Hong Kong property investors face hard decision in choosing between stocks and physical property this year

Investors looking to the real estate market this year can opt for physical property or the shares of de­velopers, each with their own potential benefits and risks, according to analysts.

One school of thought suggests the Hong Kong-listed shares of major property developers should outpace price gains in the physical property market if the year ahead shapes up like the past 12 months.

The Hang Seng Index has risen 41 per cent in the past year, outperforming the housing market’s 14 per cent gain.

However, others stressed that investments in the stock market could leave investors out of ­pocket, whereas home ownership served a basic need.

“Flats are tangible assets that you can still live in even when its value plunges, but shares can lose their value,” said Derek Lau, a ­senior sales director at Centaline Property Agency.

Lau also said buying made sense for individuals faced with rental expenses who had to get on the housing ladder.

“You could also save rental ­expenses. For instance, for a HK$4 million flat that could be entitled to a mortgage of a loan-value ratio of 90 per cent, the monthly in­stalment is about HK$13,000. Out of that, the interest expense is HK$6,000. You can live in the unit and save rent of about HK$8,000.”

Lau said about 20 per cent of Centaline’s business in recent months came from clients who profited from the stock market.

“They are particularly interested in new flats. Their target price range is between HK$7 million and HK$15 million. They are mostly investors who may lease the property,” he said.

But the performance of the Hang Seng Index’s 51 constituent members varied greatly. For instance, Wharf (Holdings), one of Hong Kong’s biggest landowners before a spin-off in November last year, was the worst performer, closing down 47 per cent from a year earlier at HK$30.75 on Monday. The stock rebounded to HK$31.25 yesterday.

In Aberdeen and Wong Tai Sin, the districts with the lowest growth in home prices, prices are up an average 9 per cent, according to Knight Frank.

“It is easier to pick the right flat than the right share,” said Louis Chan Wing-kit, Asia-Pacific vice-chairman at Centaline Property Agency’s residential department.

But for those who already owned a flat, investing in property stocks could be a better bet as ­developers were on track to generate strong sales this year, said Raymond Tsoi, the founder of Asia Property Agency.

“Transactions and value in the primary market will set a record this year. Developers will also report a bumper profit,” he said.

Under the existing tax law, buyers making second home purchases are liable to pay a 15 per cent stamp duty.

“It will increase transaction costs,” said Tsoi, who is one of the four Hong Kong businessmen who together own a 45 per cent stake in the consortium that paid a record HK$40.2 billion for the grade A office tower, The Center, in Central last November.

“First time buyers, should enter the market as long as they can afford to,” he said.

But he advised those with more capital could consider buying offices or retail shops.

One financial analysts highlighted value in the equity market, even after huge gains during the past year.

“Many investors are cautious on the shares of property developers as they think that US interest rate hikes will be very negative on the property market and drag down property prices,” said Raymond Cheng, a property analyst at CIMB Securities.

“Investors do not like developer stocks and are underweight the sector, making developers’ share prices very cheap. Shares of Sun Hung Kai Properties and Henderson Land Development trade at a discount to their net asset value by about 50 per cent,” Cheng said.
“But since the prices of flats sold this year are higher than expected, the profits generated by these flats will also be higher than expected, pushing up their share prices.”
However, for those sitting on a handsome profit in the stock market, reinvesting in physical property could still be an option, he said.

“Home prices in Hong Kong will continue to rise despite potential interest rate rises in the US,” Cheng said.