• Investing in Hong Kong Commercial Property: The Definitive Guide

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    Hong Kong has one of the most active property markets globally where office space prices in the CBD capture most of the headlines.

    As Asia’s financial hub, it’s not strange that you can find plenty of commercial property investment opportunities here. Before you start, it’s important that you learn what regulations apply, what taxes you have to pay, and more.

    In this article, you learn the following:

    Hong Kong’s Commercial Property Market

    hong-kong

    Hong Kong’s market is one of the freest in the world, but highly speculative. That’s why newspapers like SCMP, Bloomberg, and the Straits Times frequently talk about it.

    It’s diverse and you have a variety of sectors where people buy and sell real estate, including retail property, office space, industrial property, and more.

    The sectors are thereafter divided into different subcategories, like restaurants, hostels, hotels, car parks, and warehouses. That’s why it’s difficult to explain the market in short words.

    The office prices in the CBD (Central Business District) in Central get the most attention and you’ll have difficulties finding information about other sectors and areas.

    Looking at commercial property prices in general, Hong Kong has outperformed other major hubs (like Manhattan) and prices have tripled during a time as short as a decade.

    Can foreigners buy commercial property in Hong Kong?

    You can acquire real estate both as an individual or as a company in Hong Kong.

    Let’s see what sets the options apart.

    Individual Investors

    Hong Kong is one of a few places in Asia where foreigners can only get hold of leasehold property.

    Both Vietnam and mainland China restrict foreigners from owning freehold property as well and you’re only allowed to lease commercial and residential property.

    As Hong Kong is one of the most expensive real estate markets in the world and office space can fetch for hundreds of millions of dollars, it probably doesn’t come as a surprise that most transactions are done through companies.

    Buying Commercial Property Through a Company

    Maybe you’ve already read my separate article about buying residential property in Hong Kong and understood that the government has introduced hefty additional buyer’s stamp duties.

    This is natural as the government has seen no other option to cool down the market and to reduce speculation among foreign investors.

    A common practice is therefore to trade real estate by transferring company shares or selling companies in exchange for the property, which brings down the taxes.

    Even if you’ll be able to enjoy tax benefits, there are many risks you should be aware of as well:

    • It’s more difficult to get a mortgage for commercial property
    • You might undertake debt in case you acquire a property and don’t do enough due diligence beforehand

    Commercial Property Types Available for Foreigners in Hong Kong

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    Hong Kong has a diverse market and you can find any kind of commercial real estate here. Let’s review your best options.

    Industrial Real Estate and Warehouses

    Industrial property prices have increased much in the years. But it can be a good option if you find office space or apartments too expensive.

    It’s become increasingly popular recently, especially among local billionaires that now buy industrial property in remote areas, turning these into schools or hotels.

    But be prepared to save some time for research and maintenance as you’ll have to turn the unit into a non-industrial property.

    Converting an industrial property into a non-industrial is referred to as re-purposing apartments into “industrial apartments”.

    It’s become popular since the industrial activity started moving from Hong Kong to Southern Mainland China and places like Shenzhen, Dongguan, and Guangzhou.

    Benefits of Buying Industrial Property

    Some outspoken benefits of buying an industrial property in Hong Kong are:

    • Lower stamp duties
    • Lower down payments
    • Cheaper property prices
    • An upcoming market with great potentials

    Buying a warehouse should also be of interest if you feel priced out in Hong Kong. This sub-sector has been among the most under-supplied in the past decade.

    Car Parks

    Car parks can bring decent cash flows and are comparably easy to maintain.

    Hong Kong was in the headlines a couple of years back when an 88 square feet parking space was sold for more than HKD 5 million (around USD 800,000), which is quite astonishing.

    We see that car parks get more expensive and have big potentials. So why is this the case?

    Because the number of registered cars is increasing fast. This graph speaks for itself.

    Benefits of Investing in Car Parks

    First of all, car parks are significantly cheaper compared to residential property on average.

    At the same time, there are places in Hong Kong where car parks have increased multiple times in value and generated better yields than residential property.

    Investors can earn great profits, not just by acquiring residential property, but also when buying commercial property, like car parks.

