[cendrillon]

Hi everyone,

Well, I'm considering buying a property in Hong Kong, most likely in the Kennedy Town area (KTK represent!), although I'm open to other places aswell

Anyway, I was wondering if anyone has some advice to share about investing in property in HK, whether it be negotiating agent commissions, to good websites for interesting properties, helpfull agents, how to evaluate whether a property will make a good long term investment, general views and opinions about the long term economic environment in HK and so on.

So if anyone wants to share I'd love to hear your views!

To start off, how big do you guys think the impact of a moderate rise (say 0.5-1%) in interest rates will be on HK property prices?

[KnowItAll]

When we were looking at buying (pre-sars downturn) the agents were definately negotiable. Not sure what it is like these days.

[freeier]

cendrillon,

u are jumping from one things to another.

take a longer look at the scenarios and situations .. look thru at least a cycle or so before you jump in...

better to make a later 'right' decision that's maybe just 15% more expensive, then to go into a harsh 'wrong' decision that proved to be 50% too costly.

[cendrillon]

Hi Freeier,

Originally Posted by freeier

cendrillon,
u are jumping from one things to another.

Is that a reference to the different questions in my post, or stock vs. property?

I'm starting to feel that the opportunity cost of buying property is pretty small (in terms of stock investment), since cost is about the same as renting, and downpayment and entry costs are around 200k or so. Not a small sum, but not an outrageous amout either.

The problem I find with looking for 'cycles' in HK is that it doesn't appear to have cycles, at least not in the same way that Australia does.

It's not a gradually building growth period, followed by mild correction and a flattening out, but rather insane growth followed by a major crash as in 97.

History tends to repeat, but I don't think a correction of that size will happen anytime soon, as rental yields are currently pretty attractive relative to interest rates, which makes property an attractive investment.

The risks as I see them are interest rates going up, which is certainly going to happen soon, although I think it will be limited thanks to the US. By this I mean that the US cannot afford to increase interest too much or they're going to go into a nasty recession. Since the HK dollar is pegged, it means there will always be a source of cheap capital flowing into Hong Kong. A few percentage points of increase is certainly possible, but I don't think the US can afford more than that. What are your thoughts?

The other question is, how sensitive has HK been historically to an interest rate hike of 1 or 2 percent?

Unfortunately there's no fixed rate loans in HK which makes it impossible to hedge against this risk.

The other risk is that the economy runs into trouble, as in 97, leading to increased unemployment and higher vacancy rates / lower rental yield.

I'm not really sure what a down-turn in the US will mean for Hong Kong, and how much growth in China will help to support HK in the event of a US down-turn.

On another note, a few people commented that there are markets within markets. Although property as a whole may go down, growth within certain areas may still offset the overall downward trend. I know in Australia there has been a property market 'crash' over the last year. Despite this my property has gone up 25%, which has shown me the importance of picking the right suburb.

Which brings me back to K-town. I think this area has a lot of potential. The question is how severe any variations in rent / interest rates will be over the coming years and whether I have enough cash to ride them out.

Anyway, any thoughts you have would be great to hear.

[freeier]

rental yield is high versus interest rate ? what is your basis for that ?

[cendrillon]

Simple example, my girlfriends place has market value around 2.2 million, rent is 10k. That's 5.4% rental yield, compared to mortgage interest rates that can get as low as 4.6% if you shop around. After tax deduction (assuming 13% income tax) that drops to 4% effective interest rate. So you're paying less by purchasing than renting (if you consider only the interest portion of the mortgage).

Compare this to my property in Australia, interest is 7.25%, and rental yield is about 4.8%. A much larger gap

Plus management fees and rates seem to be slightly lower here than in Australia aswell. On the other hand mortgage insurance here is about double that in Oz, and the banks are alot less flexible when it comes to drawing down equity, redraws, extra payments, fixed interest rates, interest only loans etc.

[freeier]

hmmm...
i have not seen that many property at that kind of yield.
the older ones with very well renovated interior ? then it would add at least 200-300k hkd for the interior renovation.

also keep in mind the lease hold period of the property. properties in hk has a limited lease, i.e. it could be just 10 or 20years remaining.

most of the prop i see has rental yield of around 3~4.5%.

[cendrillon]

The place I'm thinking of has a monthly rent of 10k, and market value 2.2-2.4 M. Gives a rental yield of 5-5.5%.

Effective interest rate after deductions is 4%. It's not such a bad arrangement

BTW new property so lease issues can be delayed for 50 years, and the world will be a very different place in 50 years time, most likely most of HK will be underwater

[freeier]

2.4M and rental of 10k.. then your gf is overpaying in this hk market! hahaa

[cendrillon]

Haha, I never said she rents, and she didn't buy it for 2.4 either

But looking at recent sales, and market rents, indeed 10K is pretty achievable for a property worth 2.4 M. That said, 1 bedroom appartments tend to get a higher rental yield. Downside might be less long term capital gains.

Originally Posted by freeier

2.4M and rental of 10k.. then your gf is overpaying in this hk market! hahaa