Property prices on the up

Pressure on A grade office space and new apartments offer opportunities to invest  

Hong Kong has one of the world's most feverish property markets, with developers jockeying to claim record prices. The most recent was HK$31,000 Hong Kong dollars, or about US$4,000, per square foot. A small apartment in a pedestrian, multitower development costs about HK$2.5 million. 

Activity in the residential market picked up during the first four months of the year with banks offering better mortgage packages.  Nearly 18,000 residential sales   were registered between January and the end of April. 

About half of Hong Kong's residents live in government housing. The rest is up for grabs, at a price. 

"There are no restrictions whatsoever to buying property, it basically comes down to whether you qualify for a mortgage," says John Powell, a British expatriate who owns and runs a football coaching school in Hong Kong and recently became a property owner. 

In 1997, Hong Kong became home to the world's most expensive residential property when high-flying property developer Wong Kwan paid nearly US$115 million for a six-bedroom home in Hong Kong's most prestigious neighbourhood, Victoria Peak.

While houses and apartments in select areas command off-the-scale prices, with a budget of about HK$8-9 million, shrewd investors should be able to find plenty of buying opportunities with the diversity of what is available in the marketplace.

Although few places are more than about an hour from the down-town business and shopping areas, it is worth paying attention to the location if the purchase is made as an investment with the intention to lease. 

In addition to buying Hong Kong properties for their own use, some people make investments, even though the rental yield in Hong Kong is much lower than it is in other countries, says John Au-yeung, a real estate agent with Cosmopolitans.

"At the moment, it is not uncommon for the yields to be about 2 per cent, and rents don't go up quickly," he said. As a result, most investors focus on potential capital gains from the property rather than rental income. Also, buying a property can produce a residence permit, if the purchase is costly enough. 

In Hong Kong, the magic figure to invest is HK$6.5 million, in any combination of property and financial instruments like stocks and bonds. However, the investment figures are net, meaning the money must be a down payment and not a mortgage. The property-purchasing process in Hong Kong is based on common law and is similar to that in England, and set down during British colonial times. 

Apart from residential properties, local surveyor Pang Shiu-kee believes investors may find better performing buys in the office and retail market. 

Depending on the size and location there are many office properties and retail premises for sale in Hong Kong. Mr Pang said quality industrial properties, such as factory spaces in Kwun Tong and Cheung Sha Wan, could provide attractive investment opportunities. 

"The research & consultancy division of Colliers International says there is no doubt this   will be a strong year for growth and demand in Hong Kong - but property investor interest is restrained and will remain so until the second half of the year," he says.

"Restraint and caution are being urged while uncertainty relating to interest rate increases persists - but the second half of the year will be second only in terms of demand, volume and price increases to the record year that was 2005." 

Sectors for property investors to watch out for include the industrial property sector - in particular the industrial office sector - and the retail sector, especially in terms of the increase in capital appreciation of assets owned. Institutional interest in the property market in Hong Kong is mainly responsible for driving demand in these two   sectors, and it is predicted that if the Western corridor does open it will have a strong and positive impact on both rental demand and sales volumes in these two markets.  

Last year the most significant movements in the property sector in Hong Kong took place in the rental market for Grade A office space; demand peaked, supply dwindled and in some cases rental rates increased by a staggering 75 per cent. Because rates rose so sharply, many companies seeking space were forced away from the main centres which in turn pushed demand outwards and restricted supply in many other parts of Hong Kong which forced rental rates up across the adjacent districts.