“Why look at others when real estate is so simple….”
– Martin Whitman
HKH Research House
Real Estate and the Economic Fabric
We see Real Estate as an asset class which should occupy a central and important role in the Capital Markets and modern economies. While Real Estate as a whole is by far the single largest asset class in the world, yet it is only in the recent years that its ownership and management starts to be institutionalised. Indeed, as an institutionalised asset class, Real Estate is still significantly smaller than bank deposit, fixed income, equities or even gold.
We also take the view that Real Estate could have important roles to play in the world of Fiat money system that the world has moved into since 1971. Above are but two of the main factors which underpin our view that it is important for every society to ensure that the development of its real estate market is on a healthy and sustainable path.
HKH Research House
Our Maisons of Real Estate Assets and Companies
We see Place-making as one central them in the development and creation of real estate values and that mixed development provides a powerful paradigm to the creation of places where humans interact pleasantly and productively, and therefore the creation of real estate values.
We also take the view that real estate process is often as much about operational excellence as a striking a proper and healthy balance between various types of real estates as well as the company’s recurrent income and its investments in development endeavours.
The Mainstream Paradigm
The Hong Kong Paradigm
Property development for sale
Property Development for Rental
Real Estate Operating Companies
Real Estate Investing Companies
Our Investment Thesis
1) Place-making is the way to create Real Estate Values
- We believe that one hallmark of International Metropolitan Cities is sustained net inflow of capital and talents which would drive a continuous and sustained transformation in the respective cities’ physical real estate landscape and therefore uplifts in the real
estate values of many of these cities’ locations. - We believe that the process associated with the development of International Metropolitan Cities are analysable and what we call “Location transformation” or “Place-making” is an art which can be analysed and mastered by those with the vision, foresight and skillset.
- We should be among the global pioneers in terms of applying such methodology for investing in both physical real estates and listed real estate securities. We advise our clients to join with us to unleash the full potential of our unique and proprietary methodology for analysing both physical real estates and real estate companies.
2) Real Estate emerging to be the 4th largest asset class
- We believe that physical real estate does has relative merits versus other major asset classes in the world such as bank deposit, fixed income, equities, gold and alternative
assets. - However, as an institutionalised asset class, the history of real estate is still short and its size still ways smaller relative to that of bank deposit, fixed income and equities which are about USD230tn; USD130 tn; USD60 tn respectively based on various industry estimates. Currently having a size of not more than USD2tn, we see still significant room
for the size of institutionalised real estate investment to further expand and expect it to sooner or later overtake Gold as the fourth largest asset class in the world which is currently about USD12 tn, in size, according to estimates by Savills. We aspire to be part of this process and be able to ride on it.
3) London is the global forerunner in internationalisation
- We expect more and more international capital to be invested in physical real estates and therefore more and more real estate assets in the world’s major international cities will be subject to the pricing of international capital and forces.
- At presently, London is the most internationalised real estate market in the world and we expect the trend of internationalisation to gradually spread to other international cities such as New York, Hong Kong, Monte Carlo, Singapore etc.
- As such, it would become increasingly meaningful to speak of relative pricing of certain types of real estate assets. We shall focus on London initially but expect that our expertise for the London market can be applied to other cities over time.
- We expect two property segments to be the first to be internationalised. One is the top luxury segment or what we call international grade luxury. Another is what we call CLUU (Conveniently Located Urban Units). London looks inexpensive in both segments.
4) Nine Elms as play on International grade Luxury
- Compared with other markets such as Manhanttan, Hong Kong, Monte Carlo etc., top end luxury residential properties in London do not appear to be that expensive.
- We expect Nine Elms to gradually merge into the five established luxury north of the River Thames (Chelsea, South Kensington, Belgravia, Knightsbridge, Mayfair) to form into the world’s largest cluster of luxury residential properties.
- Compared with the units north of the River Thames and other international markets, we think there still exists considerable room for prices in the Nine Elms area to further improve.
5) London as a play on International (Conveniently Located Urban Units)
- Compared with other markets such as Manhanttan, Hong Kong etc, the CLUUs in London do not appear expensive and this looks well supported by the rising achieved rent for residential units across London.
- We believe that there are many areas in London which offer the potential to become more prominent CLUUs over time, and we focus on areas along several major Metrolines such as the Northern Line, the District/ Circle Line/ Victoria Line/ Piccadilly Line/ Elizabeth Line/ Central Line.
- We see the room for well-furnished and well-serviced CLUUs in London to command rising rental value over time which would eventually be reflected in their capital values.
6) The “HK Discount” can possibly be addressed
- In general, real estates tend to be cheaper in Wall Street and Main Street but the situation is nowhere more serious and pronounced than the situation in Hong Kong real estates where the listed real estate securities tend to trade at 50% or larger discount to their underlying NAVs
- With Hong Kong’s listed real estate securities having an aggregate market capitalisation of only about USD200bn but collectively owning more than USD500bn worth of real estate and other business assets, it is arguable that as much as USD300bn worth of real estate values are not reflected in the equity market valuation of HK’s
listed real estate securities. - We take the view that, over time, there is well over USD100bn worth of investment value that can be unlocked from Hong Kong’s Listed Real Estate Securities and what is required could well be just a change in how these family business groups and real estates companies see the global capital markets and how the global capital markets see these families and real estate companies.
Our Maisons of 12 real estate assets
Residential
Office
Retail
Street-Level
Mixed Development
Heritage-anchored properties
University-anchored properties
Industry-anchored properties
Culture-Anchored Retail
District-Level
City-Level
Industrial/ Logistic
We believe that Real Estate should sooner or later overtake Gold as the fourth largest institutionalized asset class in the world and its size could well rival equities, fixed income and bank deposit over time.