Forget derivatives; the best leveraged investment in town has long been property. With just a 10 per cent deposit, buying and flipping property, from Sha Tin flats to entire office floors, guaranteed maximum bang for the buck.
An ingrained feature of the local property market is that each downturn sees a rush of defaults and forfeited deposits. Like some giant party game, the only rule is not to get caught holding the parcel when the music stops.
Just ask Xin Hua Estate. Back in May, it bought Pearl Oriental's Wan Chai News Building for $1.72 billion. Seven months on - with prices about 50 per cent lower - the property investment arm of the mainland mouthpiece has walked away from the $172 million deposit.
It is not hard to see why. Although claiming financing trouble, Xin Hua Estate stood to lose up to $800 million by completing, if recent transactions are an indicator. The same process is being repeated across Hong Kong.
All good news for lawyers seeking conveyancing errors in sale and purchase contracts that would allow purchasers to get deposits back. Less edifying is the sight of an official mainland organ involved in one of the market's more cavalier practices.
Trading what amounts to property option contracts bought with a 10 per cent deposit, only to forfeit if the market falls, has made plenty of speculative fortunes. It has also been the focus of official anger in Hong Kong.
The various wars on speculators over the past few years always misplaced blame for runaway prices, but speculators undoubtedly exaggerate violent price swings. Underpinning the great game was an established principle of British contract law that a buyer forfeits a maximum 10 per cent of their deposit.
