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Thread: Why investors in S'pore and Hong Kong are cashing out of property

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    Default Why investors in S'pore and Hong Kong are cashing out of property

    http://propertysoul.com/2013/04/01/w...t-of-property/

    Found the following article from Forbes Asia, originally from Asia Confidential.

    http://www.forbes.com/sites/jamesgru...money-in-asia/

    Following The Smart Money In Asia
    Forbes Asia
    3/30/2013 @ 3:54PM

    Follow the money. It’s a old saying in investing that’s never made a lot of sense as it often means following the latest fad and ultimately buying high and selling low. So I’m going to propose an amendment and urge you to ”follow the smart money”. By this I mean that you should study what businessmen and investors with long, successful track records are doing with their money. And possibly invest alongside of them. Unlike most investors who feel they have to chase returns to get rich, these people are already wealthy and can pick and choose which asset classes to invest in. Given this freedom, they are often attracted to assets which offer value relative to other assets. It pays to know what these people are buying and selling.

    Which brings me to an important development in Asia this year. It’s become clear that many real estate investors in Hong Kong and Singapore are cashing out of property. These investors are among Asia’s wealthiest and they’re starting to exit their favourite asset. If this implies that property in Hong Kong and Singapore is close to peaking, as I suspect it does, then it has negative implications for the economies and stock markets of both cities.

    On a longer time horizon though, a re-balancing away from property as the primary driver of wealth generation could well prove beneficial.

    Investors selling property assets

    I’ve been hearing a lot of anecdotes about insiders selling out of real estate, especially in Hong Kong. So an article in The Wall Street Journal this week entitled “Big players cash out of Hong Kong property” naturally caught my eye.

    The article points to a wave of property initial public offerings (IPOs) about to hit the market. The sellers include New World Development, a large conglomerate, which is hoping to raise US$1 billion in an offering of some of its hotels. Another big Hong Kong conglomerate, Hopewell Holdings, wants to raise up to US$800 million in an offering of some of its (unspecified) properties. Also, Great Eagle Holdings, owner of The Langham Hotel chain, is hoping to raise US$800 million from selling off hotels in Hong Kong.

    It comes after Hong Kong residential property prices increased 120% over the past four years, while commercial property prices rose 90% during the same period. It also follows the Hong Kong government introducing more draconian measures to limit property price rises. In February, the government increased stamp duty on residential property purchases by 2x to up to 8.5%.

    Hong Kong isn’t alone in witnessing an increasing number of real estate IPOs. Singapore has seen a similar pattern this year. There’s more to come as Indonesian billionaires, the Riady family, is planning to raise US$800 million in an IPO of its Singapore hotels.

    Similar to Hong Kong, Singapore has struggled to bring property prices under control. Recently, the government there introduced its seventh measure – including increased stamp duty and higher down payment requirements – in the past two years to curb price rises. Residential housing prices in Singapore have started to stabilise but they’re still up 59% since bottoming in the second quarter of 2009.

    Reasons for cashing out

    It’s not difficult to understand the motives behind the real estate investors who are selling. The property bubbles in Hong Kong and Singapore have been fuelled by three factors:
    1. Money printed in the West has found a home in tangible growth assets in Asia. This has been particularly the case for Hong Kong, which pegs its currency to the U.S. dollar. This has resulted in Hong Kong money market rates closely tracking those of the U.S. even when domestic conditions diverge. This has meant significantly negative real rates (interest rates well below inflation), often a central driver to property bubbles.
    2. Chinese growth has also aided the bubble. Chinese investors wanting to diversify their assets outside of China have found their way to Hong Kong, Singapore and, of course, many other places.
    3. Governments, principally in Hong Kong, have been timid in addressing the price rises. Increasing social tensions, brought on by asset bubbles primarily benefiting the rich, have forced them to act more decisively.
    The savvy real estate investors now cashing out know that the tailwinds which have driven property prices to their recent highs could easily turn in future. It’s clear that governments in Hong Kong and Singapore are becoming more concerned with property price rises and are willing to act to curb them. Also, quantitative easing (QE) won’t last forever. When QE goes, a key driving factor behind Asia’s property bubble will disappear. Finally, Chinese economic growth of +8% can’t be counted on from here on. Regular readers will know my bearish views on China’s economy in the near-term. The wealth investors exiting property may share the same concerns.

    More importantly, these investors most probably realise that better value can be found elsewhere. All segments of property in Hong Kong and Singapore are undoubtedly expensive. The Economist magazine suggests they are the world’s second and third most expensive residential property markets on a price-to-rent basis, 69% and 57% overvalued versus long-term averages respectively.



