x Abu Dhabi, UAEWednesday 24 January 2018

Property of Hong Kong

The Chinese territory's tycoons have largely made their fortunes from the property and stock markets. But now economists worry about asset bubbles in the two sectors.

Fear of property bubbles in Hong Kong have helped shares fall to five-month lows, prompting forecasts of negative growth in the first half of the coming year.
Fear of property bubbles in Hong Kong have helped shares fall to five-month lows, prompting forecasts of negative growth in the first half of the coming year.

Hong Kong has been transfixed by the gripping but sad tale of Nina Wang, or "Little Sweetie" as Asia's richest woman was known, a legendary property magnate even in a city that is defined by its tycoons.

The estate of the famously eccentric Wang became the subject of a bitter court battle that saw her former feng shui consultant and lover arrested for forgery and kept tongues wagging in the territory over the "Battle of the Wills". Hong Kong has always been a great place for tycoons. They have been the city's royalty for many years, long before the British handed over power to the communist Chinese.

While many of the territory's extremely wealthy started life as industrialists in mainland China, diversifying into investments such as property and the stock market has driven their recent wealth, and has some analysts worried about asset bubbles. Fears that economic growth in Hong Kong may not be as secure as hoped has seen shares fall to five-month lows. Norman Chan, the chief executive of the Hong Kong Monetary Authority (HKMA), says the threat of asset bubbles in the stock market and property is huge, because low interest rates and high levels of liquidity are pushing prices higher.

The economy in Hong Kong recovered last year on domestic demand and restocking of inventories, but external sales continue to underperform and Hong Kong's broader economy is heavily reliant on its relationship with the People's Republic across the border. The ever-closer links with China, cemented by deals such as the Closer Economic Partnership Arrangement signed in 2003, have left Hong Kong's famously flexible economy more robust but also more reliant on China. And the focus of this closer relationship has been on the stock market and on property.

Li Ka-shing, the chairman of Cheung Kong, is Hong Kong's richest person with a net worth of US$21.3 billion (Dh78.23bn), a list compiled by Forbes Asia shows. This marks a rise of $5bn in the past year, and Hong Kong's 40 richest had a total of $53bn more to spend. Next up was Lee Shau-kee, another octogenarian property magnate who heads up Henderson Land, at 19bn; the Kwok family, which counts property among its main businesses, at $17bn; the developer Cheng Yu-tung with $7bn; and the property tycoon Joseph Lau at $6bn.

The total net worth of Hong Kong's 40 richest people swelled to $135bn, by Forbes Asia's reckoning, and while the bank balances of Hong Kong's wealthiest do not bulge as much as they did in the heady days of 2008, not one of them became poorer. Mr Li started life in Chaozhou in Guangdong province, then began his rise to the Hong Kong ascendancy with a plastics business, but the key to his wealth has been property.

House prices rose 29 per cent in Hong Kong last year. Hong Kong's real estate prices rallied the most among the world's major housing markets last year, the property adviser Knight Frank says. Reasons for this include the fact that Hong Kong has kept its base mortgage rate at a record-low 0.5 per cent since December 2008 to provide a cushion against the global financial downturn. Buying by mainland Chinese has also helped buoy the market, as 18.1 per cent of mid-range to luxury flats valued at HK$10 million (Dh4.7m) and above were bought by mainlanders.

Many Hong Kongers believe that figure has been greatly underestimated, as many mainland Chinese buy properties through local representatives and agents. In mainland China, property prices in 70 cities climbed 7.8 per cent in December, the fastest pace in 18 months, government data show. Low interest rates and high liquidity pushed property sales 75.5 per cent higher last year to 4.4 trillion yuan (Dh2.36tn) last year and the government has introduced measures such as a tax on homes sold within five years of their purchase, and strict enforcement of a rule requiring a 40 per cent downpayment for second homes.

The HKMA similarly introduced such a measure for luxury homes in Hong Kong in October. About HK$640bn of capital flowed into the economy in the five quarters to the end of last year, says the HKMA. Most of it went into the equity markets. Donald Tsang, the chief executive of Hong Kong, has warned that the city could face a quick return to economic hardship in the middle of this year, because of continued uncertainties about the global economy.

The Hong Kong economy may see a negative growth in the first half of this year, with a rebound likely in the second half, says Mr Tsang. Purchasing managers' data shows that Hong Kong's manufacturing activity continued to grow last month, largely driven by the eight successive monthly rise in new orders from mainland China, while the local private sector has also continued to increase capacity. The property boom is also boosting government coffers. Hong Kong is expected to report a budget surplus of HK$5bn this year on the back of higher revenue from land premiums and stamp duty, compared with an original forecast of a deficit.

Hong Kong GDP growth slowed from 4.2 per cent in the second quarter of last year to 1.7 per cent in the third quarter, although Mr Tsang said any recovery would depend on the external economy and the broader effect of the territory's stimulus plan. The message from Hong Kong's masters in Beijing is positive. When he met Mr Tsang late last year, Wen Jiabao, the Chinese premier, was full of praise for how the special administrative region has dealt with the downturn and expressed his confidence about its prospects this year.

When Nina Wang built Nina Tower 1 in the Tsuen Wan district of Hong Kong, it was the tallest building in the territory outside of the central business district, and the 22nd tallest building in the world. She named the tower after herself but dedicated it to her husband Teddy, who disappeared after he was kidnapped leaving the Hong Kong Jockey Club in 1990. In Hong Kong, where the tycoons are like royalty, even the dead are commemorated in property.