前文提過地產商在政府土地拍賣會上為免「爭堋頭」，有機會在某些情況下「點到即止」。據報，日前在拍賣會上中途，信和與南豐代表「咬耳朵」，即場達成合成協議，共同發展大家志在必得的土地。本來可以以更高價成交的土地，即場協議令競價停止，有損拍賣價高者得的原意，減少了政府庫房收入，更重要的是，在沒有充滿競爭下，有限的資源無法分配到購買意欲最高的買家。茶怪想，即場協議應該禁止。
地產發展商合作發展土地是自由商業活動，不應干預。關鍵是合作協議何時達成。拍賣會舉行前，沒有人知道誰購買意欲最高，你和某某相好組織聯盟去投地，說不定到時有願意出更高價者，所以競爭仍然存在。拍賣會舉行後，貨物出門，賣家無權過問。偏偏在拍賣會舉行時，有一個狹窄的時空，讓參與者逃避競爭。
在一輪叫價之後，競投者的數目很快就減少，到只餘下兩位，他們便是購買意欲最高的買家。其他的參與者雖然表面上仍有權舉牌，但由於當時叫價已高過他們願意承受的水平，所以不會再舉牌，同時兩大競爭者終於知道對方的身份，即場協議就可那時達成，最後的兩大競爭者就不用再爭。
如果茶怪有一天不幸要當拍賣官，拍賣自己的家當，冒必想盡辦法阻止即場協議。
2007/02/17
最悲哀的美譽
時常說香港有世界上最自由的市場，奶茶怪想這會否是一個最悲哀的美譽? 我們再沒有進步的空間，倫敦自八十年代開放金融業給外資和將國企私有化，澳門99年回歸後開放賭業，今天兩個地方經濟更上一層樓，中國大陸經濟受惠於自七十年代末的市場開放，是更明顯的例子。回看香港，這一招用不著，因為我們市場已是最自由的了，自由貿易，外資自由投資，幾乎沒有國企，外商要來的，已來了，不來的，再沒有甚麼辦法誘它來。
從以上的邏輯，地產業是最有「前途」的，地產業是封閉的，地產商長期維持豐厚利潤，每次參與土地競投的都是那幾個本地地產商，如果各地產商互相競爭，競價到最後一口，地價理應只有足以補償風險的微利，而不至於地產商長期維持約二至三成的利潤。從表面看，競爭未至於十分激烈，未能達到官地以最高市場價出售的效果。根據搏奕論，即使是一個「互相殘殺」的遊戲，遊戲無止境的重複，參與者就會「點到即止」，這對各方有利。但究竟地產市場制度上有甚麼可以改善之處，去促進競爭? 茶怪沒有答案。
從以上的邏輯，地產業是最有「前途」的，地產業是封閉的，地產商長期維持豐厚利潤，每次參與土地競投的都是那幾個本地地產商，如果各地產商互相競爭，競價到最後一口，地價理應只有足以補償風險的微利，而不至於地產商長期維持約二至三成的利潤。從表面看，競爭未至於十分激烈，未能達到官地以最高市場價出售的效果。根據搏奕論，即使是一個「互相殘殺」的遊戲，遊戲無止境的重複，參與者就會「點到即止」，這對各方有利。但究竟地產市場制度上有甚麼可以改善之處，去促進競爭? 茶怪沒有答案。
2007/02/10
麪包與麪粉
每次土地拍賣之後，傳媒愛拿賣地成績，宣揚「麪包與麪粉」的關係。例如，某地產商投得地片，其建築面積成本為每尺$5,000，業界人士計入建築成本和利息，推斷地產商須以每尺$6,500售樓，才有利可圖，經過傳媒的報導，大眾便錯誤以為三年後樓宇落成之時，同區樓價將至少是$6,500一尺，誤以為「麪包一定貴過麪粉」，於是同區的現樓業主原本叫價$4,500的，便紛紛提高叫價。奶茶怪認為，「麪包一定貴過麪粉」是錯誤的，原因有二。
賣麪包的「呃稱」。這是建築面積和售樓面積的差異所帶來的，原本規定建一千尺的單位，發展商以不同的量度方式，對買樓人士說單位有一千三百尺。用以上的$5,000「麪粉價」為例，因為「呃稱」，即使「麪包價」是同樣$5,000，發展商是有賺。這樣，$6,500的估計便過份樂觀。
上文提到，這種「呃稱」的技倆，是無法普遍為發展商製造豐厚利潤，「麪包與麪粉」的邏輯，只會利好短期市場氣氛。而且，地產商亦不一定可以以高於成本價的售樓將樓子出售。「麪粉價」$5,000的住宅出售時，「麪包價」可以是$2,000、$4,000、$8,000或$10,000，任何價錢，這視乎當時市場供求而定。如果市場暢旺，發展商以$10,000求售不會「面朦」，亦不應「面朦」。如果市場淡靜，普遍樓子滯銷，發展商以$2,000出售，迫不得以，為求止蝕。