    In Hong Kong, the average residential property rental yield is close to 3%.
    Effectively, you’re paying a 33x price-to-earnings ratio for Hong Kong property. That compares to the 11x that you’ll pay for the average Hong Kong stock.


    The investors exiting local property would also be able to see the much better rental yields offered outside of Asia, in the likes of the U.S.. There, they can get yields of +6% in a less frothy market and where debt is still very cheap.

    Where they’ll put their money

    The obvious question is: where will the real estate investors put their excess cash? The obvious answer is that they may switch from expensive property segments into less expensive ones in their home countries. Thus in Hong Kong, residential property appears among the more expensive. A switch into commercial property may make sense, particularly as upcoming supply is relatively limited. This switch is what property experts such as Colliers are betting on. This theory has some credibility. After all, property investors know property and switching between different segments would be within their comfort zones.

    But I think any switch would be limited. As mentioned earlier, much of the selling by real estate insiders is in commercial property. They’re clearly not bullish on this segment either. Moreover, they’d know that if property rolls over on the residential side, it would impact the economy. Particularly in Hong Kong, where property contributes about 18% to GDP. Commercial property is very sensitive to economic conditions and would suffer if this scenario took place.

    Another potential place to park the cash raised by real estate sales is in the stock market. Morgan Stanley strategist, Jonathan Garner, has taken a slightly different angle to raise the possibility of the Hang Seng Index (Hong Kong’s main stock index) reaching 50,000 by 2015 (it’s currently 22,300). Garner suggests that the Hang Seng Index has significantly lagged Hong Kong residential property prices, when historically they’ve been closely correlated (unsurprising given the importance of property to Hong Kong’s economy). He argues the stock market is due to play catch up.



    My problem with this argument is that stocks may not play catch up, but property prices could fall instead. This would, inturn, heavily impact the stock market.

    It depends on what you believe is more likely: a rise in stocks or a fall in property prices. My bet is on the latter and given the recent sales by real estate investors, they may well be in the same camp.

    If not stocks or other property segments within their home countries, then where will the real estate investors put their money? I think overseas property markets are a fair bet.

    My wife, who manages a portfolio of hotel assets for one of Australia’s largest property developers, tells me that Singapore companies have been large investors in Australia of late. Frasers Centrepoint is involved in building a massive US$2.1 billion mixed use development near the main train station in Sydney’s central business district. Recently, Ascendas Group bought a US$572 million hotel fund managed by Australia’s Mirvac Group. Far East Orchard is forming JVs to development its hotel business in Australia. And K-Reit has partnered with Mirvac in two office developments to date.

    It’s clear form this that the trend of Asian real estate investors looking overseas for better opportunities has already begun. Australia is attractive to some given the low cost of debt and decent yield on offer. I would expect the U.S. and other less bubbly markets than Australia to attract more attention from investors in future.

    What if property’s best days are behind it?

    There’s a larger question that probably hasn’t been considered as much by the wealthy Asian property investors. And that is whether property in Hong Kong and Singapore may be close to topping out not just for a few years, but for a decade or more? Given the overvaluation of property in these markets, this possibility can’t be ruled out.

    The reason that I raise this is because it would have far-reaching consequences. Asians are known to have an abiding love for property. Many suggest that it’s because property is tangible, unlike money that you put in the bank or into the stock market. I think that like the western world prior to 2008, property has realised incredible gains for investors in Hong Kong and Singapore over the past 40 years. And that’s what they’ve fallen in love with.

    Consider that two-thirds of Hong Kong’s 50 wealthiest people have made their money primarily in real estate. It’s an extraordinary statistic.

    No asset goes up forever though and property tends to move in very long cycles. What if we are close to the start of a major long-term downturn? (a downturn doesn’t have to mean declining prices as even stable prices will result large losses in inflation-adjusted terms). What if property isn’t the key driver to wealth in the likes of Hong Kong anymore? And what if the two-thirds of Hong Kong’s 50 wealthiest people from a real estate background, becomes one-third in ten year’s time?

    Many people in Hong Kong and Singapore could never imagine some of these things happening. But I’d suggest they’re inevitable at some stage. It’s a matter of when, not if.

    Such an occurrence would have some significant silver linings though. There’s little doubt that a declining or flat property market for a long period of time would have a significant impact on the economies of Hong Kong and Singapore. But I’d argue that it would be a healthy adjustment that may better balance their economies over time. Being over-reliant on one sector is never healthy.

