19 October 2018
Ronnie Chan (above) has just released his highly anticipated letter to shareholders but this time, there's less Warren Buffett in it. Photo: HKEJ
Ronnie Chan (above) has just released his highly anticipated letter to shareholders but this time, there's less Warren Buffett in it. Photo: HKEJ

Why Ronnie Chan’s letter to shareholders lacks financial value

Hang Lung supremo Ronnie Chan has just released his much hyped letter to shareholders.

Our verdict: it’s more CY Leung than Warren Buffett.

In the group’s annual report, Chan weighed in on everything from the property market to tourism and cross-border politics.

As expected, he went on at some length about the property market. We kept score and found he devoted 10 pages to his flagship Hang Lung Group and 20 pages to Hang Lung Properties.

But it was his long-winded foray into hot-button social and political issues that had us thinking whether his letter was some kind of manifesto, rather than a message to shareholders. More on that later.

Unlike most property developers, Chan enjoys the luxury of being able to speak candidly about surging property prices because he does not have a lot of flats to sell.

He wasted no time getting to the point: property prices will continue to rise for the forseeable future because it takes years for land supply to catch up with demand.

Hong Kong has had a decade of “very low” land supply but things could have been worse, he said.

“Imagine what heights they [property prices] would reach had the present government not taken decisive action in the past two years.

“Demand for smaller units which are more affordable in terms of total sales price is particularly strong. This tells us that overall price levels are still high and there is still plenty of pent-up demand.”

However, he said increased supply will “one day suppress price growth. No one, especially not the government, wants to see falling prices but neither are runaway prices desirable, as we have witnessed in the second half of the 2000s. In fact, it has already created tremendous social problems which only a healthy residential market can help alleviate.”

In the Hang Lung Properties annual report, Chan blamed those social problems on high property prices. He said making too much money in the property market is scary. “We should not be overly greedy,” he said.

“We foresaw that sooner or later, the government will massively sell land as higher residential prices become a bigger social problem. This has come to pass.”

Hang Lung’s 1,122-unit HarbourSide development will bring a pre-tax profit of about HK$17 billion if these are sold at today’s príces.

“It’s unlikely I will ever see a more lucrative project.”

That said, Chan waded into the influx of mainland tourists in the wake of violent protests against Chinese parallel traders.

He called Hongkongers’ unwelcoming attitude toward their cross-border cousins “prejudice” and said it’s “frankly unwarranted”.

The only difference between Hong Kong people and mainlanders is that the former achieved middle-class status first, he said, adding that not respecting others degrades one’s own self-respect.

“Hong Kong will do well to remember that every action will elicit a reaction. Many mainlanders are already saying that visiting Hong Kong is no longer as pleasant an experience as before. We should be clear about who our ‘client’ is.”

He said the mainland’s need for Hong Kong is on the wane because the part of the Chinese economy that is tied to Hong Kong has fallen to less than 2 percent from 20 percent before the handover.

“For us to not recognize these changes is nothing less than foolish. Of course, Beijing would much rather than not receive help from Hong Kong in the nation’s continued economic development, but everything has a price. They have alternatives.”

Great, but enough said, Mr. Chan.

Instead of being a current affairs commentator, you would be of greater service to your shareholders if you spend more time creating value for the stock.

– Contact us at [email protected]


EJ Insight writer

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