Transcription
Welcome everyone to the second segment of "Stock Market C View." I am Kelly, and I continue to have Mr. Shi and Hao De with us to analyze the property market. Welcome to both of you. Let's first discuss the current situation of the property market. Housing prices have already risen by 15% from last year's bottom, continuing in a state of both price and volume increase. However, I saw Mr. Shi's column in "C Viewpoint" mentioning, "Do not let the rise in housing prices be too fast and deviate from economic growth." Why did Mr. Shi say this? Because housing prices have indeed risen rapidly recently. Although Hong Kong's economic growth is 5.9%, if housing prices in the first half of the year rise by nearly 10%, the chance is very high. The more they rise, the less affordable it may be for end-users. Rising too fast will accelerate the disconnect between housing prices and the affordability of ordinary people. This is not good for the long-term development of the property market because the property market has only been recovering for a little over a year. If the government, due to the increase in these investment activities, were to implement cooling measures like before to stop it, the property market might... Of course, based on past experience, the government's cooling measures cannot suppress it immediately, but cooling measures will always affect innocent bystanders. For example, previously, stamp duty was increased very high, which created a lot of trouble for Hong Kong people buying a second home, as well as for overseas investors, and also made it difficult for homeowners to cash out. Therefore, I do not want to see the market being distorted too much by the government, which is why I am asking everyone to know when to stop. Speaking of cooling measures, if this rise in the property market is a true cyclical turning point, how do you think the government will choose between the wealth effect brought by the property market and the difficulty young people face in buying a home? The government has many aspects to consider. After the social unrest last time, the government felt that one of the reasons might be related to the difficulty young people face in buying a home, which led to dissatisfaction in society. Therefore, the government actually wants to maintain a reasonable housing price so that young people can get on the property ladder and start a family. They value this very much. But the problem is that Hong Kong has been in an environment of high land prices for a long time. The wealth storage patterns of many ordinary individuals, bank loan models, and corporate operating models are all closely related to housing prices and rents. You cannot simply disregard it. It's like a person accustomed to living on a plain, when they go to live on a plateau, the air becomes thinner, and they might experience altitude sickness. It is an ecological disaster if housing prices suddenly rise too much or fall too much. Therefore, I believe the government is very cautious and will act according to the situation. For example, commercial buildings have not yet improved, so the government is selling less land. As for residential buildings, I believe the government will accelerate land sales next, to provide more supply to the market. With more supply, prices will not rise so easily. Developers launch projects here, and other developers launch projects next door. They will naturally compete on price, and thus will not push prices too far. Therefore, I believe the government will use supply to regulate housing prices rather than implementing cooling measures or distorting the market. I hope the methods the government uses are more righteous, allowing more people to afford homes without causing too much damage to the economy or citizens' consumption willingness. They may not want to use cooling measures. Let me ask Hao De, have you been looking at any property developments recently? Have you noticed the "FOMO" sentiment in the market? It should be. Even the media has reported on it. It's been a long time since Hong Kong has seen so much short-term trading and profit-taking. For example, the property development in Sai Sha, which I mentioned on the show before. Did you buy any? I did. Did you cash out? No, because I wasn't in the first batch. The success rate of the Sai Sha property development seems to be as high as 98%, with all of them making money. This is because the first phase was likely sold in May last year. So, what you see now, with prices rising by more than 20%, is because buyers purchased last year. May last year was close to the low point of Hong Kong's residential property market in recent years. As mentioned earlier, the overall market has risen by more than ten percent. Those making profits are normal. However, due to current regulations in Hong Kong for new property sales, resale is not allowed before delivery, and only second-hand properties can be "flipped." So, you have to wait for the new property to be delivered. Therefore, recent market transactions should be quite active. I've also been looking, and I'll share my personal experience. Last week, I went to see a property development by Sun Hung Kai in Tsuen Wan West. The entire development has over 400 units, but on that day, perhaps fewer than 100 units were sold. However, the A group units were not all sold out. So, the B group should have been able to buy at 12 o'clock. They have B1, B2, and B3. I was in B2 and chose some units to buy. I arrived around 1 o'clock, and they were almost sold out. So, what I saw on-site was that people could buy new properties during this period. Another observation is that many are end-users, not purely investors. I saw families, and even pregnant women queuing. I guess she was buying for self-occupation, plus