Hong Kong hotel operator stocks will rock in 2018

My idea of nirvana in Hong Kong is to wake up in a glass walled aerie (preferably the Four Seasons), with a panoramic view of the Victoria Harbour. Hong Kong is one of the world's most attractive hotel investing markets, thanks to its proximity to 1.3 billion potential jet setters in the Middle Kingdom and its role as Asia's financial, shipping, property, retail and shopping hub ever since the Scottish taipans of Noble House wrested it away from the Manchu Empire in the Opium Wars.
Hong Kong has hotel metrics that any global city could envy. About 60 million overnight stay visitors in 2017. A 88 per cent occupancy ratio. A five per cent rise in visitor arrivals in the next three years. About 90 per cent occupancy ratios are for three star and four star (B tariff) hotels. A six per cent to seven per cent rise in average daily room rates, a testament to the momentum in hotel pricing power. There are at least a dozen medium tariff hotels in Hong Kong which estimated to deliver 15 per cent RevPar growth in 2018. "To get rich is glorious". The ghost of Paramount Leader Deng whispers to me as I scan my Bloomberg screen for investment ideas. One country, two systems means investing in Hong Kong hotels in 2018 is arguably one path to Dengian glory. The Hong Kong dollar is pegged to the US dollar, down nine per cent in 2017. Macau is on a roll after Beijing's corruption crackdown ends. All good.
It is never prudent to invest in hotels in cities where land is not scarce or supply is not constrained, as is not the case in Hong Kong. When hotel occupancy rates reached 90 per cent, supply growth is a mere three per cent, Chinese overnight arrivals momentum begins to rise and revpars (revenue per available room) surges 10 per cent, there is invariably serious money to be made in Hong Kong hotel shares.
Lee Ka Shing, Asia's wealthiest billionaire and Mr Hong Kong, just sold a central office tower for HK$33,000 ($4,225) a square foot. It makes no sense to me to invest in the surreal, stratospheric commercial property market on the eve of a historic regime change and tightening cycle at the Federal Reserve. In fact, if I was a developer in Hong Kong (which I am sadly not), I would convert dodgy two star hotels in Kowlon, Wan Chai, Aberdeen or Causeway Bay into "office blocks" to reap a triple bagger return. This can, of course, be replicated in the stock market on the netherworld of the Hang Seng index - Emperor Hotel in Suzy Wong's Wan Chai homegirl block. I believe the opening of the Water World at Ocean Park, the expansion of Hong Kong Disneyland expansion and the Kowloon waterfront project (Chinese tea houses, theatres, museum etc) will attract Mainland Chinese budget tourists to three/four star hotels. This is especially true since the Express Link will connect Hong Kong to the Canton/Shenzhen high speed rail network, the demographic heart of South China. This will be a game changer for Hong Kong budget tourism.
Risks? Interest rates will rise in 2018. Airbnb is a threat but Hong Kong has one of world's lowest flat vacancy rates and the flats are shoeboxes in any case. The big money Chinese with homes on the Peak or flats in Central will scorn Airbnb, which is not a licensed hotel operator. South China group travellers have no Airbnb solution. Skype is a greater threat to five-star hotels than Airbnb. Hong Kong suffered traumas from SARS or political shocks like the Tiananmen Square massacre, Umbrella Revolution or the Asian flu. In 1998 when Asia melted down or 2004, when SARS shut down Hong Kong, hotel occupancy ratios plunged to 10 per cent or lower. North Korea is the obvious geopolitical risk for 2018, as is terrorism risk from say, Tibetan or Uighur militants. My call? The Year of the Dog in Chinese zodiac. Yet if my call is right, three star hotel operators will be no "dogs of the Hang Seng" at all LOL.