Hong Kong Property: Is Li Ka-Shing Really That Bullish?31 March, 2011, 15:19. Posted by Zarathustra
Tags: Cheung Kong, Hong Kong, Property, Real Estate
Two days ago, Li Ka-shing, the richest man in Hong Kong, appeared in a press conference to announce his commercial empires’ (Cheung Kong and Hutchison Whampoa) financial results. As the richest man in town, people often want to pick his brain on how to invest and make money, thus he was naturally asked for his view on the real estate market. He made a few points:
Interest rates will not rise in the United States
Inflation will get even higher
It is absolutely right to buy a flat for your own use (as opposed to speculation) because inflation will get even higher. Making 30-40% of down payment will provide the right leverage
Historically, you would find yourself making a profit 10 years or more later even if you bought properties at the peaks of the market
What he said, of course, were not wrong, and even a recently-turned-bearish guy like me will have a hard time to think of counter arguments for some of his points (not all though). But it was a bit unusual of him to say such thing: it sounded like the most bullish note I have ever heard from him.
Interestingly, Andrew Lawrence (the Skyscraper Index guy) at Barclays Capital highlighted the following after hearing the management guidance post-result announcement, which painted a slightly difference nuance:
Balance sheet gearing was down to 4.5% by year end with management expecting 0% gearing by end-2011.
Looking at Cheung Kong’s book, its balance sheet gearing at 4.5% is very low (another low-gearing property company in Hong Kong that I can think of is Hang Lung Properties, which has been in net cash position. But even they did a share placement last year and raised HK$10.9 billion). With HK$25 billion cash sitting on its balance sheet as of 2010-end, the company is very well positioned to use its strong balance sheet to replenish their landbank and/or make acquisition even at the current gearing ratio. Thus the fact that they are making such a conservative guidance regarding the gearing is very interesting, suggesting that they are actually getting more cautious than they appear. I concur with the conclusion of Andrew Lawrence: Cheung Kong is “cashing up for a market correction”.