EP, as we were discussing, panic is logical, and hesitation a survival trait :0)
See below, as folks start to 1.800.GET.ME.OUT , presumably not because 'real estate cannot go down in price' ;0)
At some point it will be time to mow them down as they onslaught through the exit :0)
Manning the machine gun nest, Jay
Speculators in rush to dump holdings
Wednesday, April 6, 2005
SANDY LI and ERNEST KONG
Speculators are moving quickly to dump large holdings of flats as rising interest rates look likely to cause a potential sea change in the investing environment.
The market is starting to see a correction in projects and districts where there has been substantial speculative buying, with asking prices falling by up to 10 per cent.
Investors are seeking to get rid of units typically pre-sold "off the plan" with long completion dates so as to minimise their initial capital commitment.
Banks have raised their interest rates in response to changing money market conditions, resulting in the best lending rate going up by 0.5 per cent in two weeks.
HSBC and Hang Seng Bank are expected to follow their smaller rivals, which raised their prime lending rate by 0.25 per cent to 5.5 per cent on Monday.
Speculators were moving to profit from steep price increases in the luxury residential sector, said Eddie Hui Chi-man, associate professor, department of building and real estate, Polytechnic University.
Economists expect the Hong Kong prime rate to rise to as much as 7 per cent by the end of the year.
"Because of their reduced pricing power, speculators with large holdings will cash in their investments as fast as possible," Mr Hui said.
Luxury home prices rose by as much as 40 per cent last year, while a booming retail sector resulted in shop prices jumping by as much as 100 per cent.
Projects such as Henderson Land Development's Grand Promenade in Sai Wan Ho have seen up to 40 per cent of units sold to investors, leading to concerns of a dramatic correction should large numbers seek to offload their holdings all in one go.
High-profile speculator Jan Lai, who holds $1 billion worth of properties, has been one of the most aggressive sellers in the past month.
In an effort to speed up sales, Mr Lai is offering a $220,000 Toyota car to the first property agent to help him dispose of apartments, retail units and office space at an estimated current market value of $100 million.
Making the kind of offers desperate developers introduced during a property downturn, Mr Lai is seeking to entice buyers at the Grand Promenade with offers of plasma television sets for the first five buyers.
As of yesterday, Mr Lai had reduced his Grand Promenade holdings from 40 to 13 units, including three 1,500 sq ft penthouses worth $13 million each.
His other investments include 10 units in Residence Bel-Air, Pokfulam, worth up to $300 million, two duplexes at Island Resort in Siu Sai Wan, worth $30 million, and a $10 million duplex at Island Harbourview Olympic Station, as well as office space in Sheung Wan, Admiralty and Tsim Sha Tsui.
Separately, the Cheng brothers of Toy State Industrial have dumped all 10 of their flats in Residence Bel-Air.
Thirty per cent of the units were sold to investors, said property agents.
Last week, veteran investors Lobo Law Ka-po and Lai Wing-to sold all 141 shops at Red Mall, the former President Commercial Centre in Causeway Bay, for $350 million. The duo made a handsome profit of $200 million.
Professional investor Chan Ching-pak, who holds about 10 residential units, said areas that saw steep short-term gains could experience plunges should the exit of speculators intensify and valuations settle at reasonable levels.
With most sale and purchase agreements at the Grand Promenade project due for signing in October, buyers would become more aggressive about offloading units, he said.
Unlike other markets, Hong Kong does not restrict investors from trading pre-sale contracts for flats. This ensures that in "hot" market conditions, trading in the property sector is more like an options market.
Developers deliberately sell large numbers of units to speculators - offering attractive long completion dates - to generate trading liquidity and price benchmarks that would attract end-user buyers.
But Hendrick Leung Lee-chung, director of the Ricacorp Mortgage Agency, sounded a warning.
"If the prime rate exceeds 6.5 per cent, end users will choose cheap flats at affordable monthly instalment rates, as they will expect a continuous rate rise, which will eventually undermine the sellers' pricing power," he said.
Jan Lai rejected suggestions he was under pressure to sell because interest rates were entering an upward cycle.
"My strategy is just like operating a supermarket. I will continue to replenish my portfolio and always maintain it at about $1 billion," he said. "I just bought $200 million worth of offices recently after selling down on luxury residential units.
"The market in general expects property prices to grow 10 per cent this year, so I will still make a profit, even if there is a higher investment cost because of a 1 or 2 per cent rise in interest rates."
He said he was not under selling pressure as 70 per cent of his properties would be resold before the completion of the formal sale and purchase agreements.
He said he operated according to a "golden rule" - taking profit when prices for a property rose by 10 per cent. |
