Price of an elite eduction soars in Hong Kong

Debentures are sold by private schools to parents in exchange for admission places. High demand has triggered thriving trading market

If you think the best returns in Hong Kong for your hard-earned cash is either in stocks or properties, you would be wrong.

During the past eight years, the highest investment yields in the special administrative region have been school debentures.

Of course, not any debenture will do. It has to be one issued by a private, or international, establishment, where wealthy parents are fighting to enroll their children.

Debentures, or non-interest-bearing bonds, are sold by private international schools in Hong Kong to parents in exchange for admission places. The money is then used for building improvements and other costs.

The high demand for these bonds has spawned a thriving market that is beginning to attract investment traders.

“Debentures issued by several of the most popular schools always fall short of demand,” Raymond Kwok, who runs the agency BA Marketing & Co Ltd that deals in the “membership transfer business” involving private clubs and school debentures, said.

The rush of mainland parents sending their children to elite private schools in Hong Kong is helping to further fuel demand for debentures in the past few years. These children include the thousands born in Hong Kong to mainland parents.

There is no shortage of advertisement in the local newspapers or educational websites offering debentures for sale. The prices range from more than $500,000 to just a few thousands, depending on the status of the schools.

One seller, who declined to be named, said the value of debentures has climbed by an average of 15 times in the past eight years. No stock or apartment has appreciated as fast during the same period.

The hottest debentures are for the Independent Schools Foundation Academy, a highly popular private international establishment that offers a bilingual English and Mandarin curriculum from elementary classes to senior high. An ISF debenture issued in 2006 at a face value of HK$450,000 ($58,050) is now worth HK$6.5 million.

More than 60 percent of those buying debentures have a mainland background, according to Kwok, of BA Marketing, whose figures are based on personal experiences.

“These schools are for those who want their children to speak fluent English, and have an international education system, so they can later study in the United States, United Kingdom or Canada. These people are willing to invest big money on their children’s education,” he said.

The Hong Kong system is divided into three types of schools. There are public schools, subsidized establishments and private international ones. There are 600 public primary schools, as well as roughly 500 public secondary academies, providing free education to Hong Kong children.

But there are about 40 private international schools, which are the most popular among wealthy parents. These are the hardest to get into even if you can afford the oneoff cost of the debentures and the high tuition fees.

Only those children with “permanent resident status” in Hong Kong, and those whose parents have employment visas issued by the city, are eligible to apply for schools, according to local regulations.

“It is hard to calculate the proportion of students with a mainland background in Hong Kong schools,” Lai Zhifeng, a senior manager with wealth management and insurance firm AIA International Ltd and a member of the Hong Kong Academy of School Managers, said. “Some are born in Hong Kong and others move here with their parents. Generally speaking, there are more of them entering local schools, especially those highly competitive private international establishments.”

Before 2012, mainland pregnant women gave birth to more than 200,000 babies in Hong Kong. These children became known as shuangfei — babies born in Hong Kong from parents that had no con- nection with the city. These children were granted “permanent resident status” and were allowed to be educated in Hong Kong.

But tighter government immigration controls in the city, brought in three years ago, have closed that loophole. Even so, with more mainland Chinese professionals and their families moving to Hong Kong, finding a school place has become difficult.

“Many people come to me and ask about how to get their children into one of the leading schools,” Lai said, referring to the wealthy mainland families that target the exclusive establishments such as the Victoria Kindergarten. This was the preschool that Hong Kong’s richest man Li Ka-shing sent his granddaughter to.

But it is not just the elite educational centers that are proving extremely popular and difficult to get into. Middle class schools are following the same trend in the city.

While the debenture at a famous school usually costs hundreds of thousand of Hong Kong dollars, the tuition fee for an international establishment is at least HK$100,000.

“Each international school has its own criteria for admission, and they cannot be explicitly explained,” said Kwok of BA Marketing. “Children need to pass an interview, competing with their peers to get a place. While some schools offer debenture holders a confirmed position, some do not.”

The ISF Academy, a popular international school among mainland parents, pointed out on its official website that “priority” will be given to debenture holders and siblings of students.

“Nominees of capital note holders and siblings will be given an opportunity for a reassessment should they not pass the first admission assessment,” the ISF website highlighted.

A school’s spokesperson declined to reveal how many debentures are issued every year or the acceptance rate of note holders.

Still, the debenture market is extremely hot. Kwok, of BA Marketing, only managed to get hold of four “notes”, two for the ISF, one for Harrow International School and the other for Victoria Kindergarten.

“We managed to get more after the graduation season when parents transferred the notes. Prices fluctuate with demand and supply ratio changes,” he said, adding that parents can get the ISF debenture from him for HK$6.2 million. That is HK$300,000 cheaper than by buying from the school directly, excluding 1 percent commission fee.

Speculation on debentures exists, educational experts have confirmed, but they deny knowing people trading in them.

Usually there is a panel that determines the admission list at private schools, which should level the playing field. But one parent, who declined to be named, said he was trying to put his daughter into an elite kindergarten last year when he was told that more than half of the positions had been booked.

“Many rich mainland parents come to Hong Kong with a great deal of cash,” he said. “Spending 10 million yuan on child’s education is easy for them. But it is not just about the money, it’s about knowing someone that has the power.”

Hong Kong has the fastest growth rate of high net worth individuals than anywhere else in the world, according to a report released by Capgemini and RBC Wealth Management in 2014.

Also, personal wealth among mainland Chinese is expected to swell by 80 percent to $40 trillion by 2018. This is compared to just 17 percent growth rates of personal wealth to $54 trillion in the US, the report showed.

Many of the rich families in the mainland are diversifying their assets, and Hong Kong is becoming one of their favorite destinations.

“Hong Kong and the US rank high on the list of destinations for rich people who value their children’s education as well as protecting and growing their wealth,” findings released by China Ultra High Net Wealth Report, issued by China Minsheng Bank Corp, revealed in April. “Switzerland is the top choice for people who crave confidentiality.”

Debentures issued by several of the most popular schools always fall short of demand.” Raymond Kwok, from BA Marketing & Co Ltd It is hard to calculate the proportion of students with a mainland background in Hong Kong schools.” Lai Zhifeng, AIA International Ltd manager

LI FENG/ CHINA DAILY