更可惜的，是「麪包與麪粉」的理論不但不適用於樓市，連麪包與麪粉的市場，也不管用。即使麪粉貴了，麪包店亦不可照樣加價售包，視乎顧客的承受能力。「麪包與麪粉」的理論大行其道，奶茶怪認為，可能是其順口易記。但其可靠程度莫過於「絲襪奶茶用絲襪沖成」的類似謠傳。
賣麪包的「呃稱」。這是建築面積和售樓面積的差異所帶來的，原本規定建一千尺的單位，發展商以不同的量度方式，對買樓人士說單位有一千三百尺。用以上的$5,000「麪粉價」為例，因為「呃稱」，即使「麪包價」是同樣$5,000，發展商是有賺。這樣，$6,500的估計便過份樂觀。
上文提到，這種「呃稱」的技倆，是無法普遍為發展商製造豐厚利潤，「麪包與麪粉」的邏輯，只會利好短期市場氣氛。而且，地產商亦不一定可以以高於成本價的售樓將樓子出售。「麪粉價」$5,000的住宅出售時，「麪包價」可以是$2,000、$4,000、$8,000或$10,000，任何價錢，這視乎當時市場供求而定。如果市場暢旺，發展商以$10,000求售不會「面朦」，亦不應「面朦」。如果市場淡靜，普遍樓子滯銷，發展商以$2,000出售，迫不得以，為求止蝕。
更可惜的，是「麪包與麪粉」的理論不但不適用於樓市，連麪包與麪粉的市場，也不管用。即使麪粉貴了，麪包店亦不可照樣加價售包，視乎顧客的承受能力。「麪包與麪粉」的理論大行其道，奶茶怪認為，可能是其順口易記。但其可靠程度莫過於「絲襪奶茶用絲襪沖成」的類似謠傳。
2007/02/08
仲唔明
今日林行止專欄繼續講本地地產發展商持續賺取豐厚利潤的問題，他歸因於發展商取巧，誇大建築面積達三成，打造「發水樓」。奶茶怪就更不明白。只能在大部份地產商是「誠實」的情況下，小數地產商取巧，那才收效。如果全行都是誇大建築面積，樓價和地價都應該隨著市場競爭自動調節，各發展商識計數，投地時地價搶高一點，去爭取倘餘的利潤，置業者(即使是買樓花的見不到實物)也必有對各樓盤作比較，「發水樓」比「發水樓」，從而調低可接受的樓價，地產商便沒有機會以誇大建築面積去一起賺豐厚利潤。用「取巧」這個原因去解釋全個地產行業的豐厚利潤便令人費解。
例如理髮店收$6護髮素費用，是暴利; 去唱K，果盤加Nuts幾十元，更不合理，但大家都清楚是這樣，在幫襯前已「預埋條數」，需求自然調節，所以理髮店和K場不會因此而賺到豐厚利潤。這樣，又回到上一篇的問題: 在這個自由市場下，地產商是甚麼賺取豐厚利潤?
例如理髮店收$6護髮素費用，是暴利; 去唱K，果盤加Nuts幾十元，更不合理，但大家都清楚是這樣，在幫襯前已「預埋條數」，需求自然調節，所以理髮店和K場不會因此而賺到豐厚利潤。這樣，又回到上一篇的問題: 在這個自由市場下，地產商是甚麼賺取豐厚利潤?
2007/02/06
地產一問
今日林行止專欄講:「香港地產發展商利潤之豐厚，在地價高漲的香港，是世界其他地區的地產商難望其項背的。」牽起了奶茶怪一直的疑問 -- 既然是那麼好景，香港又是一個自由市場，為什麼世界各地的地產商不爭相參與香港地產事業? 如果有充分競爭，本地地產商的豐厚利潤理應消失，而事實又不是這樣，究竟是甚麼阻止外國競爭者加入?
香港地產開埠以來由英國財團支配，70-80年代，本地財團掘起，奪去主導地位，到今日，行業結構早已歸邊，每次土地競投都是幾個大家熟識的「本地薑」舉手。大體上，香港的地產制度是自由的，土地拍賣，是公開競投、價高者得的，建築工程可以外判給承建商，而售樓渠道亦十分暢通，地產代理競爭激烈。如果說「地頭蟲」有無可替代的優勢，那優勢是甚麼呢? 反觀香港地產商在外地，如英國、中國上海，都很吃得開。看來香港地產業比外地和內地的更封閉，為什麼呢?
