Property is a pillar of Hong Kong’s economy.
The city’s billionaires have all made fortunes in the property market.
Small businessmen who bought store spaces for their own use and paid off the mortgages with cashflow from their businesses have also ridden the wave of the property market boom to huge profits.
Some investors in retail property have rushed to the exits because of the cooling retail market.
In the meantime, some businessmen who run low-price supermarkets and community bakeries have opted to snap up the store spaces, bucking the market trend.
For example, the boss of Hoixe Cake Shop, one of my favorite bakeries, spent HK$75 million (US$9.66 million) on an 800 square foot ground-floor store space in Wan Chai.
Hoixe is renting a store nearby, and it seems like the boss made the purchase for the firm’s own use.
My favorite buttered pineapple bun is now priced at HK$9, and the bakery needs to sell at least 17 million buttered pineapple buns to pay for the space it bought, even assuming a 50 percent gross profit margin.
Hoixe has a 36-year history. It owns nearly 60 branches across the city.
Most of its stores are located in local residential communities.
Its boss, Siu Wai-kin, 61, is a typical Chiu Chow person who still works on the front line despite being a billionaire.
Siu has been investing in store spaces for the bakery’s own use over the years and spent HK$96 million on one in Tsuen Wan last year.
He made the investments largely to mitigate the impact of fluctuations in rent.
However, his investments have turned out be very lucrative during the property boom cycle.
He managed to grow his wealth by selling the spaces at the peak of the market.
That’s part of the reason why Hoixe has been able to survive through economic booms and busts.
Kai Bo Food Supermarket, another retailer catering to the mass market, made a similar investment recently.
Lam Hiu-ngai, the firm’s boss, paid HK$63.5 million for a giant ground-floor store space in Fanling with an area of 4,521 sq ft.
Kai Bo, unlike rival supermarket giants ParknShop or Wellcome, mainly targets low-end customers.
It has nearly 70 stores in Hong Kong and attracts a large number of customers with its low prices.
Kai Bo has a good track record of trading store spaces and has always made good profit.
For example, it bought a 3,435 sq ft ground-floor space in Tuen Mun for HK$74 million in January last year and sold it for HK$110 million four months later.
The firm made a profit of over HK$26 million even after paying the double stamp duty.
Hoixe and Kai Bo are local retailers targeting local customers.
These firms are less affected by the decline in the number of tourists than drugstores, jewelry retailers and sellers of handbags or watches.
They should have a much better knowledge of the local people’s livelihood.
Their recent investments show that these local retailers are not that bearish on the outlook for economic growth in Hong Kong.
I’ve noted earlier that economic deterioration is a process: sales will fall off first, then companies will post lower profits or even suffer losses at the year end.
Most employees have no direct feelings about the economic outlook until their company decides to cut wages or downsize.
The government may have to reduce welfare payments, because of declining tax revenue, which will affect most people.
We’re still in the middle of the first and second stages of economic slowdown, and most employees still have jobs or have yet to face pay cuts.
People may reduce their spending on travel, luxury purchases and, only as a last resort, necessities like bread and other types of food.
That’s why Hoixe and Kai Bo are more resilient in an economic downturn.
This article appeared in the Hong Kong Economic Journal on June 8.
Translation by Julie Zhu
[Chinese version 中文版]
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