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Property investment is all about timing

When I presented “When Is The Best Time To Buy or Sell?” in September’s SMART Expo, I talked about timing in property investment.

I mentioned that property agents often tell you it is impossible to time the market. You may not be able to time the market. But you can never be too good if you can’t tell the difference between a good versus a bad time to buy.

You don’t have to wait until there is blood everywhere in the street to buy. But you don’t buy when the time is not right.

The end of a legendary property cycle

Hong Kong property prices have increased five times since the SARS period in 2003. But the legend of a 28-month bull market has finally come to a halt by the end of September.

In September, developers were still launching sold-out new projects at record-high psf prices to enthusiastic buyers in the queue. Barely two months later, developers are already giving 10 to 12 percent discount to buyers.

The second-hand market is even more miserable. Owners revise their asking prices 20 percent down for a quick sale. Some desperate sellers even dump their properties at 30 percent discount.

When you see irrational buyers in the market, you can keep your cool and stay on the sidelines. When you see frantic sellers in the market, even if you can stay calm, the value of your asset will still be going down.

This is a typical scenario when the bad investment decision of others becomes your problem.

The art of an elegant exit

Property agents might have told their clients that this property boom still has a long way to go. Prices will continue to go higher.

But Hong Kong property tycoon Li Ka-shing is a contrarian. He has started cashing out since last July. He is a rare investor who can read the market, know what is going to happen next, and find the best opportunity to take timely action.

He doesn’t need others to tell him what to do. Just like experienced and savvy investors don’t have to go around asking people for advice, or taking unsolicited advice from brokers or those so-called industry experts.

Li first sold his Hutchison Telecommunications fixed-line phone business last July for HK$14.5 billion (S$2.54 billion). This was followed by last November’s sale of The Center, Hong Kong’s fifth-tallest building, at record HK$40.2 billion (S$7 billion). The following month Provident Square shopping mall was sold for HK$2 billion (S$350 million). The last sale was a US$3 billion property project in China’s Chongqing this January before he announced his retirement.

In his retirement speech in May, the 90-year-old said Hong Kong’s property prices are now the highest in the world. He cautioned all buyers to be careful, know their capability, and don’t speculate in the property market.

Four-and-a-half months later, the property bubble busted.

Li understands very well the meaning of the statement “an elegant exit requires advance planning”. Savvy investors walk down the stage in style. Average Joes stumble their way out of the market.

Leave in time before the house catches fire

It all started when the Chinese government tightened borrowing to lower the country’s total debt and to cool the overheated property market.

Debt-ridden Chinese developers kept issuing new onshore and offshore property bonds in a slowing property market. As of last month, the China builder bond market has reached $491 billion and carries a high risk of default.

After years of overbuilding, housing vacancy rate is estimated to be 22 percent. There are 50 million empty homes and countless ghost towns in China.

Li Ka-shing has foreseen cooling down of the China real estate sector much earlier. It was retrieving from the market when others were still jumping on the bandwagon to expand in a red hot market.

From the beginning of this year, there was rumor that Li’s Cheung Kong Holdings had started downsizing its Shanghai office. Over six months’ time, close to one-third of employees are retrenched.

Make sure your next buyer can make money

Let’s go back to the high-profile new buyer of The Center in Hong Kong. Peaceful Development Asia Property’s largest shareholder is Beijing-based China Energy Reserve & Chemicals Group.

It made headlines last November with the purchase of the 73-storey tower at HK$40.2 billion (S$7 billion). The shocking HK$32,951 (S$5,784) psf set a new record for the world’s most expensive real estate transaction.

“It shows that Hong Kong’s commercial property market is still competitive, and is unlikely to be affected by high prices,” commented by the spokesperson of Collier Hong Kong.

Cheap money and high liquidity can keep the competitive office market afloat. Six months after taking over The Center, the new owner could still sell part of the iconic office building individually at HK$50,000 (S$8,767) psf.

As they say, a successful property investor must ensure that his next buyer can make money. Or at least it looks like so.

The question is: Where to find tenants willing to pay sky-high rental rates for an office building that just changed hands from a property tycoon at a record price?

These days money can fall from the sky with magic words for start-ups: blockchain, AI, co-working space, etc.

The Chinese co-working startup Kr Space (氪空间) fits the bill. It is flushed with cash, having raised US$337.2 million in five rounds of funding since it started in 2016. It has 60 co-working offices over 12 cities in China. The Alibaba-backed start-up is confident to beat WeWork.

Kr Space originally plans to pay HK$95 psf ($$16.7) for two storeys at The Center for a 44,000 sq ft flagship co-working space office. Now seeing market direction has changed, it has decided to forfeit the one-month deposit of HK$4.18 million (S$730 million).

After losing a big tenant, the landlord is now stuck with the world’s most expensive office building.

Important lessons learned

It is really nothing to boast about buying assets from savvy investors, especially from legendary investors when they think it’s time for their assets to change hands.

Similarly, I dare not buy from very savvy investors. I can’t afford holding a hot potato when the music stops playing. I would rather buy from average investors who bought the right thing at the wrong time.

But different buyers or investors have different investing styles.

Some are more high profile who enjoy to be in the public limelight. They bag iconic landmarks in the country, win public tenders with the highest bid, and purchase land sites at new record prices. They feed exciting news to the media to boost the market and their share prices.

Some prefer to stay low profile and keep their shopping spree private. They strike only when the market is lukewarm. They snap up bargains when no one is interested. They don’t need the public to recognize their purchases. They only wait for the market to recognize the value of their purchases later.

What is your investing style for properties?