    Property’s downfall may also prove beneficial to other asset classes, such stocks and bonds. Knight Frank estimates that Asia’s wealthiest have 31% of their net worth tied up in property, compared to 16% in Europe, for instance. And they only have 15% of their wealth in stocks. A long-term shift towards stocks may make more sense, particularly when the economies of their home countries become less dependent on property asset appreciation.

    Finally, less wealth coming from property would mean more wealth coming from other sectors. The wealthiest citizens may come more from manufacturing or other service industries. They’re likely to be less attracted to buying property than the current batch of real estate investors. That could prove a boon for stocks and the still under-developed Asian bond markets.

    This post was originally published at Asia Confidential: http://asiaconf.com/

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    Read my signature.
    狮子王 (formerly blackjack21trader): READ MY LIPS: NO MORE CRASH FOR 60 YEARS.

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    I believe most well informed investors had already cashed out before CM7.

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    lol ... cash out means what, if I have 10 properties, would I cash out until leave my own roof??

    it is exactly because of CMs that most people still hold

    the TS should change name from propertysoul to propertysourgrapes
    Ride at your own risk !!!

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    the investors in Spore and HK are definitely not cashing out.
    They are listing their IPOs.
    They want to share the wealth from their properties with the public. IMO, quite kind hearted of them.

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    Thanks vip for the article. It is always good to read widely. Your effort is very much appreciated.


    If I have multiple investment properties, it would be prudent to cash out a few. Guess only the very high risk taker will cash out all leaving just his roof.

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    Quote Originally Posted by hopeful
    the investors in Spore and HK are definitely not cashing out.
    They are listing their IPOs.
    They want to share the wealth from their properties with the public. IMO, quite kind hearted of them.
    1) can raise cash
    2) still retain control
    3) collect management fees

    Win win win for them..

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    They are very smart indeed. If I am them, I will list my property assets as IPOs. Only an ignorant fool will say listing assets via IPOs as cashing out IMHO, Many laymen just don't know the benefits of IPOs!

    Well, let me share with you: A listed status means you still in majority control of the company BUT yet can get easy, cheap financing and higher and more loans than LTV specified by govt! The listing status allow more borrowing in the name of business borrowing not pegged to physical property assets, use those money to make more money!

    Quote Originally Posted by hopeful
    the investors in Spore and HK are definitely not cashing out.
    They are listing their IPOs.
    They want to share the wealth from their properties with the public. IMO, quite kind hearted of them.

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    China’s Home Prices Increase Most in 26 Months

    very good cash out indeed
    Ride at your own risk !!!

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    Quote Originally Posted by phantom_opera
    lol ... cash out means what, if I have 10 properties, would I cash out until leave my own roof??

    it is exactly because of CMs that most people still hold

    the TS should change name from propertysoul to propertysourgrapes
    U notty ghost, making fun of the soul?

    Vip, keep it up!
    I love reading your blog.

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    You sure alot of people cash out their properties in sg?

    Why is that there are still so much demand in sg?

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    Learning from Mr Chestnut's 80/20 rule, people who are buying now are probably people trying to jump into the 20% who own private properties. They are the late comers.

    The 80/20 rule still applys to people who are cashing out now. Of the 20% who own private properties, perhaps the top 10 to 20 percent of the 20% had already cash out or plan to cash out. They are probably ahead of the curve. If they get it right, great. If they get it wrong, it is call portfolio diversification. They are not losing sleep over their decisions. This is what the rich can afford to take such decisions.

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    how to cash out from CCR when the price is almost the same prior to Lehman crisis?
    Ride at your own risk !!!

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    The smarter few probably had already cashed out in 2011/2012. Some may prefer to cut losses and invest elsewhere for better returns. This is what the rich could afford to play in this property game.

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    Quote Originally Posted by Amber Woods
    The smarter few probably had already cashed out in 2011/2012. Some may prefer to cut losses and invest elsewhere for better returns. This is what the rich could afford to play in this property game.
    u way underestimate the holding power of the rich
    Ride at your own risk !!!

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    It is not so much about holding power for the rich. Yes. many will continue to hold (the 80% of the 20%) because they could afford to.

    For the smarter few, it is about what they see as opportunities and threats in the market place. They prefer to cut losses and get higher returns elsewhere. It is about portfolio management. They may find it better to cut losses than holding on to their inflated assets if they can get better returns for their investments elsewhere. To many of these smart and rich investors, it is about opportunity costs.

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    Quote Originally Posted by Amber Woods
    It is not so much about holding power for the rich. Yes. many will continue to hold (the 80% of the 20%) because they could afford to.

