At These Levels, Investors in This Market Have Always Made Money

Last week, I traveled up the world's longest indoor escalator... rising 12 floors to the ceiling of a mall.

"Don't look down," said my guide, giving me a wink. "Sometimes it makes people feel sick."

My guide was the property manager of Langham Place, a major Hong Kong shopping center. Langham Place has 13 levels.

It's not optimal for a retail space to have so many floors. It's harder for shoppers to find their way around... and you need lots of elevators and escalators to move people from floor to floor. But in Hong Kong, there isn't room for the sprawling malls we have in the U.S., so they have to make the best of the situation. 

Langham Place solved the problem by constructing its building as a corkscrew. The world's largest indoor escalator transports shoppers from the ground floor to the ceiling. From there, they walk back down – around and around in a spiral – until they reach the ground floor again.

I spent last week in Hong Kong checking out the commercial property market. In yesterday's column, I showed you how cheap Hong Kong property stocks are from the perspective of one company, Champion REIT.

Champion REIT owns a landmark office tower in Central Hong Kong and the "corkscrew" mall in the Kowloon neighborhood. Investors have dumped Hong Kong property stocks with such fury, Champion now trades at an 80% discount to its net asset value and yields 18%.

On Monday, I saw a presentation given by Peter Churchouse. Peter ended up in Hong Kong as Morgan Stanley's Asia man for a long time. He left Morgan Stanley to start an Asian real estate stock hedge fund. And he probably knows more about Asian property markets than anyone else in the world.

Peter showed how investors have dumped all Asian property markets this year...

Here's one slide he presented. It shows the fall in property stocks this year in some of the major Asian economies. (These declines are in local currencies. In dollar terms, many of these falls would look even worse. The Indian rupee, for example, is down 21% this year against the dollar.)

Is it time to invest in Asian property? Peter Churchouse says it is.

One measure of valuation Peter likes to use is the price-to-book ratio. Peter says that when investors bought Asian property stocks below book value, historically, they have always made money over the next three years. After 12 months, the median gain is about 15%. After two years, it's 19%. And after three years, investors are up 42%.

Here's how Asian real estate looks now...

Take Singapore REITs, for example. They are paying 15% dividend yields... and many of them are backed by large investments from the Singapore government.

Good investing,

Tom