the worst in
Speaker 3: the world. Pretty much anybody knows that, and that really
Speaker 3: is a result of government policy. And that policy is
Speaker 3: basically to drip feed land onto the market at a
Speaker 3: rate which almost guarantees that land praces remain relatively high,
Speaker 3: which means that in the end product also remains relatively high.
Speaker 3: So we end up within a very difficult affordability situation
Speaker 3: in Hong Kong, to the extent that something like forty
Speaker 3: five or fifty percent of the population cannot afford to
Speaker 3: own their own home.
Speaker 2: Peter, there's another segment of the property market that seems
Speaker 2: to be really suffering, and that's obviously office. We just
Speaker 2: had we work far for bankruptcy. What's your view there
Speaker 2: in terms of the Hong Kong commercial space.
Speaker 3: Yeah, the commercial market definitely seems a little on the
Speaker 3: soft side, and it's really started as a product of
Speaker 3: COVID and even pre COVID. Really historically, the office market
Speaker 3: in Hong Kong has maintained vacancy rates of under five percent,
Speaker 3: some of the lowest in the world. They are now
Speaker 3: running at about thirteen percent, which I think is the
Speaker 3: highest I can remember. In the time that I've been here,
Speaker 3: We've seen office rentals correct by about thirty thirty one
Speaker 3: percent over the last two and a half to three years. So, yeah,
Speaker 3: we've got an oversupply situation in the office market, and
Speaker 3: if we look the next couple of years, we're going
Speaker 3: to see an increase in production or completions of office space,
Speaker 3: So that tends to actually make the situation a little worse.
Speaker 3: The next two or three years, we're going to see
Speaker 3: supply pick up to north of two million square feet
Speaker 3: at a time when we've already got record high vacancy rates.
Speaker 3: So that suggests unless we get a massive surge in
Speaker 3: the economy and a massive surge of inflow of service workers,
Speaker 3: then we're going to see vacancy rates continue pretty high
Speaker 3: and see a continuation of soft rints certainly over the
Speaker 3: next one to two years.
Speaker 4: Yeah, I think. Then the other point I want to
Speaker 4: make here is about the occupancy of the little buildings,
Speaker 4: because we also find that the occupancy going up a
Speaker 4: little bit just for those little buildings, it's not as
Speaker 4: quick as before like in the past. I think back
Speaker 4: to like five years ago when Swie Properties have the
Speaker 4: one typo pace in Corey Bay competer it's all one
Speaker 4: hundred percent p lease earlier before the competition, but now
Speaker 4: for two typo paces project also another one million square
Speaker 4: feet project, but the occupancy rate is still less than
Speaker 4: sixty percent after he competed for quite a bit of months.
Speaker 4: Then we also see the Henderson in Central it's also
Speaker 4: just approaching fifty percent. Please, But of course it's really
Speaker 4: good when we see the over occupancy way it is
Speaker 4: less than ninety percent for the whole Hong Kong. So
Speaker 4: it's something that ever we see before that heap situation,
Speaker 4: and I guess it's also a cover a bit of
Speaker 4: cyclical for the inchest way going up possibly a reason
Speaker 4: and then also the structural reason we've like the pandemic
Speaker 4: after that is the return to office from home policy
Speaker 4: that how changes it also makes lots of banks they
Speaker 4: also think about using the hot dass and then also
Speaker 4: cutting down the space a bit. We also see the
Speaker 4: copic demands not as strong as before, so that's another problem.
Speaker 3: Yeah, I think also you could add to that list,
Speaker 3: which is a pretty long list, I have to say,
Speaker 3: you could add to geopolitics. China is not flavor of
Speaker 3: the months these days with the Western businesses. The propensity
Speaker 3: to invest in Hong Kong, invest in China by foreign
Speaker 3: companies has dropped off markedly. We've seen one hundred and
Speaker 3: twenty thousand people flow out of Hong Kong twenty twenty
Speaker 3: two twenty one. We've seen significant numbers of companies relocate
Speaker 3: central portions or perhaps all of their offices to other locations,
Speaker 3: particularly to Singapore. So the geopolitical situation is having a
Speaker 3: bit of a negative impact on the market. But again
Speaker 3: my sort of suggestion is that that's going to be
Speaker 3: filled up by rapid investment in the Greater Bay area
Speaker 3: over the course of the next two or three years.
Speaker 3: So that I think is going to fill up a
Speaker 3: lot of the gap that's been left by foreign companies
Speaker 3: and foreign investors who have left Hong Kong.
Speaker 2: So if you're a Hong Kong developer, what can you
Speaker 2: do if you're building something new with a load demand.
Speaker 3: Well, I think what a lot of people are looking at,
Speaker 3: and this is certainly the example we're seeing in places
Speaker 3: like London and big cities in the US is that
Speaker 3: people are building better and better quality commercial buildings that
Speaker 3: have high ESG, Environmental Social Governance Standards LEED standards and
Speaker 3: so on, because a lot of tenants, a lot of
Speaker 3: relocate or locate in buildings with high environmental standards, so
Speaker 3: they can then claim credits to their ESG score in
Speaker 3: this global push for decarbonization and so on. Look at
Speaker 3: London as an example. You can see in London very
Speaker 3: distinct differences and occupancy rates between high environmental quality buildings
Speaker 3: and those right next to them which are much lower quality.
