More Tales from the Property Front
The Six Key Factors to Consider When Investing in Property:
As I wrote in last week’s post, the wildly overheated residential property markets in Hong Kong and China of late is a conversational topic at almost every social gathering these days.
Although opinions differ widely on the markets’ future prospects and directions, there seems to be unanimity of the view that they are in general wildly overheated, especially in the luxury end of the market.
When I told a recently retired American friend of mine about the US$10 million townhouses we toured in the northernmost part of Hong Kong’s New Territories, he was astounded, even though he’d lived in Hong Kong until recently for nearly 20 years. He now lives in Newport Beach, California, a very tony town south of Los Angeles, and said that for that amount of money you could purchase 3 very nice waterfront homes in Newport Beach, each with a private boat dock. Not to mention two of Bernie Madoff’s Palm Beach waterfront getaway homes.
I am a believer in the long-term viability of real estate investment in Hong Kong and China. I first purchased a home in Hong Kong in the early ‘80s, against the best advice of most of my foreign friends here. They felt prices were too high and reminded me of the palatial properties that the same amount of money would buy in Chicago or Seattle. Being simple-minded, I thought that somewhat of an irrelevant comparison, for the simple reason that I was not living in Chicago or Seattle, nor was I planning to at any time soon.
There is an old saying that the three most important factors to consider when evaluating a property investment are location, location and location. This is a kind of universal principle, and it still holds true anywhere. However, I’ve come to realize there is another set of three important factors to consider: noodles, rice and dumplings.
If you look around the world at property markets which outperform. others over time, there seems to be a close correlation with thriving Chinese communities. Chinese consumers anywhere are great believers in property investment, and they tend to congregate where there is good Chinese food. The high appeal of property and food seem to be genetically encoded, like a part of the operating software. If you correlate the “location” factor with the “thriving Chinese community centered around good Chinese restaurants and produce” factor, you won’t go far wrong in property investing. At least it’s worked for me.
Unlike health care, pharmaceuticals, and tobacco, property advertising in China and Hong Kong is not governed by strict regulations on claims and content. As a result, consumers need to be a bit cynical and prepared to do thorough due diligence in order to penetrate the “reality distortion field” which typifies a lot of advertising for new property developments.
As an example relating to the property in Sheung Shui which I wrote about last week, the advertising for this place depicts a lovely river running alongside the development. That’s very attractive, especially in a densely crowded urban setting like Hong Kong.
On closer inspection, however, I found the river to be Starbucks-colored, surrounded by metal fences blocking access to its banks, with signs along the banks warning people to stay away and proclaiming it to be under the jurisdiction of the Hong Kong Drainage Services Department. In other words, a drainage ditch rather than idyllic rural stream. No doubt it’s also a prime breeding grounds for mosquitos, but it sure looks inviting in the ads.
Some years another big new Hong Kong luxury development on the waterfront in the Pokfulam area was advertised showing beautiful beaches in front of it. The reality is a rocky shoreline with no beaches anywhere in sight.
Recently at a dinner in Beijing, a Chinese friend told of viewing a new luxury housing development in the suburbs there. The houses were large and fancy looking, but he noticed three odd design features which he asked the real estate agent about.
First, he asked, why is the wooden front door to the house so huge and heavy that it takes both hands to open it?
The agent responded that the kind of people who can afford such a house want a front door which takes a two-handed effort to open, as a demonstration of the grandness of the place.
Second, on seeing the very small kitchen, he asked why such a large house was designed with such a tiny kitchen.
The agent responded that the kind of people who can afford such a house eat most of their meals in 5-star hotels and exclusive private clubs, and don’t waste much time on cooking at home.
Third, on viewing the master bedroom, he asked why there were no built-in closets.
The agent responded that the kind of people who can afford such a house already own many other houses, and would use this place mainly for entertaining, parties, etc., so clothes storage is not a priority for them.
Talk about the reality distortion fields which property developers excel at. Caveat emptor!