香港地產開埠以來由英國財團支配，70-80年代，本地財團掘起，奪去主導地位，到今日，行業結構早已歸邊，每次土地競投都是幾個大家熟識的「本地薑」舉手。大體上，香港的地產制度是自由的，土地拍賣，是公開競投、價高者得的，建築工程可以外判給承建商，而售樓渠道亦十分暢通，地產代理競爭激烈。如果說「地頭蟲」有無可替代的優勢，那優勢是甚麼呢? 反觀香港地產商在外地，如英國、中國上海，都很吃得開。看來香港地產業比外地和內地的更封閉，為什麼呢?
2006/12/11
From Tea Restaurants To Taxation To Milk Tea
i like going to Chu Kee, a small tea restaurant down the street of my place. It offers a neat standard "Breakfast A" for $17, including a sunny-side-up egg, sausage and ham, macaroni, toast and coffee or tea. The same package costs $20 in Central. Some back-street take-away counters in the business district match the Chu Kee prices.
i don't know why there are additional charges of $2 for cold drinks, if any reader can help me find the answer. Some say it is for the ice while others say the size per serving is bigger than that of hot drinks. Maybe, the problem lies with me who prefers hot drinks.
Tea restaurant is everywhere and it is a culture so rooted in my mind. i remember how i got amused when i casually ordered a hot lemon coke with ginger in one of the stylish restaurants in the reconstructed Murray Building in Stanley Bay. Well, i caught a cold that day.
The conventional business is full of economic sense. For an additional $2, you'll get a drink. For a further $2, you can change from ordinary noodles to specifically Demae Ramen. For an additional $2, you get this and for additional $1 you get that. Customers are often pleased to accept as they realize that the items if ordered separately cost much higher. The trick is customers tend to value an item on a per-unit basis, while the restaurants value an item on a marginal basis. It seems that local McDonald's has copied this strategy.
People often blame the fierce competition for driving down the prices, as well as the quality of food and services. Are tea restaurants under airtight competition (perfect competition)? Not really.
There are thousands of tea restaurants in the city, offering "Breakfast A" every morning. But they do not compete directly with one another. For an ordinary worker like me, the choices of tea restaurant are quite limited by the route i take from home to the office. There are just half a dozen options available.
Therefore, half a dozen tea restaurants share the market within a community. Those located in the prime district can price food and beverages at a premium. However, to a large extent, the owners of the property housing the restaurants will extract the premium though rents. That's reasonable as the "value" of location belongs to the landlords, but not the tenants. Landlords are often bedeviled as bloodsuckers raising rents ruthlessly and sucking the life of the hardworking restaurant operators. In fact, landlords have problems too.
Believe it or not, the truly fierce competition appears to lie on the competition for retail space. Capital flows freely from one district to another to bid for the most rewarding retail slots to invest, adjusted for risks. Yes, landlords do raise rents as much as they can during good times. However, nobody prays for them during bad times when they suffer losses.
Tea restaurants compete within a district. Property investors compete in a large circle. Who are the ultimate vampires? The government. But it is a benevolent vampire.
The government's expenses exceed 20% of GDP. However, no one is paying more than 16% of income as personal income tax. Most employees pay none. Corporations pay 17.5% of earnings. From these numbers only, people should be very happy with the government's performance. We pay less for much more.
Revenue from land sale closes the gap. By controlling the land supply, the government effectively charges "taxes" to land users. The land users include homeowners, renters, and you having the Hong Kong-style French toast.
In fact, this is not a bad idea for such a taxation structure. This "land" tax is progressive, by which i mean the rich pay more while the poor pay less. Those who live in the mid-level pay the most. And they are happy to pay the land premium while they are playing the bigger fool game, waiting for others to buy their properties at higher prices. Those who cannot afford private housing get public housing. Those who have their breakfasts in Mandarin Oriental in Central pay more "land" tax than i having mine in Chu Kee.
Financial Secretary Henry Tang wages campaigns to push for a sales tax, arguing that Hong Kong needs a broader group of taxpayers. In fact, Hong Kong needs no sales tax. Everyone is paying the "land" tax. Sales tax is regressive and unfair to the poor, as the poor pay more (as a percentage to their income) while the rich pay less.
