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Overborrowing can turn dreams into nightmares

Raymond Lee learned a few key lessons during a long career in Hong Kong's highly competitive real estate market, and none more so than avoiding the pitfall of taking on too much debt when chasing a deal.

In 25 years of broking property deals, Lee helped numerous buyers make money from trading properties. But he also learned that for those who overstretch themselves financially the dream of making big profits can often turn into a nightmare.

'Bankers show no mercy when they lose confidence in your financial situation,' said Lee, chief executive for Greater China at property consultancy Savills.

One of his clients who was caught in a cash flow problem was forced to sell his hotel for some HK$430 million - well below its HK$500 million market value - during the Sars outbreak in 2003 as banks called in loans.

'All the money was used for debt repayment and the investor even needed to fork out an extra HK$20 million in severance fees to lay off his staff. But if he had managed the asset for several years he could now be the owner of a hotel that has seen its value climb to HK$3 billion.'

The moral of the story, said Lee, was never to overborrow. He was debt-free despite owning four properties in Hong Kong and overseas. These include a recent purchase of a HK$30 million apartment in central London to provide accommodation for his children, who will study there.

Before taking over at Savills' Greater China office on January 1, Lee was chief executive of the group's Hong Kong and Macau office and last year was involved in a number of high-profile transactions with sales totalling more than HK$21 billion.

The most unforgettable, he recalled, was the HK$948 million sale of the office building named 88 Gloucester Road in Wan Chai in September last year. Today the commercial building is worth more than HK$1 billion.

A graduate of Hong Kong Polytechnic in 1986, Lee started selling computer paper to companies before joining Savills in 1989 as assistant manager for office leasing. Today he has made profits, on paper, of nearly HK$70 million from his personal property investments, but he has no plans to realise the gains by disposing of any of his properties.

'Where could I put the money if I were to cash-in all the properties?' he said, adding that he had learnt a painful lesson by losing half of his savings in Lehman Brothers-linked investment products in 2009.

One of his most successful property deals, he said, was the purchase of a 3,000 sq ft apartment with three car parking spaces in Broadwood Road, Happy Valley, for HK$15 million or HK$5,000 per sqft in 2000. The property was now valued at around HK$70 million.

Two years ago, he made another purchase of a 3,000 sqft house plus a 2,000 sqft garden with a view overlooking Sha Tin racecourse for HK$27 million. The property, which he and his family now occupy, is worth about HK$40 million.

Looking ahead, Lee said he was confident Savills' commission revenues would double to HK$600 million in 2015 by actively expanding into the mainland.

Savills presently employed some 15,000 staff in 14 mainland cities and would expand its reach to Chongqing, Chengdu and Shenyang.

As the number of affluent mainlanders continued to rise, Lee expected transaction values would also rise sharply. Over the past decade, there were only a handful of HK$1 billion deals done in Hong Kong, he said, but this would change in future.

Lee said he would also be spending more of his time on the mainland, allocating one-third of his time there in order to facilitate the integration of the company's Hong Kong and mainland operations.

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