FT BeyondBrics: Li Ka-Shing: HK Property warning

FT BeyondBrics, March 28 2013

It has become a truism that the Hong Kong property market is overheated. Residential property prices increased 120 per cent between 2008 and February 2013, according to Hong Kong’s Financial Secretary John Tsang, who gave the figure while announcing a sixth round of cooling measures aimed at curbing the relentless growth. But maybe now the moment of the apex has arrived: because Li Ka-Shing (pictured) says so.

Billionaire Li is the man behind Hong Kong blue chips Hutchison Whampoa and Cheung Kong (Holdings). This week Cheung Kong announced its annual numbers, which featured a 30.2 per cent drop in net profits, the first decline in five years.

And with that announcement came some sharp words in the results press conference: “If you are speculating, I would suggest that you stay away in such a volatile market because no one knows what will happen next,” he said, according to Reuters. “Look at your pocket first and don’t take risks.”

To see the article is it ran in the FT, click here:

Why should this matter when all the previous cooling measures have had little impact? In February Tsang said “exuberance has regained momentum” in Hong Kong property, and so he increased stamp duty in most purchases. For flats costing less than HK$2m, stamp duty will increase from HK$100 to 1.5 per cent of the purchase price, and for other properties, stamp duty will double to as much as 8.5 per cent (Hong Kong residents buying property for the first time will be exempted).

Numerous similar measures have been implemented in recent years, largely without success, as the combination of exceptionally low interest rates, high availability of funds, and fairly tight supply have kept property prices going up – 2 per cent in January alone, according to Tsang.

The difference may be the Li effect. Nobody – not Hong Kong chief executive Leung Chun-ying, not Hong Kong Monetary Authority chief executive Norman Chan – has a greater impact on investor sentiment than Li Ka-Shing, the self-made man who went from teenage labourer to the local media’s Superman.

As the chart above shows, Li’s words had little immediate impact on his own company’s shares. But then Cheung Kong has been losing ground since the start of the year, as shown in the chart below.

Those who were in Hong Kong in 2000 still remember the frenzied retail response when it was announced that Li was listing an internet company, Tom.com, on the city’s HKGEM growth enterprise market. Despite the fact that, during pre-marketing, it seemed to have no assets, no obvious business plan and barely a web site, there were reports of fights breaking out in the queues to subscribe and the shares closed at 3.35 times the offer price on the first day of trade. For investors, it was a leap of faith: that if Li was involved, it was naturally going to be a triumph.

So when Li makes negative remarks about volatility in the property market, that just might be the moment of a self-fulfilling prophesy, because if Li says it’s time to stay out, then it’s time to stay out. He’s 84 now but his influence has not decreased a jot, and John Tsang might be grateful for that if he is finally able to deliver affordable housing to his citizens as a consequence.