HK Residential Series (Part I of IV)
2012 is a Good Year to Marry; Housing Demand Up
* Our four-day series tackles special topics in HK’s residential segment — We’re taking a break from writing company research to offer a broader view of the market in areas where investors seldom pay attention. This first issue of our four-part series examines the effects of an auspicious year for marriage on domestic demand.
* 2012 is a special year on the Lunar Calendar — In Chinese Feng Shui, the 2012 Dragon year is a good year for marriage, as it has “double springs and an intercalary month” (雙春兼閏月). A leap year with an extra month means two Springs, which represents “Yang”, men and offspring. More people tend to marry in these special years. .
* Marriages rose 12% YoY in good years versus 1% YoY in other years — Since 2000, we have seen four good years for marriage – 2001, 2004, 2006 and 2009. Marriages increased at a 12% rate in these years and 1% in the other years. Overall since 2000 marriages grew at a 5% CAGR. Obviously, people prefer to marry in the good years.
* Home prices rose 14% YoY in the good years versus 2% YoY in others — The Hong Kong residential price index shows a similar pattern. Home prices rose at a 6% CAGR since 2000, but they climbed at an average 14% in good years, while averaging 2% in the other years.
* Marriage drives household formation, making 2012 a good year for housing demand — Organic household formation is a product of new marriages. With an estimated 60,000 registered marriages likely in 2012, structural demand for homes should rise. This should lead to rising housing prices since home supply will remain tight in the near term.
* Buy Developers — We believe HK developer stocks are pricing in a very tough operating environment, including rising mortgage rates, falling home prices, and poor sales. If any of these parameters positively surprise the market, it could trigger a re-rating. We reiterate our preference for developers, with SHKP, Sino Land, Cheung Kong, and K Wah as our top picks.