hello 2mar$, re hk real estate, i make some counter-points to the clsa note, and in small part explains why i remain not only okay w/ current allocation but hope clsa is correct so as to add on any 15% wobble
(1) the hk governmental / bank authorities has been in price-suppression mode against hk real estate for awhile, progressively
(1-i) raising downpayment % (ltv ratio), now effectively at ~40-50% when all said and done (lowering value estimate and raising downpayment rate)
(1-ii) enacting special stamp duty starting in 2010, and progressively hiking rates
15% additional stamp duty on property purchases by foreign or corporate buyers of hk real estate (multiple property purchases in hk are often done by locally registered special purpose companies as a matter of course) on top of the existing and raised duties
3-8% stamp duty depending on property value
Special stamp duty of 20% will apply to residentials sold within six months or less of purchase date, while 15 percent will apply to those sold after six months but within a year of purchase. A 10 percent stamp duty will apply to apartments sold after a year but within 36 months of a deal.
(1-iii) after all of the above, according to clsa scmp.com "CLSA said Hong Kong property prices had declined 3 per cent from their February peak."
(1-iv) my comment, i would have thought real estate prices would drop 70% by now, as opposed to hitting a peak in february 2013 and dropping 3% :0)
what would the above tax hikes and downpayment requirements do to real estate prices anywhere else on this planet?
(2) hk net immigration ranges between +80 to +120 people per day, and these days they come to hk loaded, speaking all sorts of languages, but as refugees, and they must reside somewhere, anywhere, wherever, but in hk
(3) for the economists who predicts simultaneous hard-crash of china economy and counter-trend rising prosperity of s.e.asian businesses, i do say, "where did you say you went to school, so that i make sure i do not send my kids there", and
similarly, to the clsa who predicts 9% rise of real estate in shenzhen / guangzhou and points north, and figures on 15% decline across the board in hk, i would say, "what? why? how?"
(4) as to clsa view re rising interest rate in hong kong, we who have a currency peg to the usd while sporting an economic peg to the prc, i say, "what? why? how?" - interest earned on deposit in hk remains effectively zero and has been this way since perhaps 2000 (been so long i forgot :0)
lending on property to buyers, as already noted, is at effective 50% ltv on second-hand / after-market units (difficult to say what the effective ltv is in the first-hand developer market given sponsored-breaks, hidden subsidies, and 'adjustments' on the pricing of the property itself.
should banks (it is a cartel here) keep deposit rate down but raise lending rate, given the ever private enterprising hk, an arbitrage opportunity would open up and given the collateral and the very-good contract law, many would rush in to close the gap.
(5) speaking of hk real estate, received below message from one of two who operates several funds of a series having grown aum from hkd 20M (usd 2.6M) in 2001 to usd 2+Billion today
"From: B
Sent: Friday, September 13, 2013 4:11 PM
Subject: Reporting on a recent bid re xxxxxxxxxx Mansion
Dear Advisory Board member of Fund IV,
Just a short note to inform you that we have recently received a bid for xxxxxxxxxx Mansion from one of the largest sovereign wealth funds in the world. Terms are as follows:
Price: HK$6.06 billion (US$777mm) plus construction cost versus the latest valuation by xxxx of HK$6.38 billion (US$818mm). This represents a 5% discount to valuation. Our total cost of this project (ex construction cost) is HK$3.222 billion (US$413mm). If we sell the project at the bid price the IRR will be 42.7% while the multiple will be 2.79X on a post tax gross basis.
Term: Sovereign Fund to purchase 95% of the property. It requires the GP to purchase and hold the remaining 5% together with them.
The purpose of requiring the GP to hold 5% is to comply with their system of interest alignment. They are a long term investor and they wish to hold this as a core asset for at least 10 years. They want the GP to be responsible for the project and asset management works for them and they mandate that the GP cannot exit the property without their consent inside of these 10 years.
We would like to let you know that, while negotiation is ongoing, we have already turned down their bid as it is below our valuation by 5%. The GP would consider, subject to Advisory Board consent, to purchase 5% of this asset and hold it for the long term if this will facilitate an early exit of the property with an excellent risk adjusted return.
