A Long Term Hold is No Guarantee of Return: Hong Kong Residential
Real Estate Analysis Limited
Many people believe that if one hangs on to oneˇ¦s invested assets for a
despite the ups and downs, one would eventually enjoy the fruits
(return, profit) from such assets, be these equities, bonds, or real
estate. This may (note underscored) be true but then again there
are also numerous cases where long term loyalty to and patience for an
asset are not rewarded, or in proper proportion. Perhaps this statement
would be truer if humans live indefinitely yet this is not the case; a
corporation and its equities may exist for hundreds or even thousands of
years thus even the lousiest entities may procure a good profit one day,
but homo-sapiens i.e. we humans do not.
Hence, timing is important albeit being a very difficult thing to master
To illustrate the point, your humble author has done a simple investigation
into the Hong Kong residential sector seeking to find out how one might have
done financially if one had invested in a residential home or property from
a certain year e.g. 1994, 1995 etc and holding onto it for varying lengths
of time e.g. 1 year, 2 years etc, based on Centalineˇ¦s City Center Index
(available at this URL
http://www.centanet.com/cci_e.htm) noting the following:
1994 is the starting year = this is the earliest year for the said
The mid-year index value (or start of the 3rd quarter
figure) is used = this coincides with the mid-year of 1997 when the index
value was set at 100
Holding periods = from 1 year to a maximum of 12 years
Hong Kong wide averages = the index covers all of Hong Kong and does
not differentiate between different districts or properties which actually
might have differ
No transaction costs or carrying expenses = are factored into the
Here are the results and observations
refer to the chart below):
brings the best return to date
= for investors and home buyers and this was the year when SARS struck Hong
Kong hard resulting in hundreds of death. The total percentage return after
1 year in 2004 was some 42% while the total percentage return after 2 years
in 2005 was over 70%. On a per annum compound rate basis, these work out to
be 42% and 31% respectively.
brings the worst scenario to date
= not only did investors and home buyers not make a return throughout the
years to date, they are still losing out by a total percentage loss of some
44% even today, not to mention the onetime 67% in 2003. Those who bought in
1998 fair a bit better having broken even more or less.
Year 1995 and
1996, it depends
= offered opportunities to cash out of the properties with a total
percentage return ranging from 49% to 75% in 1997 which if missed would led
their investors and home buyers to suffer similar consequences as their 1997
counterparts though not to the same extent.
Year 2004 is
= do well
so far with a total percentage return of around 20% but those who bought in
2005 have yet to really make a kill.
Year 1999 to
2002, patience should have been used
= assume the investors and home buyers held out until now, they would have
made a total percentage return anywhere from around 2% via 20% to 40%. Not
too bad from such angle but on a compound rate per annum basis, these work
out to range from being less than 1% to no more than 12%.
one can always argue that one cyclical period may not mean much, just as the
home price rising trend from the 1980s up till 1997 meant little for the
past 12 years since 1994 or for that matter the past 8 years since 1997. Yet
and in any event, here are a few deductions:
(profitability) seems to have little to do with how long an asset has been
= if there is to be any relation, probably it will be a negative one as
far as the Hong Kong residential sector since 1994 is concerned.
returns seem to be connected not only with good timing in acquisition
= but also good timing in disposition, else the opportunity may have
been lost and a loss can result.
in compound rate per annum return performance could be immense
= for instance, while a Year 2002 investor could achieve the same / very
similar overall percentage return of 42% in 2005 (3 years) as a Year 2003
investor had achieved in 2004 (1 year), the compound rate per annum for
the former is around 12% while the latter is 42%.
The article and/or content contained herein are for general reference only
and are not meant to substitute for proper professional advice and/or due
diligence. The author(s) and Zeppelin, including its staff, associates,
consultants, executives and the like do not accept any responsibility or
liability for losses, damages, claims and the like arising out of the use or
reference to the content contained herein.
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