I invest in Hong Kong and thought some people might like to learn about this market as it is a way of getting exposure to China more safely.
The laws are landlord friendly and property rights protected. There is no capital gains tax and maximum income tax is 16%. Foreigners can invest easily. It is safe with little crime.
It is a volatile market. From 1997 to 2002 prices fell by 60%, they have now risen to about 50% from the bottom ie still cheaper than 1997.
This is not a place to buy new off plan property because these go at a considerable premium to old properties. The local population prefers to buy new and the developers make it easy for them with low deposit financing. However for rentals I would suggest old is better as you can get more space for your money and rental prices depend on space.
There is a large expat community here. Because the economy is booming at the moment, more and more expats are arriving causing restriction of supply and rents to soar. Because rents are going up and expat home markets are overpriced, for the first time in the last 20 years expats are buying in Hong Kong and prices of rental properties in popular areas are increasing. This contrasts with the non investment areas where prices have stagnated since the summer because of the recent interest rate increases.
Hong Kong’s best areas for investment are mid-levels and soho. Other areas to look at are Wanchai, Causeway Bay and Sheung Wan. Soho is particularly popular as it is walking distance to the CBD and has a trendy, alternative vibe.
I own 3 properties in Soho Midlevels area. As an example I have one I bought for HK$1.82 in 2004, spent 600k on renovation and am now getting a rental of HK$25k per month which is about 12% gross. The value has now risen to HK$3m and if I were to renew I would get HK$30k per month.
The interesting thing about HK is that there is limited new supply coming on stream and the developers are very keen to build up their land banks by buying old properties especially in prime areas like Soho and Midlevels. The owners of the block where I own this flat have got together and are currently marketing the block to developers in which case I expect to be bought out at HK$6-8m for my investment. If 90% of owners agree, then the sale will go ahead. To speed up development, the government is currently changing the rules for buildings over 40 years to just 80% of owners.
If anyone is interested in this market I produce an occasional free email newsletter containing developments and market updates for friends/investors. Just send me your email.
hi kate88
what interest rate are you on up there now for investment properties and what are the requirements for getting a loan.
what is there lvr’s and what growth main land is growing at a very high rate and yes you are still on english law but I was of the understanding it was difficult to lend from hong kong banks and the rates were different for overseas investors.
interested in the cost structure of your market.
I think is still needs to correct a far bit to be inline with main land as main land is soon to be a wash with new property and yours is still higher cost base.
my .002here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]Originally posted by grossrealisation:hi kate88
what interest rate are you on up there now for investment properties and what are the requirements for getting a loan.
what is there lvr’s and what growth main land is growing at a very high rate and yes you are still on english law but I was of the understanding it was difficult to lend from hong kong banks and the rates were different for overseas investors.
interested in the cost structure of your market.
I think is still needs to correct a far bit to be inline with main land as main land is soon to be a wash with new property and yours is still higher cost base.
my .002here to help
If you want to get involved in some of the projects I’m involved in email to [email protected]Hi grossrealisation
The mortgage interest rate offered by for example HSBC is currently 5%. The currency is pegged to the US$ so the HK interest rates move with the US interest rates.
I haven’t looked into the rates for foreign investors and don’t know if they are different. I know that Lloyds TSB offers mortgages in various currencies with switching facilities which might be useful for foreign investors too.
With regard to the capital prices, you are right that China’s prices are lower. And in time the differences may well iron out. However there are also valid reasons for HK’s prices remaining higher right now.
Firstly it is difficult because of capital controls to move money in and out of China whereas money is fully convertible in Hong Kong. Secondly the Chinese government has a history of introducing taxes to cap property price rises whereas the HK government is laisser-faire in approach. Thirdly Hong Kong is perhaps an aspirational destination because of its international nature – the mainland Chinese seem to be buying luxury properties here now rather than at home. Fourthly property rights are protected in law here. Fifthly the infrastructure is still much better in Hong Kong especially with regard to schools. Finally there is considerably more corruption in China compared with Hong Kong.
However over time the differences will even out – but it may take til 2048 when HK comes under the direct government of China. China is now moving towards convertibility and improved property rights so I would imagine prices will rise more there as these structural changes are made. But these are just my views and it will be interesting to watch developments!
Hi, Kate88,
What an interesting thread about IPs in Hong Kong!!
I was born and brought up in Hong Kong and have left home for almost 20 years. Maybe what you said is correct. It’s a long time ago when I lived there. Having said that, I still have my friends live there and more or less, I have a some ideas of what is happening over there.
Unless the law had changed to provide more protection to the landlords as it is a real messy job to get rid of the poor tenants if they don’ t pay rent. It used to take at least 12 months to apply through court to remove any bad tenants. Besides, the property management standard in Hong Kong is rather poor as most of the REAs are mainly interested in commissions by selling properties.
Also, the demand in the second-hand property market is limited as there are plenty of new units being developed by the developers. One important difference is that the land in Hong Kong is “lease hold” instead of “free hold”.
Your quoted gross return seems reasonable but considering the risks involved due to the uncertainties in Hong Kong political future, I don’t believe that is a good investment – people may get much better returns in other country such as US.
If you can get $8m return from your $1.82m initial investment, I would congratulate you as this kind of opportunity does not come everyday. However, I think the developer would have overpaid the land and the building for the redevelopment of the site as the figures just do not stack up.
My 2 cents worth opinion.
choir
Hello choir
Thanks for your email – you brought up some really interesting points.
The law changed in 2004 making it much easier to repossess tenanted properties. If interested you can find details in the following link.
http://www.info.gov.hk/gia/general/200407/09/0709175.htmWith regard to property management, you are correct to some extent. Some of the local agencies are not interested in providing property management services and when they do, they are not of high quality. However in the expatriate rental market there are a number of expatriate-run agencies which are of an international standard.
Regarding supply, for the whole of the HK market over the last 5 years the average take-up of new flats according to CBRE has been approx 23000 per year but the average supply for the 3 years 2005-7 is under 17000. So outstanding stock of housing is reducing. There is a particular shortage in prime locations like midlevels where there has been very little redevelopment because of the 7 year slump between 1997 and 2003.
Also the government has been restricting sales of government land to developers who have turned to old buildings in the existing market for opportunities to redevelop. The government has facilitated this because it is keen to promote urban renewal. So new laws have been introduced whereby if 90% of owners of a block agree to the sale, then the remaining 10% have to sell. This can produce some spectacular gains, but according to newspaper reports only 2 in 100 actually get sold to developers mainly because the owners cannot agree on the price they are willing to sell for….too greedy. Further changes are now under discussion to reduce this to 80% for buildings over 40 years old to encourage more redevelopment.
The reason that such high gains can be made is that old buildings have fewer floors than the redeveloped properties are permitted to have. Therefore the developers can build many more flats on the same piece of land and can afford to pay higher than market prices to owners.
I agree that the land is leasehold rather than freehold. All land in Hong Kong belongs to the Hong Kong government. Rights are protected under ‘one country, two systems’ law here until 2048 when the Hong Kong law will be replaced by Chinese law.
I would love to learn more about the returns in the US market – is there anywhere you can recommend taking a look at?
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