she was dragging a stroller and was pregnant herself while buying a house. So, I think this period is strong. Also, I want to respond to what was said earlier: Hong Kong's private residential properties are an investment product. Sometimes, I think investment products and social welfare should be separated. Mr. Shi seems to have mentioned that Hong Kong's private residential properties account for 30% of the total housing proportion, or even more. People who own their own homes in Hong Kong account for about half of the total households, or a little more than half. End-users should constitute the majority. If you see this number rising, it means society is improving, and more people own their own properties. If you see this number falling, it means people are starting to be unable to afford them. Currently, I am looking at the number, and I don't know if Mr. Shi has seen it, the median age of first-time homebuyers has risen significantly. In '97, which was the previous generation's time, it was around 31, 32 years old. Now it seems to be over 40 years old. In '97, the ratio of housing prices to income for those people was much higher than now. Perhaps people earned money more easily back then, but the actual calculated income ratio... However, during this period, many frontline agents have pointed out that many mainland compatriots are coming to buy property. Not all buyers are investors; some are high-caliber talents or professionals. With over 400,000 people, how do they qualify as high-caliber talents? High-caliber talents require an annual salary of 2.5 million. Those people come to Hong Kong and buy property incidentally. They definitely have purchasing power. An annual salary of 2.5 million is more than enough to buy a property. So, with more of those people buying, the overall purchasing power of end-users in Hong Kong has effectively increased, as these people have actual needs for owning property in Hong Kong. This is also a change in the demand for Hong Kong's residential market. With population growth and income growth, the market will be more stable and can continue to rise. You just mentioned the term "FOMO." "FOMO" stands for Fear of Missing Out. Why does this situation occur? It's when society or the economy experiences a relatively clear trend, and people worry that if they don't buy property, they will be missing out, meaning "the boat has sailed." This situation is easily encountered in the real estate market because real estate cycles are quite pronounced. When the trend changes, it's not a matter of three or two months; it's at least two to three years, or even five to eight years. So, they might have missed the first boat, but there are still two more coming. That's why many people will rush in. If the market is very volatile, people might not chase it like this. Currently, the property market has a clear trend, so people are afraid of missing out. We also mentioned earlier that the market is very active, with many end-users and investors. However, we also discussed in the previous segment that everyone is currently worried about inflation. The expectation of the US Federal Reserve raising interest rates within this year seems to be increasing. Looking back at a previous report by UBS, it stated that once the US Federal Reserve raises interest rates, Hong Kong's residential property prices will face downward risks. Are both of you worried that the factor of interest rate hikes will affect the property market? I personally believe that saying the property market will fall just by hearing about interest rate hikes is too simplistic. If all other issues are normal, interest rate hikes will increase the burden of mortgage payments and reduce the attractiveness of renting. Of course, this is unfavorable to the property market. However, if inflation is severe, prices continue to rise, and the purchasing power of currency declines, even interest rate hikes may not be able to suppress currency depreciation. If interest rates rise, the currency will not depreciate, and there will be no currency crisis in the world. Sometimes, interest rate hikes cannot suppress inflation. When the purchasing power of currency continues to decline, causing worry, people will buy tangible assets or assets unaffected by other environments as a form of protection. I have seen situations in Hong Kong where interest rates were raised, and housing prices also rose. Logically, housing prices should not rise after interest rates are raised. However, some situations occur, such as economic improvement. When the economy starts to improve and brings inflation, the Federal Reserve will raise interest rates. But the economic improvement turns out to be very strong and continues to rise. Although interest rates have been raised, they cannot deter people from entering the market because people's incomes might have increased, or their concerns about currency depreciation have increased. Therefore, interest rate hikes do not necessarily lead to a fall in housing prices. For example, this time, as mentioned earlier, in the bond market, people have lost confidence in US Treasury bonds, leading to a rise in US Treasury yields. If this trend continues, interest rates may continue to rise, and fear of holding US dollar assets will continue to increase, and housing prices can also rise. Therefore, we need to observe comprehensively; it's not that prices will immediately fall upon hearing about interest rate hikes. We cannot look at a single factor. Do you think everyone doesn't need to worry too much, Hao De? Let me add a point. I look at it from a very practical perspective. First, the current borrowing ratio in Hong Kong is very high, making their ability to bear interest rate hikes very poor. This is not the case. In the past few