Speaker 3: Not just the occupancy levels, but the average rents. The
Speaker 3: rental differential can be as much as thirty to forty
Speaker 3: forty five percent difference between the high quality versus the
Speaker 3: average to low quality buildings.
Speaker 2: So, Peter, in terms of investments, what are you looking
Speaker 2: at right now?
Speaker 3: Well, if you're looking at property stocks around the world,
Speaker 3: property stocks are not flavor of the month by any means,
Speaker 3: and that's very largely the macro conditions, not necessarily the
Speaker 3: local micro conditions, but really the macro ie rising interest
Speaker 3: rates can consered by investors as being negative for real
Speaker 3: estate full stop. That of course isn't always the case
Speaker 3: and is not necessary the case. But what we're seeing
Speaker 3: now is around the world is that listed property companies
Speaker 3: are trading at deep discounts to their underlying asset value
Speaker 3: and very often at very low price earnings ratios and
Speaker 3: with particularly high dividend yields. And Hong Kong is an
Speaker 3: absolute classic case and point. The big large property companies
Speaker 3: in Hong Kong, great world class companies, some of the
Speaker 3: best in the world, are trading at anything in the
Speaker 3: region of fifty to sixty five percent discount to their
Speaker 3: underlying net asset value. That means you are buying effectively
Speaker 3: if you look at it, you are buying a Grade
Speaker 3: A office building which worth one hundred million, you are
Speaker 3: buying it for fifty million or less. That's effectively what
Speaker 3: you're doing when you're looking at Hong Kong property stocks.
Speaker 3: And these are not shonky low class companies. These are
Speaker 3: well managed, well capitalized companies with great quality asset.
Speaker 2: Peter, before you go, I have to ask you've been
Speaker 2: a successful analyst and investor for over forty years. You
Speaker 2: were a storied analyst at Morgan Stanley in Hong Kong,
Speaker 2: and then you invested your own money. Is there any
Speaker 2: investment that you made that you're particularly proud of that
Speaker 2: you'd like to share with us.
Speaker 3: Oh? Well, I've made some that I've been a particular
Speaker 3: disasters as well, but luckily I never invest so much
Speaker 3: that I can't afford to lose.
Speaker 1: It's good advice.
Speaker 3: I won't tell you the disaster ones, but there's been
Speaker 3: a two or three. But by and large it's all
Speaker 3: about cycles. For example, I bought my first property in
Speaker 3: Hong Kong in nineteen eighty four when the property market
Speaker 3: was down something like seventy percent, and I thought, my goodness,
Speaker 3: it can't really go down much more than this. So
Speaker 3: I bought my first property and luckily in those days
Speaker 3: you could get a ninety percent mortgage, and so it
Speaker 3: really wasn't a lot of money, and that was certainly
Speaker 3: money I could ford to lose if at winter zero.
Speaker 3: But of course it's gone up hundreds and hundreds and
Speaker 3: hundreds of percent since that time, So really that was
Speaker 3: picking the cycle again. Many people bought the cycle in
Speaker 3: two thousand and three at the end of SARS. SARS
Speaker 3: was the nail in the property coffin. It really was
Speaker 3: the end of a down cycle that actually saw prices
Speaker 3: down sixty odd percent and a lot of people, a
Speaker 3: lot of friends of mine and companies on you. I
Speaker 3: set up a hedge fund soon after that to capitalize
Speaker 3: on that low point in the markets. So if you
Speaker 3: pick the timing, you very rarely do you ever get
Speaker 3: the timing absolutely perfect. But as long as you get
Speaker 3: it pretty close to the bottom, either on the way
Speaker 3: down or the way up, or sell pretty close to
Speaker 3: the top and the way up or the way down,
Speaker 3: you'll probably do very well. And finally, if you look
Speaker 3: at it really realistically, around the world, and no matter
Speaker 3: which market you look at, residential property has beaten inflation
Speaker 3: over thirty to fifty year time periods by anything up
Speaker 3: to four or five percent compound per anim. Hong Kong
Speaker 3: it's about four percent per anim over forty five years,
Speaker 3: and Britain I think it's about three percent per an
Speaker 3: over thirty five forty years. So property tends to be
Speaker 3: beaten inflation over the long term.
Speaker 1: Our guests have been Peter church House, a man of
Speaker 1: many talents, investors consultant, world traveler, and Patrick Wong, our
Speaker 1: very own senior property analyst at Bloomberg Intelligence. It has
Speaker 1: been an incisive and engaging glimpse into the world of
Speaker 1: residential and commercial property and investing here in Hong Kong,
Speaker 1: in the US and around the world. Gentlemen, it's been
Speaker 1: our pleasure, Thank you very much.
Speaker 3: Tom John thoroughly enjoyed being here and hope we can
Speaker 3: meet up again soon at some point.
Speaker 4: Yeah, definitely, it's quick to have pita.
Speaker 1: Thank you. I'm Tom Corbett in Hong Kong.
Speaker 2: And I'm John Lee. This podcast was edited by Clara
Speaker 2: Chan and you've been listening to the Asia Centric podcast