Bloomberg interview with Ronnie and Adriel Chan of Hang Lung Properties

I came across a Youtube video, published on June 5 2024, of a Bloomberg Live interview with Ronnie Chan and Adriel Chan of Hang Lung Properties. Ronnie Chan is the honorary chairman of Hang Lung Properties who recently handed over the reins of the company to his son Adriel Chan who is now the chairman of the board.

It's always interesting to watch any interview with Ronnie Chan because of his in-depth knowledge and experience of the Hong Kong and mainland China property markets.
Nevertheless, a particular section of the video stood out to me. That was when Ronnie Chan, in response to a question by Bloomberg's Lulu Chen, offered his view on the reasons behind Hong Kong's sky-high property prices. That section begins at timestamp 8:51 min.

The transcript from 8:51 min to 12:54 min is reproduced below:

Lulu Chen:  And taking this issue back to Hong Kong property.

The residential prices are now are at levels even below before the government

scrapped all the buying curbs. What what do you think is the reason

behind this?

 

Ronnie Chan: Well, first of all, I think a lot of people don't analyze the fundamental economic reason why Hong Kong's real estate is market is being challenged. 

To me, it's a rather simple one. I've been observing this market and I've been in play in, playing in this market for the last 40 some years. First of all, under the British high land price policy, they still deny it, but it's crazy to deny it that way. The British companies can repatriate a lot more because of less tax here and because of the high land price policy, you don't have to have high taxes. So they get to repatriate more.

For Hong Kong people, it's not a bad thing either, you know, in fact, make people feel good when the real estate prices go up and the government can have low salary tax as well as corporate tax. So there are many good, good points. So the British is the first one that really kept real estate prices up. 

The second one is Beijing.
In the negotiation of 1984, 1997, Beijing was afraid that the British will sell a lot of land at high prices and take their money out. And so they make sure that there's only 50 hectares per year of supply. So with limited supply of land, prices continue to go up. Number two. 

Number three, the Hong Kong people, 60%, roughly, of Hong Kong people own their own homes. We don't want to see prices fall. And, and real estate is such big, has become such a big thing in the economy. You use it to mortgage to start a business somewhere for example.

And then finally the, the yellow ribbon people, the, the the anti-government people, the so-called pro-Democrat people. They're not Democrat. Don't be fooled by them again.
Anyway. So, so, so those guys, anything the Hong Kong government want to do, anything the president wanted to do, they said no. So the Hong Kong government want to sell the land and they said no. So, you know, they, they probably hate developers, those guys, but they ended up helping the developers keep prices up.

And so when you think about it for 50 years, starting roughly in the seventies, that these four groups of people have limited the land supply of Hong Kong. And as a result, there's no, no place to go for real estate prices except up. 

However, with the 2019 riot on the street, which is so violent, it's unbelievable, what is so violent, and the police is so restrained. I just want to clear again in history that, oh, those guys are now, because of the national security law and out of the before Article 23. So the opposition, which is purely for political reasons, again, not economic reasons, they damage Hong Kong economically for their own political gain.

So as a result, once that is removed for the first time in 50 years, that the Hong Kong government can finally supply land in a more reasonable, more economically sensible way, that means more sufficient.

And so when that happens, the after 50 years of high land price policy, how can real estate prices come down? So what's the big deal now?

Of course, I know if you own a apartment, it's a big deal. Or if you want to buy an apartment, well, and you're happy. It's a big deal too. You're happy.

But overall, when you look at the economy and look at the Hong Kong real estate sector, we are seeing the biggest structural change in 50 years.
And so for prices to go down is to be expected, right? Isn't it? It's so clear.

Timestamp 22:31
Ronnie Chan: Ten days ago, I hosted Jamie Dimon in Hong Kong with a couple hundred people and, and isn't what that's what John Pierpont Morgan said when there's blood on the street. Hey, that's a time to buy.
And you go to the mainland of China today, the government doesn't, uh, local government don't have money, the people don't have
money. Nobody have money.
Hey, that's great. I got a few bucks, right?
And so there must be opportunities. But as Adrian mentioned, don't look at our past and say that's where the immediate future, the opportunities are not there. Well, it's there, but we may not want to take it, you know, these big greenfield projects, but there are a lot of smaller opportunities, vertical, as he calls it. You know, just the return is very, very lucrative. And so, you know, we are finding such opportunities, but the market is still giving us 0.7, 0.8 price to book. You guys will wake up one day. But let me buy first.

Adriel Chan: We, we've been we have been buying.