Any discussion about tea restaurants ignoring milk tea is incomplete. Let me recommend you a tea restaurant brewing the best milk tea in town. It is "Man Kee" located in Yung Shue Wan, Lamma Island. The milk tea there has a kinky mixture of sweetness and salt. i am not sure if it has anything to do with the water they use although tap water there comes from Hong Kong Island. Tofu in Lamma is famous, thanks to the water there. Despite the dear land and locations, a business can have a lot of possibilities beyond those, such as making a good cup of milk tea.
May 11, 2005
Copyright Quamnet
i don't know why there are additional charges of $2 for cold drinks, if any reader can help me find the answer. Some say it is for the ice while others say the size per serving is bigger than that of hot drinks. Maybe, the problem lies with me who prefers hot drinks.
Tea restaurant is everywhere and it is a culture so rooted in my mind. i remember how i got amused when i casually ordered a hot lemon coke with ginger in one of the stylish restaurants in the reconstructed Murray Building in Stanley Bay. Well, i caught a cold that day.
The conventional business is full of economic sense. For an additional $2, you'll get a drink. For a further $2, you can change from ordinary noodles to specifically Demae Ramen. For an additional $2, you get this and for additional $1 you get that. Customers are often pleased to accept as they realize that the items if ordered separately cost much higher. The trick is customers tend to value an item on a per-unit basis, while the restaurants value an item on a marginal basis. It seems that local McDonald's has copied this strategy.
People often blame the fierce competition for driving down the prices, as well as the quality of food and services. Are tea restaurants under airtight competition (perfect competition)? Not really.
There are thousands of tea restaurants in the city, offering "Breakfast A" every morning. But they do not compete directly with one another. For an ordinary worker like me, the choices of tea restaurant are quite limited by the route i take from home to the office. There are just half a dozen options available.
Therefore, half a dozen tea restaurants share the market within a community. Those located in the prime district can price food and beverages at a premium. However, to a large extent, the owners of the property housing the restaurants will extract the premium though rents. That's reasonable as the "value" of location belongs to the landlords, but not the tenants. Landlords are often bedeviled as bloodsuckers raising rents ruthlessly and sucking the life of the hardworking restaurant operators. In fact, landlords have problems too.
Believe it or not, the truly fierce competition appears to lie on the competition for retail space. Capital flows freely from one district to another to bid for the most rewarding retail slots to invest, adjusted for risks. Yes, landlords do raise rents as much as they can during good times. However, nobody prays for them during bad times when they suffer losses.
Tea restaurants compete within a district. Property investors compete in a large circle. Who are the ultimate vampires? The government. But it is a benevolent vampire.
The government's expenses exceed 20% of GDP. However, no one is paying more than 16% of income as personal income tax. Most employees pay none. Corporations pay 17.5% of earnings. From these numbers only, people should be very happy with the government's performance. We pay less for much more.
Revenue from land sale closes the gap. By controlling the land supply, the government effectively charges "taxes" to land users. The land users include homeowners, renters, and you having the Hong Kong-style French toast.
In fact, this is not a bad idea for such a taxation structure. This "land" tax is progressive, by which i mean the rich pay more while the poor pay less. Those who live in the mid-level pay the most. And they are happy to pay the land premium while they are playing the bigger fool game, waiting for others to buy their properties at higher prices. Those who cannot afford private housing get public housing. Those who have their breakfasts in Mandarin Oriental in Central pay more "land" tax than i having mine in Chu Kee.
Financial Secretary Henry Tang wages campaigns to push for a sales tax, arguing that Hong Kong needs a broader group of taxpayers. In fact, Hong Kong needs no sales tax. Everyone is paying the "land" tax. Sales tax is regressive and unfair to the poor, as the poor pay more (as a percentage to their income) while the rich pay less.
Any discussion about tea restaurants ignoring milk tea is incomplete. Let me recommend you a tea restaurant brewing the best milk tea in town. It is "Man Kee" located in Yung Shue Wan, Lamma Island. The milk tea there has a kinky mixture of sweetness and salt. i am not sure if it has anything to do with the water they use although tap water there comes from Hong Kong Island. Tofu in Lamma is famous, thanks to the water there. Despite the dear land and locations, a business can have a lot of possibilities beyond those, such as making a good cup of milk tea.