Many of you have inquired about our thinking for this property in the past. We hope that this communication will further your understanding about where we stand about this asset and how one of the most important investors in global real estate think about participating in the Hong Kong market at this point. If completed, this will be one of the largest pieces of real estate ever purchased by a sovereign wealth fund in Hong Kong. Please let us know if you would like to discuss this further or if you have any questions related to this transaction.
Regards, B"
(5-i) the boyz had applied for and obtained redevelopment permit immediately upon signing the original site-aggregation purchases w/ 260+ owners, having applied for the permit even while still negotiating w/ the 260+ individual sellers. w/i 2 weeks of the site-aggregation deal closing the authorities implemented height restriction on the neighborhood, grand-fathering our long-term double-down geewhizbangohwhoawee core holding and dramatically raising its allure to all concerned.
(5-ii) i bow down to the new sovereign, and look forward to the closing of the mere 5% bid/ask gap
(6) as mentioned before, a japanese tenant who works for the god's workshop was expecting to be transferred from hk back to tokyo along w/ his wife and two kids w/ third one on the way, and now given the fukushima plume, the xfer is nixed and tenant shall remain, which means the apartment would not be available for the incoming french people.
it is just as well young edward snowdon de-camped hk to live in moscow where apartments are more plentiful.
hong kong hotel rack rates are also outrageous.
(7) mean while, given all the money printing, hk residential regime seems to be spreading around the world
finance.yahoo.com
My Life in a 190-Square-Foot ApartmentTiny apartments aren’t just for New Yorkers anymore. Demand for affordable, convenient housing in desirable neighborhoods has given rise to micro-apartments across the country.
Sean O’Leary lives in a 190-square-foot apartment in Seattle’s picturesque Wallingford neighborhood. His is one of 40 units in this building managed by Footprint Properties. “Living in a situation like this, you constantly have to be prioritizing your possessions and being mindful of not accumulating too much stuff,” he says.
Each unit comes furnished, but instead of having their own kitchens, residents share one. Plus, all utilities are included. “The location was really key in my decision to live here,” says O’Leary. “The bus that I ride to work on has a stop right across the street from me. There’s tons of great restaurants and bars that I like to go to.”
O’Leary, who moved to Seattle to pursue a music career, pays $825 per month and estimates he saves up to $400 a month by living small. His room has a full bed, a bathroom, a bookshelf, cupboards and a sink. “I don’t really feel claustrophobic in here, but I can see how some people would.”
Upstairs on the fifth floor, cross-country transplants Ian Gloditch and Sarah Mendonca share a 250-square-foot loft space for $950 a month. They say their apartment is changing their lifestyles for the better.
“It makes us active. We have to go out and go see the town. So, we’re not homebodies,” says Mendonca.
Their bed is up the ladder, in a loft space only large enough for kneeling. Downstairs, they have a bookcase, a desk, folding chairs and a wardrobe, and the kitchen area has a sink, microwave and mini fridge. Without a TV or a couch for lounging, they’ve traded flipping channels for hiking trips and walks to the farmer’s market.
“She likes to say we’ve become unintentional vegetarians because we only have the mini fridge,” says Gloditch. “It’s just only green stuff in there, so it’s definitely changed the way we’ve eaten.”
While they’ve embraced their living situation, friends and family don’t quite understand. “His family actually came into town and saw the apartment, and they were like, ‘When are you moving out?’ We realize that this space is very good for us right now in this time in our lives,” says Mendonca.
Saving on rent also allows the young couple to put their money toward things they enjoy. “I’m able to get that really high-quality stuff that a person at my income level would normally never be able to get. Right now I’m saving up for a really nice knife set so that I can start cooking really wonderful stuff,” she says.
With space being quite tight, they have to get creative with storage, but a small place has its benefits. “On the plus side, with a place this small, you’re never gonna [be] like, ‘Where’d I put this?’” says Gloditch. “I’ll glance a little bit to the left, I’ll see the rest of the apartment and find it.”
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