It appears that the Hong Kong property market is
reaching a fever pitch of late, with a string of news on record high prices
being achieved. However, there is an ‘entertaining’ twist to this phenomenon,
in that more and more entertainers (ie movie stars, singers) are reported to be
buying properties – indeed, year to date this group of buyers have acquired
over HK$1bn worth of bricks and mortar, involving over 44,000 square feet of
space (Table 1):
Table 1: property purchases by celebrities in 2017
Source:
media reports
One should not simply draw conclusions about any
significant trends just because a particular group of people are behaving en
masse. However, one should surely delve deeper when any phenomenon starts to
exhibit extreme patterns – this article looks into the extraordinary symptom of
celebrity purchases to aid readers in their own property decisions.
Celebs
often seen buying when markets are hottest
Whether or not the property market is overvalued or a
good buy depends on how far from longer term trends the price is at any point
in time. In this article the author uses Centaline index versus its 3-year
moving average as an indicator of over/under valuation (see red area in Chart 1, for more immediate price action,
the red line works well too). And to quantify the frequency of celebrities’
property purchases, a simple and reliable indicator might be the search frequency
of the keywords ‘celebrities’ and ‘home buying’ in Google Trends (blue line in Chart 1).
Chart 1: Frequent purchases by
celebrities presage home price correction ahead
One could identify from the chart above these
interesting patterns:
1. The
purchase frequency of celebrities coincides with the cycle of property prices
closely (it is a shame that one cannot observe the relationship back to the
previous market top in 1997, as Google Trends data does not go beyond 2004)
2. Whenever
the purchase frequency of artists reached a peak, home prices would soften or
even fall a year later (red line in Chart
1)
For example, in the lead up to the market top just
prior to the Lehman bankruptcy, the buying frequency reached a high of 76%.
This was followed shortly by the Global Financial Crisis and a 20% fall in home
prices one year later. On the other hand, during the period of weak market
sentiment in mid-2016 when the buying-frequency fell to a low of 42%, home prices
spiked a handsome 22% in the 12 months that followed!
It
pays to shadow the actions of tycoons?
Another group of market participants, also active in
the Hong Kong property market, are the super-rich tycoons (represented by the
blue line in Chart 2); they seem to
have diametrically opposite track records compared to the artists – perhaps the
tycoons have more information at their finger-tips, or because they act on
purely profit motive (rather than to follow the heart), they seem to have a
highly profitable outcome in their dealings:
Chart 2: Tycoon sales
seem to be followed by drops in home prices a year later
It is possible to identify two sets of patterns from
the above chart:
1. Fluctuations
of tycoon property sales also coincide closely with the home price cycle;
2. Home
prices tended to correct or fall when more tycoons dispose of their properties
(red line in Chart 2)
As an illustration, at
the same time the celebs (i.e artists) were buying big time in 2008, the
frequency of disposals by tycoons was also at its highest (when the reading reached
a maximum of 100% in the series). Then in early 2016, when tycoon sale
frequency fell to a low of 45%, home prices increased smartly in the year that
followed. Crucially important for readers to note is the fact that the tycoon
sale frequency has surged to 98% in recent months once again…
Subdivide-and-dump
and hiving-off work well for tycoons too
Tycoons likely hold large
portfolios of assets, if not listed companies holding the same in addition. They
may therefore be able to lighten up their portfolios through other means than
straight sales – subdividing larger properties into small units for sale, or
listing on the stock exchange richly valued vehicles from their holding
companies – come to mind.
If one is to search for a
different set of terms on Google Trends, such as ‘hiving off’ + ‘properties’ (Chart 3 below, note the Chinese search
terms used have a dual meaning of subdivision and spin-offs), one arrives at
the same price reaction as the ‘tycoon’ + ‘sell properties’ terms analysed above.
Putting the two sets of search combinations together, they indeed exhibit
almost identical profile (see Chart 4).
Chart 3: Tycoons hiving off their assets also
bode ill for property prices
Chart 4: Tycoons selling have near identical
timing as artists/celebs buying
If the magnitude of
change in home prices follows the red arrow in Chart 3, there is significant risk to the sustainability of housing
market in the months ahead. Readers should exercise even more caution when
considering buying homes.
Conclusion:
Don’t buy from tycoons, and don’t scramble alongside artists
The above analysis yields
three sets of conclusions:
1.
When big property companies increase their
pace of disposals, especially subdividing or selling ever smaller units, it is
often also the time when celebrities in the entertainment circles scramble to
buy properties;
2.
The above phenomenon is a strong signal
that the property market may be about to weaken, even collapse;
3.
Celebrities in the entertainment industry
have hectic lives, and could be also more prone to acting on impulse than
analysis. They could increase their chances of investment success if they
employ the skills of seasoned professional advisors, both in the timing and
execution of their purchases/sales, and in the ongoing management of the
properties they hold. To stand better chances against the buy-high-sell-low symptom
outlined above, our artists should avoid being swept off their feet by hot market
sentiments, or by the sweet-talking from property agents.
The
author would like to express gratitude to Mr Yeung LI of The Chinese University
of Hong Kong for his contribution in the writing of this article.