May 11, 2005
Copyright Quamnet
Price Boom For Kinder Chocolate Egg
Thank reader Johnny for his comments on how investment banks get people wrong about the property market movements. Frankly speaking, everyone makes mistakes. Investment bankers are human too. But still, the conflict of interest issue is debatable. Those who obtain property market information mainly from the newspaper, radio and television broadcast have similar problems. The media always get one side of the story, which is the UP side. Most property news reports are written based on their interviews with property developers, agencies, investment bankers and the government, which is balancing its budget thanks to windfalls from land sales. Inevitably, they are bullish. It happens that a substantial portion, if not the majority, of media companies' incomes come from advertisements sponsored by property developers and agencies. The interests of property developers, agencies, investment bankers, the government, and less noticeably the media are all tied together. If they were in an orchestra, the music would for sure be unpleasant because there are only high notes being heard. Low tunes are muted. Some newspaper readers feel good, while the over-played optimism might project the bubble image, scaring other people.
The Chocolate Bubble
Italians should be proud of their invention of Kinder Chocolate Egg. The candy has a chocolate shell that takes care of children's basic needs. Besides, it offers a fantasy, a surprise toy hidden inside the shell. The situation is like residents buying a flat for accommodation (the chocolate part) and for a value appreciation (the surprise toy) over years.
Ahead of Easter Holidays, demand for Kinder Chocolate Egg increases. It is the best Easter egg i can think of. The increased demand drives up the price of Kinder Chocolate Egg. Meanwhile, there are chocolate lovers all over the world who enjoy chocolate all over the year. Some of them also like Kinder Chocolate Egg. Some start to say: "Well, price bubbles are forming in the Kinder Chocolate Egg market. The price of Kinder Chocolate Egg rises much higher than other chocolate candies do. The high price cannot be sustainable."
However, as Easter nears, the increased price of Kinder Chocolate Egg forces these chocolate lovers to buy other chocolate candies, maybe Hershey's. Then, chocolate price goes up. Now, the expensive chocolate, in turn, justifies the expensive Kinder Chocolate Egg.
Where we are in a cycle?
Put it into prospective, the Hong Kong property market, now, is at the stage in which people keep asking if there are bubbles, seeing property prices (the Kinder price) rise much faster than rents (chocolate price).
Worse, the Hong Kong economy has undergone a structural change. Jobs are moving across the border. Among those lost jobs are not only construction and manufacturing, but also the more sophisticated ones such as those related to information technology and back-office administrative supports. Salaries and wages are seen to be stagnant in the coming years. Some wonder: "How can a higher property price be justified?"
As far as my Kinder story goes, the higher property price will be justified.
The Wealth-Driven Boom
The property market bottomed in the SARS-hit 2003. The overall economy also recovered. People have accumulated at least two years of purchasing power, from mid-2001 to mid-2003. Saving deposits are at record highs. If the accumulated wealth were released from saving deposits to the investment market, the property market would be one of the major beneficiaries. Another important source of purchasing power come from mainland China. The elite group is now enjoying the trade in Shanghai. They don't necessarily live in Shanghai. For some reasons, they may commit to properties here, once they see profit potentials.
Just like chocolate fans who cannot survive without chocolate, most people need to live under shelves. They either rent a place or own a property. In static circumstances, increases in property prices will drive existing homeowners and potential homebuyers to become renters. But in a dynamic situation, landlords hold their properties and leave it empty, to avoid tying up with renters, and thus making it difficult to resell. That tightened the supply of flats to let, and drive up rents. The higher rents, in turn, justify the high property prices.
This kind of "salary-growth-less" property boom is new to Hong Kong. From 1935 to 1997, the Hong Kong property market has experienced booms and busts, but the long-term trend was upward on the development of the city and the improvement of people's salaries. From now, the trend will flatten as the city's economy matures. But the cyclical pattern will continue as people's confidence on properties as storage of wealth goes up and down. Wealth-driven property boom is not impossible. In the 80's and 90's, HK people drove up the property prices in Vancouver. In recent years, technology venture capitalists drove up the property prices in California. Similarly, it is happening in Shanghai.
It is too early to talk about bubbles
The property sector runs like a train that stops only when it gets off the rail. It differs from a stock market, which drives like a taxi. The bull market of a property starts more slowly than the stock market. It takes time to build up the momentum. Once the momentum is built up, it tends to overshoot and goes far beyond the economic realities. As the bubble bursts, due to some triggers, the downward correction is usually over 40% or even more. The damage to the economy is much severe than that done by the stock market. It is difficult to imagine that the HK property can slump back to the SARS-hit period.
For now, interest rate is not yet a threat. During the crazy years of the property market, mortgage rate went up to 8% or even 10%. Interest rate rising from 2% to 3% doesn't matter, and will remain far below the breakneck point.
In the longer term, the aging population, the flattened salaries and the city's competitiveness pose major threats to the Hong Kong properties. After all, buying a property is no chocolate egg. One should take into consideration of the overall economy, as well as one's own financial plan.
