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Market downturn offers some positive investment
opportunities
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Jan 07, 2009 |
As we move into a new year, it would be easy
to dwell on the turmoil of the past few
months and focus on the downside. But the
reality is there are positive as well as
negative aspects to what has occurred and
continues to occur.
Obviously, much depends on where you are
coming from and whether you are an
owner/occupier, investor, or tenant. But one
factor that I think will be of benefit to
the market as a whole is the current
re-pricing of risk that should lead to a
more robust and sustainable assessment of
asset values going forward.
For too long, when liquidity was in
abundance, potential lenders, investors and
purchasers rationalized, discounted or even
ignored risk in their attempts to
outmanoeuver the competition and as a result
yields and values reached what in reality
were unsupportable levels.
Granted we now have to endure the painful
process of adjustment with yields rising and
prices falling and many finding that in the
short and medium term they are in "negative"
territory. But for the market as a whole to
move forward such adjustment is inevitable.
It should be some consolation that we are
looking at a cross-border raft of adjusted
values around the world, not just a
re-pricing in Hong Kong.
Fortunately for Hong Kong, apart perhaps for
the luxury residential market, we learned
from the 1997 financial crisis and the 54
months of deflation that followed. We did
not over-borrow subsequently and price
growth that has occurred has largely been
fuelled by demand and not by speculation.
The adjustments that are now taking place,
therefore, are very much a function of
reduced demand linked to the slowing of the
economy which in turn is reflected in
falling rents and a more cautious attitude
on the part of potential purchasers - rather
than anything more dramatic such as the
over-leveraging seen in the United States
and Britain.
Since the current correction is linked to
falling demand, the cycle could equally
swing the other way once the economy begins
to recover and confidence returns to the
real estate market. In the meantime, tenants
will benefit from falling rents at a time
when many are facing the need to cut costs.
Residential upgraders, of whom there are
still several thousand per month, can also
take advantage of a stronger negotiating
position to secure their new home at a
cheaper price. One caveat is that they will
have to accept that in the short term values
are likely to decline further before any
eventual recovery.
In my view the downturn also once again
demonstrates the need for the government to
revisit its land revenue policy. Clearly,
based on the existing approach, there are
unlikely to be any major land sales over the
next year or so, nor are there likely to be
any significant lease modifications.
Therefore there is little likelihood that
the government will reap revenues of the
order of HK$50 billion to HK$60 billion per
year, which has been raised from these
sources in recent times.
Nicholas Brooke is the chairman of
Professional Property Services Group
Source: South
China Morning Post, Professional Property
Services Group |
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