Jake's View

Hong Kong’s billionaire tycoons don’t really know where the property market is headed, they just act like they do

Forecasts on the property market outlook by Lee Shau-kee of Henderson Land Development should be taken with a grain of salt

PUBLISHED : Wednesday, 23 March, 2016, 4:57pm
UPDATED : Wednesday, 23 March, 2016, 11:36pm

Home prices in Hong Kong will fall another 5 per cent in the next couple of months as local developers are in a rush to sell homes, says the chairman of Henderson Land Development, Lee Shau-kee.

Lee said the city’s housing prices will fall about 30 per cent from their peak in the wake of high development costs. The market is about halfway through a price correction cycle..., he added.

Business, March 22

I have had experience of the exactitude of the property market forecasts of Say Sook (Uncle Four) as Mr Lee is popularly known.

This was back in 1981 when he took Henderson Land public. The honour of introducing it to the stock market was given to Sun Hung Kai Securities, where I was research manager at the time, and we adopted a novel method of listing the stock.

The price was to be HK$4 a share but you only had to put down HK$1 immediately to subscribe to the offer. Six months later you would be dunned for another HK$1 and at the end of the year you would make the final HK$2 payment.

You have someone who has picked a few numbers out of the air because they have a nice ring

The sales pitch to our clients was the obvious one – “This is a goer, Sunshine. The property market’s hot and this is the hottest thing on it, worth much more than four dollars. You put down one dollar now and within six months that dollar will be worth at least two dollars. Then you can decide to keep it or double your money in cash. We’ll carry you.”

Six months later, with the property market tumbling, the stock market valued Henderson Land at only HK$3 a share and that first HK$1 payment had been wiped out. Another six months and no-one valued the stock at more than HK$2. Another HK$1 was wiped out. And the slide did not stop there.

Mr Lee along with Sun Hung Kai Properties boss, Kwok Tak-seng, and my own boss at Sun Hung Kai Securities, Fung King-hey, comprised a trio of working men who just happened to be in the right place at the right time to ride a career rocket to the stars together.

Their game was simple – double or nothing and keep doing it. Every time the question came up they took the big risk and every time again they came up big winners. It worked better for Sun Hung Kai Properties and Henderson Land than it did for Sun Hung Kai Securities but it was an amazing ride for all three.

It did not, however, happen because of their big brains. It was bigness in another organ (plural) and amazing good fortune that pushed them up. I grant the sole survivor of the three, Lee Shau-kee, common sense and a level head but I do not rate him a big thinker.

Myself, I’m two handed on this question of where the property market is going next.

On the one hand the question is whether a decision by the US Federal Reserve Board to call off further interest rate increases (Yes, it has. Don’t fool yourself) will tell prospective homebuyers in Hong Kong that they also need not fear further higher mortgage costs, and thus encourage the property market.

On the other hand it is how much an economic slowdown in the mainland will lead to a slowdown in Hong Kong and a dwindling of speculative interest, thus discouraging the property market.

I don’t have the answer to this question and that makes at least two of us. When someone tells you that prices will decline by 5 per cent over the next two months and 30 per cent exactly over this market cycle, then you have someone who has picked a few numbers out of the air because they have a nice ring.