Mar 23, 2005
Copyright Quamnet
The Chocolate Bubble
Italians should be proud of their invention of Kinder Chocolate Egg. The candy has a chocolate shell that takes care of children's basic needs. Besides, it offers a fantasy, a surprise toy hidden inside the shell. The situation is like residents buying a flat for accommodation (the chocolate part) and for a value appreciation (the surprise toy) over years.
Ahead of Easter Holidays, demand for Kinder Chocolate Egg increases. It is the best Easter egg i can think of. The increased demand drives up the price of Kinder Chocolate Egg. Meanwhile, there are chocolate lovers all over the world who enjoy chocolate all over the year. Some of them also like Kinder Chocolate Egg. Some start to say: "Well, price bubbles are forming in the Kinder Chocolate Egg market. The price of Kinder Chocolate Egg rises much higher than other chocolate candies do. The high price cannot be sustainable."
However, as Easter nears, the increased price of Kinder Chocolate Egg forces these chocolate lovers to buy other chocolate candies, maybe Hershey's. Then, chocolate price goes up. Now, the expensive chocolate, in turn, justifies the expensive Kinder Chocolate Egg.
Where we are in a cycle?
Put it into prospective, the Hong Kong property market, now, is at the stage in which people keep asking if there are bubbles, seeing property prices (the Kinder price) rise much faster than rents (chocolate price).
Worse, the Hong Kong economy has undergone a structural change. Jobs are moving across the border. Among those lost jobs are not only construction and manufacturing, but also the more sophisticated ones such as those related to information technology and back-office administrative supports. Salaries and wages are seen to be stagnant in the coming years. Some wonder: "How can a higher property price be justified?"
As far as my Kinder story goes, the higher property price will be justified.
The Wealth-Driven Boom
The property market bottomed in the SARS-hit 2003. The overall economy also recovered. People have accumulated at least two years of purchasing power, from mid-2001 to mid-2003. Saving deposits are at record highs. If the accumulated wealth were released from saving deposits to the investment market, the property market would be one of the major beneficiaries. Another important source of purchasing power come from mainland China. The elite group is now enjoying the trade in Shanghai. They don't necessarily live in Shanghai. For some reasons, they may commit to properties here, once they see profit potentials.
Just like chocolate fans who cannot survive without chocolate, most people need to live under shelves. They either rent a place or own a property. In static circumstances, increases in property prices will drive existing homeowners and potential homebuyers to become renters. But in a dynamic situation, landlords hold their properties and leave it empty, to avoid tying up with renters, and thus making it difficult to resell. That tightened the supply of flats to let, and drive up rents. The higher rents, in turn, justify the high property prices.
This kind of "salary-growth-less" property boom is new to Hong Kong. From 1935 to 1997, the Hong Kong property market has experienced booms and busts, but the long-term trend was upward on the development of the city and the improvement of people's salaries. From now, the trend will flatten as the city's economy matures. But the cyclical pattern will continue as people's confidence on properties as storage of wealth goes up and down. Wealth-driven property boom is not impossible. In the 80's and 90's, HK people drove up the property prices in Vancouver. In recent years, technology venture capitalists drove up the property prices in California. Similarly, it is happening in Shanghai.
It is too early to talk about bubbles
The property sector runs like a train that stops only when it gets off the rail. It differs from a stock market, which drives like a taxi. The bull market of a property starts more slowly than the stock market. It takes time to build up the momentum. Once the momentum is built up, it tends to overshoot and goes far beyond the economic realities. As the bubble bursts, due to some triggers, the downward correction is usually over 40% or even more. The damage to the economy is much severe than that done by the stock market. It is difficult to imagine that the HK property can slump back to the SARS-hit period.
For now, interest rate is not yet a threat. During the crazy years of the property market, mortgage rate went up to 8% or even 10%. Interest rate rising from 2% to 3% doesn't matter, and will remain far below the breakneck point.
In the longer term, the aging population, the flattened salaries and the city's competitiveness pose major threats to the Hong Kong properties. After all, buying a property is no chocolate egg. One should take into consideration of the overall economy, as well as one's own financial plan.
Mar 23, 2005
Copyright Quamnet
Kinder Chocolate Egg & Hk Property Market
In Hong Kong, we call it property. We talk about the property market. In the U.S., they call it home. They watch monthly home sales statistics. Property and home both refer to the shelves we live in. The word property emphasizes the resell value, while the word home focuses on the functionality as a shelf. Hong Kong adopted its affection for property ever since British colonized the place. Few months after the British took over Hong Kong Island, in 1841, the first land auction was launched. Jardine Matheson showed how to invest in properties and get decent returns over years. Local tycoon Fok Ying Tung, through the pre-sale scheme he pioneered in 1953, taught us how to use the leverage of a small deposit and bank in multifold returns in the count of days.