    For the smarter few, it is about what they see as opportunities and threats in the market place. They prefer to cut losses and get higher returns elsewhere. It is about portfolio management. They may find it better to cut losses than holding on to their inflated assets if they can get better returns for their investments elsewhere. To many of these smart and rich investors, it is about opportunity costs.
    Hardly any other place that provides the same security for your money than in SG.

    That's why it's your money versus his money.

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    Quote Originally Posted by cnud
    Hardly any other place that provides the same security for your money than in SG.

    That's why it's your money versus his money.
    If everyone knows where is best to invest, it is time to get out. You had just answered your own question.

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    Quote Originally Posted by Amber Woods
    If everyone knows where is best to invest, it is time to get out. You had just answered your own question.
    Hmm.. you are so ahead of the curve that you may risk jumping off the cliff.

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    Quote Originally Posted by cnud
    Hmm.. you are so ahead of the curve that you may risk jumping off the cliff.


    Hey! you are not following this thread. Here is the answer.



    Quote Originally Posted by Amber Woods
    Learning from Mr Chestnut's 80/20 rule, people who are buying now are probably people trying to jump into the 20% who own private properties. They are the late comers.

    The 80/20 rule still applys to people who are cashing out now. Of the 20% who own private properties, perhaps the top 10 to 20 percent of the 20% had already cash out or plan to cash out. They are probably ahead of the curve. If they get it right, great. If they get it wrong, it is call portfolio diversification. They are not losing sleep over their decisions. This is what the rich can afford to take such decisions.

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    Quote Originally Posted by cnud
    Hardly any other place that provides the same security for your money than in SG.

    That's why it's your money versus his money.
    Believe it or not, in the neighbouring country, investing in sg property is compulsory. If u are moving up a place then u open a sg bank account, moving another level u buy a sg property. I think u know which country that is.

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    Quote Originally Posted by indomie
    Believe it or not, in the neighbouring country, investing in sg property is compulsory. If u are moving up a place then u open a sg bank account, moving another level u buy a sg property. I think u know which country that is.

    I know in 1998, many indonesian businessmen defaulted on their Singapore property mortgages.
    狮子王 (formerly blackjack21trader): READ MY LIPS: NO MORE CRASH FOR 60 YEARS.

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    Quote Originally Posted by sgbuyer
    I know in 1998, many indonesian businessmen defaulted on their Singapore property mortgages.
    I can't recall that long. I was only out of school at that time.

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    Heard that if inflation is 1% every year, our $$$ halves in 70yrs
    If 2%, 35yrs
    If going fwd SG inflation is 4-5%, our $$$ will half in about 15yrs

    Where are the investments that provide better inflation-adjusted returns? If our property mkt is overvalued, is our stock mkt as well? Businesses are borrowing becos rates low, just like property buyers, but do they have that many profitable opportunities in the pipeline in face of rising costs?

    The "leaders" who securitized their immovable properties into REITs years ago are becos the sale-&-leaseback model works against them in face of rising costs.



    Quote Originally Posted by Amber Woods
    It is not so much about holding power for the rich. Yes. many will continue to hold (the 80% of the 20%) because they could afford to.

    For the smarter few, it is about what they see as opportunities and threats in the market place. They prefer to cut losses and get higher returns elsewhere. It is about portfolio management. They may find it better to cut losses than holding on to their inflated assets if they can get better returns for their investments elsewhere. To many of these smart and rich investors, it is about opportunity costs.
    if you dont't own any property, you're short. take cover quickly

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    Aiyah, those who think will crash then cash out lah,

    those who dont care about it, then just hold it lah.

    Crazy, argue so much got money drop into your pocket is it? Siao!

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    Quote Originally Posted by auroraborealis
    Heard that if inflation is 1% every year, our $$$ halves in 70yrs
    If 2%, 35yrs
    If going fwd SG inflation is 4-5%, our $$$ will half in about 15yrs

    Where are the investments that provide better inflation-adjusted returns? If our property mkt is overvalued, is our stock mkt as well? Businesses are borrowing becos rates low, just like property buyers, but do they have that many profitable opportunities in the pipeline in face of rising costs?

    The "leaders" who securitized their immovable properties into REITs years ago are becos the sale-&-leaseback model works against them in face of rising costs.

    Are you buying now?

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    Quote Originally Posted by leesg123
    Aiyah, those who think will crash then cash out lah,

    those who dont care about it, then just hold it lah.

    Crazy, argue so much got money drop into your pocket is it? Siao!
    Finally someone who speaks some sense....

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    Quote Originally Posted by Condo Kaiser
    Finally someone who speaks some sense....
    LOL ........
    AGREE ........

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