years, due to cooling measures, etc., Hong Kong people have not been borrowing excessively. The proportion of Hong Kong homeowners who have completed their mortgage payments is over 60%, almost 65%. I am one of the 35% who have not completed their mortgage payments. So, interest rate hikes have little impact on them. Those homeowners have already completed their payments, so what does it matter if interest rates rise? Second, even if interest rates rise, they will be raised in an orderly manner. The Federal Reserve will not suddenly raise rates by 5%. Even if they do, it might be by half a percent or one percent. This is in a relatively bad scenario. Imagine if a normal two-bedroom unit in Hong Kong, perhaps 400-500 square feet, sells for 6.5 to 7 million, and you borrow 70%, which is 4 million. Your monthly mortgage payment might be around 25,000. If interest rates rise by 1%, your additional expense might be around 2,000. I don't think the actual shock is as high as imagined if you understand it numerically. So, I think a rate cut is definitely better than a rate hike, but in this matter, in the current development of the entire Hong Kong residential market, I think even if there is a suppressive effect, the suppressive effect is not as significant as imagined. Let's discuss a recent hot topic: New World's 11 Skies. Recently, media reports indicated that New World is considering paying a termination fee to end its rental obligations for 11 Skies, and it's unlikely to be paid in cash, but possibly in land or other assets. Let me provide some background for everyone. According to existing agreements and public reports, New World is required to pay the Airport Authority a guaranteed annual rent of 1.8 billion, or 30% of the project's annual gross revenue, whichever is higher, starting from 2028 until 2066. Based on New World's debt, this seems to be a drastic measure, a "cutting off an arm to stop bleeding." Is it a last resort? What are Mr. Shi's thoughts on this? I think New World has been very principled. Some companies might just "pack up and leave." They are considering their responsibilities and reputation. In fact, they should have discussed it with the Airport Authority much earlier. Of course, the Airport Authority has its difficulties, but in reality, if you inspect the venue, there are truly no conditions for doing business. Sometimes, they don't even turn on the air conditioning. When New World bid, they might have misjudged. The Airport Authority, in developing such a large shopping mall there, should also see if there are ways to handle it better with New World. You have to accept reality yourself; the development is currently not ideal. New World is saying they can't pay money and are offering stocks or land. If I were doing business in mainland China, it would be terrible. They also can't give money and only offer parking spaces on top of Tai Mo Shan. After parking, it takes a long time to get down the mountain. But at least they give you some assets. They say they can't give it anymore, they are about to go bankrupt, but you still have to accept reality. So, there is a negotiation now. I think the government... I heard before that the Airport Authority was unwilling. Of course, they were unwilling. You were supposed to pay some money every month, and now you can't. Now they might have to operate it themselves. I estimate it will take time to develop well and achieve results immediately. The cost might be very high. I have helped people with mall leasing in mainland China. Sometimes, with great effort, I bring in a bunch of merchants, and it's bustling for about half a year, then they leave one by one because they can't sustain it. I tell my colleagues in the commercial department, "You are truly unlucky." One batch can't sustain it, and the landlord says it's the second wave of attack, and they bring in another batch. I think the 11 Skies venue might need to rest for a while. You mentioned turning off the air conditioning to save electricity. To be fair, this is not just a problem New World has to face. After all, this project was signed in 2018, before the pandemic and social movements. We have all seen the changes in these years. First, no one actually estimated it so poorly, so accepting reality is reasonable. The problem is that this single project accounts for too high a proportion of New World's business. If you don't handle it well, you will have difficulties later. Of course, there's nothing we can think of right now. Even if some people believe that the completion of the new passenger terminal might help, I heard that those new passenger terminals are for low-cost carriers or automated boarding, which might not be of much help to this project. We have to wait for the economy to improve further. For example, the mainland economy. The mainland used to always talk about downward economic pressure, but now they are starting to not mention it. If the economy recovers and grows rapidly, and per capita income increases, then people coming down will naturally spend more. When this was built, it was said that many people from the mainland would come to shop. Mainland people coming to Hong Kong to shop were even "kicked" by Hong Kong people, meaning they didn't want them to come. They quickly looked for places to accommodate those who came to shop. You can go to the airport for quarantine, it's very close. Perhaps many people would want to go. At that time, even developing a large shopping mall at the Luohu border quarantine was considered. At that time, demand was perceived to be very high, and the trend was expected to continue. But in reality, it changed later. So, if this situation does not change, I think it is not suitable to implement it yet. It should be done when conditions are better. One