Americans in recent years might have changed their attitude toward what they refer to as home, as they do speculate in homes more often than before, thanks to the current boom.
Chinese don't call an empty shelf a home. Home carries the sense of family that money can't buy. Let's stick to the more accurate terminology, property.
Residential properties, to put it into perspective, offer a combination of functionalities as shelves and the storage of wealth.
Flour & Bread? No, It's Chocolate Egg
The relationship of land and property is often referred to as that of flour and bread. This is from property developers' point of view. From property owners', they are more like buying Kinder chocolate eggs, candies that contain small surprise toys inside them. The Easter Holiday is coming. And i loved Kinder as a kid. The chocolate part is the basic function, just like a property serving as a place to live. The edible part will be gone fast, especially in kid's hands, like the aging of the property. However, the truly excitement came when i found out what toys were inside, and that's what i cared for most. And the return of that value is to be discovered way after the candy is bought.
Similarly, the land value is what property-buyers care for most. For properties, the value takes years to be realized.
Let's analyze the chocolate egg first. To buy the candy (property), i must go to mum (the bank) to get the money first. i had to promise mum (the bank) to do our homework (pay interest) and be obedient (on time). Then, i bought and owned the candy and of course the toy inside. Alternatively, without bothering to ask mum, i asked a schoolmate (landlord) to let me eat the chocolate only (to rent) in exchange for a little favor. The schoolmate still kept the toy.
Which way is more favorable?
To Own or to Rent?
Flat-owners' cost = interest + property buying price - property selling price,
Where buying price - selling prices = property depreciation - land appreciation.
Hence, Flat-owners' cost = interest + property depreciation - land appreciation
Renters' cost = rents.
Rents are currently 3-4% of the value of the property, depending on individual properties. On the other hand, homeowners have to pay 2.2% in mortgage rate and bear a depreciation of the asset at a rate close to 2% a year. i don't want to bore you with the calculation here. But the basic idea is that at the present situation, it doesn't make a big difference between renting and owning a flat, unless the interest rate or land appreciation deviate substantially from the overall inflation.
From this point of view, property prices at the current level are about fair.
Here we come to the toy part.
The Toy Part
Textbooks taught us that the HK property market rose because of the limited supply of land, rapidly rising population and improving income of its residents. These same factors had contributed to the Japanese housing boom until the early 1990's.
Looking ahead, these favorable factors are set to weaken. In recent years, the supply of reclaimed land and bettered railway network has provided Hong Kong with extra land, mainly in Tseung Kwan O, Ma On Shan and West New Territories. The population growth has become stagnant, thanks to the low birth rate. Personal income growth has slowed after the economy has already transformed from manufacturing-oriented to servicing.
From overseas experience, it seems that these factors are sufficient, but not necessary.
Shanghai has plenty of land but its property market is experiencing a big boom. Improvement in income could be one of the driving forces, but the market has risen far ahead of the income growth. An apartment there, according to colleague Henry Chan, is now priced at as much as 18 years of average family income. Across the Pacific Ocean, the property market in California has had a strong rally. Income there has been stagnant since the bursting of the technology bubble back in 2000. Low interest rates are a well-known factor driving Californian properties.
More importantly, Californians accumulated huge wealth during the technology boom. The huge accumulated wealth of Chinese elites has also become a strong driving force for the Shanghai property boom.
Property is More than A Shelf
Properties are sometimes bought for the storage of wealth, but not for the accommodation purpose. Many investors prefer properties rather than securities. Property gives such a strong visual impact that investors of it feel secure.
Think of gold. If the asset value depends solely on the income stream it generates, gold would be much less valuable than it is. Unlike steel and aluminum, gold has few applications for industrial purposes. Unlike stocks, gold doesn't generate any dividend income, not to mention that holding gold, physically, costs storage fees. Its investment value is simply based on the belief that, someone, someday in the future, will buy it at a higher price.
Gold serves to store wealth, as do properties.
Sometimes, the storage of wealth, rather than the accommodation function, takes the leading role.
Will the Property Boom Return?
Hong Kong has gone through the development stage, in which property investors earn easy money. Will the good old days return? Is it possible that Kinder chocolate egg undergoes a major price boom while kids remain as poor as before? The answer is: Yes.
