The voices among investment commentators who are concerned about Asian property are getting louder and more numerous ahead of three big property IPOs slated for the Hong Kong market and at least one in Singapore. The theory is: the smart money is getting out.
The March 30 newsletter from James Gruber, former journalist, analyst and fund manager, pointed to peaks in both Singapore and Hong Kong commercial and residential property.
Writing for his ‘Asia Confidential’ website, he said: “It’s become clear that many real estate investors in Hong Kong and Singapore are cashing out of property. These investors are among Asia’s wealthiest and they’re starting to exit their favorite asset. If this implies that property in Hong Kong and Singapore is close to peaking, as I suspect it does, then it has negative implications for the economies and stock markets of both cities. On a longer time horizon though, a re-balancing away from property as the primary driver of wealth generation could well prove beneficial.”
Last week, too, the ‘Wall Street Journal’ published a report under the heading: ‘Big players cash out of Hong Kong property”, which referenced two big hotel group IPOs and another for unspecified commercial property, which hoped for a combined raising of $US2.6 billion.
Gruber says Singapore is in a similar position despite recent attempts to slow the swelling bubble. He says the Indonesian billionaire Riady family is planning to raise $US800 million in an IPO of its Singapore hotels.
The three main reasons for the increasing concern, according to Gruber, are:
1. Money printed in the West has found a home in tangible growth assets in Asia. This has been particularly the case for Hong Kong, which pegs its currency to the U.S. dollar. This has resulted in Hong Kong money market rates closely tracking those of the U.S. even when domestic conditions diverge. This has meant significantly negative real rates (interest rates well below inflation), often a central driver to property bubbles.
2. Chinese growth has also aided the bubble. Chinese investors wanting to diversify their assets outside of China have found their way to Hong Kong, Singapore and, of course, many other places.
3. Governments, principally in Hong Kong, have been timid in addressing the price rises. Increasing social tensions, brought on by asset bubbles primarily benefiting the rich, have forced them to act more decisively. For the full article: http://asiaconf.com.