option is to accept some compensation from New World, allowing it to shed this burden. Another option is to give it a longer lease. Now, many venues in Hong Kong, landlords collect half the rent, provide air conditioning, and pay rates, all to keep tenants from leaving and to encourage them to open for business. But for New World's venue, we are their client relationships. They want us to hold on first. To ask others to hold on, you usually offer lower rent, delayed rent payments, rent-free periods of at least half a year, or even a year. Now, perhaps it's rent-free indefinitely, waiting for the market to improve. This way, New World doesn't have to face bad debts, and the Airport Authority doesn't have to face bad debts either. Everyone is thinking about what can be done to revive this place. I even saw some netizens discussing turning it into a casino. No, I suggested it a long time ago that it could be considered because the environment at that time, Hong Kong's situation, was indeed very dire. It's not a bad idea to have another source of income. But now, there's no need to think about it. The daily turnover of the Hong Kong stock market is over 200 billion. If you open a casino, when will it have a turnover of over 200 billion? Of course, casinos have much deeper profit margins. I personally feel that most of the investment in the financial market is like gambling. Most people are buying something similar to betting on high or low, like callable bull/bear contracts, which are no different from betting on high or low. When a financial market has such activity, it is already gambling, so there's no need for "muddy" gambling methods. Macau does not have this kind of financial market gambling. It's not as fun, as diverse, and requires so much knowledge. If the gambling industry develops successfully, no one will praise you, but if the financial sector develops well, and now the mainland also emphasizes the importance of the financial market, then there's no need to rely on gambling. In the past, when the economy was bad, people would think about it. Now, I believe the government's chances of approving it are very low. You talk about turning it into a casino. What is the most difficult part? Because the hardware is already built. You've already spent, say, 20 billion. You've spent it. Changing its use is also very difficult. If it were purely a piece of land, it would be relatively easier. It's still a piece of land, and you could consider, for example, education. Before construction, it's easier. Before construction, you can develop it according to demand. But the problem is that the land has already been developed. Those office spaces and retail floors cannot be changed. So, unless there are truly experts, otherwise, you have to rely on gradual leasing and positioning. This is clearly a long-term challenge. That's why New World, after its calculations, has to face reality. This is not a situation that can be turned around with a few simple tricks. So, it's not easy. This is reality. We just mentioned this project. It is indeed a huge burden for New World. If they really withdraw from their rental obligations this time, how much will it help New World's finances? New World has been working hard to reduce debt in recent years because its past debt-to-equity ratio was over 70%, which is relatively high compared to general large developers. To be fair, it's not just them who have problems; Henderson also has problems. However, Henderson has invested tens of billions itself. Each of them has to face such a situation. For New World, if a project continuously troubles a company indefinitely, it will cause major problems in the entire enterprise's deployment and operations. Of course, we don't know how they are negotiating with the Airport Authority now. I actually agree with what Mr. Shi just said. Why not renegotiate the lease? In business society, this is often the case because both parties have common interests. The Airport Authority is responsible for the airport; it is not responsible for leasing. If there is an opportunity to change the lease, it might be reasonable. And because the Airport Authority is a public institution, citizens will pay attention to whether New World is being unduly favored. If the lease is readjusted and then put out for tender, for example, if Cheung Kong wants to take it over, can you take it over with these terms? This would be easier for both parties to explain. What are Mr. Shi's thoughts? I've said before that in the current situation, if New World has to bear such expensive rent, people will calculate the numbers. If your monthly income is not enough to cover the interest, then people will have concerns or distrust towards this company. For example, in the stock market, the sentiment is not good. So, I think the government may also need to consider the overall situation, allowing New World to reduce some of its burdens so that it can achieve a balance of revenue and expenditure quickly. I believe not only the Airport Authority needs to offer favorable terms, but also some banks. I see some investors around me who have encountered problems, and banks will freeze interest. You try your best to repay, and during this period, interest is not counted. Why not count interest? If you count it, you can't collect it. It's better to give them a chance to make their own books look better. If the bad debt is so large, and the interest collected is so little, it's hard to say. So, I believe that in such situations, all creditors need to sit down and discuss. The program time has come to an end here today. Thank you both for your sharing. I wonder what everyone thinks about New World's approach? Is it good or bad? Welcome to leave your comments and tell us. We'll see you next week. Goodbye.