Now, it's almost 5pm on Tuesday, and i am rushing for the deadline. i have to stop here and will continue next week.
Mar 16, 2005
Copyright Quamnet
Americans in recent years might have changed their attitude toward what they refer to as home, as they do speculate in homes more often than before, thanks to the current boom.
Chinese don't call an empty shelf a home. Home carries the sense of family that money can't buy. Let's stick to the more accurate terminology, property.
Residential properties, to put it into perspective, offer a combination of functionalities as shelves and the storage of wealth.
Flour & Bread? No, It's Chocolate Egg
The relationship of land and property is often referred to as that of flour and bread. This is from property developers' point of view. From property owners', they are more like buying Kinder chocolate eggs, candies that contain small surprise toys inside them. The Easter Holiday is coming. And i loved Kinder as a kid. The chocolate part is the basic function, just like a property serving as a place to live. The edible part will be gone fast, especially in kid's hands, like the aging of the property. However, the truly excitement came when i found out what toys were inside, and that's what i cared for most. And the return of that value is to be discovered way after the candy is bought.
Similarly, the land value is what property-buyers care for most. For properties, the value takes years to be realized.
Let's analyze the chocolate egg first. To buy the candy (property), i must go to mum (the bank) to get the money first. i had to promise mum (the bank) to do our homework (pay interest) and be obedient (on time). Then, i bought and owned the candy and of course the toy inside. Alternatively, without bothering to ask mum, i asked a schoolmate (landlord) to let me eat the chocolate only (to rent) in exchange for a little favor. The schoolmate still kept the toy.
Which way is more favorable?
To Own or to Rent?
Flat-owners' cost = interest + property buying price - property selling price,
Where buying price - selling prices = property depreciation - land appreciation.
Hence, Flat-owners' cost = interest + property depreciation - land appreciation
Renters' cost = rents.
Rents are currently 3-4% of the value of the property, depending on individual properties. On the other hand, homeowners have to pay 2.2% in mortgage rate and bear a depreciation of the asset at a rate close to 2% a year. i don't want to bore you with the calculation here. But the basic idea is that at the present situation, it doesn't make a big difference between renting and owning a flat, unless the interest rate or land appreciation deviate substantially from the overall inflation.
From this point of view, property prices at the current level are about fair.
Here we come to the toy part.
The Toy Part
Textbooks taught us that the HK property market rose because of the limited supply of land, rapidly rising population and improving income of its residents. These same factors had contributed to the Japanese housing boom until the early 1990's.
Looking ahead, these favorable factors are set to weaken. In recent years, the supply of reclaimed land and bettered railway network has provided Hong Kong with extra land, mainly in Tseung Kwan O, Ma On Shan and West New Territories. The population growth has become stagnant, thanks to the low birth rate. Personal income growth has slowed after the economy has already transformed from manufacturing-oriented to servicing.
From overseas experience, it seems that these factors are sufficient, but not necessary.
Shanghai has plenty of land but its property market is experiencing a big boom. Improvement in income could be one of the driving forces, but the market has risen far ahead of the income growth. An apartment there, according to colleague Henry Chan, is now priced at as much as 18 years of average family income. Across the Pacific Ocean, the property market in California has had a strong rally. Income there has been stagnant since the bursting of the technology bubble back in 2000. Low interest rates are a well-known factor driving Californian properties.
More importantly, Californians accumulated huge wealth during the technology boom. The huge accumulated wealth of Chinese elites has also become a strong driving force for the Shanghai property boom.
Property is More than A Shelf
Properties are sometimes bought for the storage of wealth, but not for the accommodation purpose. Many investors prefer properties rather than securities. Property gives such a strong visual impact that investors of it feel secure.
Think of gold. If the asset value depends solely on the income stream it generates, gold would be much less valuable than it is. Unlike steel and aluminum, gold has few applications for industrial purposes. Unlike stocks, gold doesn't generate any dividend income, not to mention that holding gold, physically, costs storage fees. Its investment value is simply based on the belief that, someone, someday in the future, will buy it at a higher price.
Gold serves to store wealth, as do properties.
Sometimes, the storage of wealth, rather than the accommodation function, takes the leading role.
Will the Property Boom Return?
Hong Kong has gone through the development stage, in which property investors earn easy money. Will the good old days return? Is it possible that Kinder chocolate egg undergoes a major price boom while kids remain as poor as before? The answer is: Yes.
Now, it's almost 5pm on Tuesday, and i am rushing for the deadline. i have to stop here and will continue next week.
Mar 16, 2005
Copyright Quamnet
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