Date
16 November 2018
The property market may soften in the short term, but it still offers good investment opportunity amid the tight supply in the residential sector. Photo: Bloomberg
The property market may soften in the short term, but it still offers good investment opportunity amid the tight supply in the residential sector. Photo: Bloomberg

Homes, not stocks, are best long-term bets – crisis or no crisis

The global financial tsunami that started with the collapse of Lehman Brothers happened exactly 10 years ago this week. Of course, Hong Kong was no stranger to financial crises, like the one that afflicted the Asian region in 1997-1998, which was marked by stock market sell-offs, wrecked currencies and plunging asset prices.

The 2008 disaster may seem so far away, but we are still facing uncertainties, from the US-China trade war and a host of other factors.

However, every crisis is also an opportunity. Looking back at the crisis a decade ago, who among us now don’t regret not having bought some stocks or real estate assets at a time when there was blood in the streets?

Remember when S&P 500 plunged to the lowest depths, hitting the inauspicious 666 mark? Well, 10 years later, the index closed at 2,877 points, up 331 percent!

Hong Kong equities yielded a much lower return. The Hang Seng Index was bottomed at 12,811 in February 2009 before rebounding to 32,000 in February for a 150 percent return. Based on Monday’s closing of 26,613, investors would have more than doubled their money.

If you had bought Tencent Holdings (00700.HK) 10 years ago and held on to it, you would have gained 28 times. That’s a different story, of course.

But investing in the residential market would have produced a more handsome return. The Centaline City Index was down 23 percent at 55.46 at the end of December 2008. The index is expected to hit 186 at the end of this year. If you had invested in property 10 years ago, you would have seen a 240 percent return.

The smaller units in the New Territories would have made a better investment, mainly because they could be had at paltry amounts back in 2008, which of course means higher returns, probably approximating the fantastic growth of S&P during the period.

While property, rather than property stocks, produced higher investment returns, the investment climate going forward would be quite different from what we have seen over the past decade.

For one, the interest rate cycle in Hong Kong has reversed, with the first hike in prime rates in 12 years expected to come in two weeks.

The property market is also expected to soften in the short term, although it would be stretching the imagination a bit too far to entertain the possibility of a crash amid the tight supply in the residential sector.

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CG

EJ Insight writer

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