    Hotels

    Australia and Hong Kong continue to be two of the most popular destinations for hotel investors in Asia.

    Both Hong Kong and Australia have balanced hotel markets in terms of supply and demand, with much commercial activity and trading opportunities.

    Coupled with the significant amount of tourist arrivals, which is around 30 million per year in Hong Kong, occupancy rates are kept high.

    For the record, Hong Kong was the fastest-growing hotel market in Asia in 2018 according to JLL, and where most visitors are millennials from mainland China.

    Millennials drive up the demand for hotels

    Having around 850 millennials collectively, China and India make up almost 50% of the world’s millennial population.

    This will inevitably have a positive impact on Hong Kong’s hotel market in the future, despite some temporary political disturbance.

    We also see that hotels in New Territories have shown excellent occupancy performance in the past years, compared to traditional areas like Tsim Sha Tsui, Mong Kok, and Yao Ma Tei.

    This probably correlates with the fact that many younger persons purchase hotel-nights in the medium price segment, but still want an exclusive experience.

    Getting a Hotel License

    According to the Home Affairs Department (HADLA), you must apply for a hotel license, before you can start operations.

    The license is valid for 12 to 84 months and can usually be renewed, Be sure to do so at least 3 months in advance of expiration.

    HADLA has written a comprehensive Layman’s to license applications in Hong Kong, covering items related to, for example:

    • Lighting and ventilation
    • Fire installations and equipment
    • Gas safety
    • Premises

    I recommend you to work with a solicitor from day one if you plan to acquire a hotel in Hong Kong. With all the paperwork and regulations involved, you should minimize the risk of coming across unexpected issues later.

    Office Space

    The supply of Grade-A offices continues to be low in Hong Kong, which has undoubtedly propped up prices.

    But, there are plans to increase the supply and to create a new Central Business District, as a measure to reduce prices. Many of Hong Kong’s Grade-A offices are also old, another incentive to increase the demand.

    With the ongoing trade war and the slowing mainland Chinese economy, we’ve seen lower demand for office space. In July 2019, the uptake was a low as 50%.

    Yet, we also see that increasingly more investors acquire hotels and convert these into office space.

    Office Space Prices in Hong Kong

    The prices for office space vary greatly depending on where you buy and the standards.

    Below I’ve listed different areas in Hong Kong, what the prices are for office space, and the benefits.

    Central

    Central is the most prominent area. It generally costs HKD 20,000 – 35,000 to lease an office with 2 to 3 workstations.

    Be prepared to pay as much as HKD 50,000 if you lease 4 to 5 work stations.

    For the record, Central also has top-notch amenities and transportation. At the same time, it’s a perfect location if you want to bring clients or do business in general.

    The area mostly caters to companies within the financial industry and banks, embassies, consulates, and government buildings. It might be the most expensive area to lease office space, but is also one of the most popular.

    Wan Chai

    Wan Chai is not as expensive as Central but has much commercial activity. It’s more suitable for medium-sized companies who look for lower rents compared to Central.

    Wan Chai is a popular option as it’s located just next to the Hong Kong Convention and Exhibition Center, parks, hotels, and office towers.

    Rents here average at around HKD 15,000 to HKD HKD 30,000 (USD 1,910 to USD 3,820) for 2 to 5 work stations. This usually includes costs for meeting rooms, kitchen facilities, internet, reception services, AV equipment, and parking.

    Causeway Bay

    Causeway Bay is a developed area and popular among shoppers. You’ll find plenty of companies that operate in the hospitality, entertainment, tourism, and retail industry.

    The area has the highest concentration of department stores in Hong Kong and rents are similar to that of Wan Chai.

    Why land prices increase in Hong Kong

    The land is scarce and in high demand in Hong Kong. Mainland Chinese individuals pour in and developers from the mainland now play a bigger role in Hong Kong’s real estate market.

    At the same time, the government intentionally executes poor land management to keep prices high. This secures high budget surpluses each year, allowing the government to keep taxes low and attracting foreign investment.

    Over the years, property prices have increased immensely in Hong Kong and pushed to new breathtaking levels.

    So, you might be turned off when reading how overvalued Hong Kong property is, but you should be careful in your research.

    Compared to the most central districts, property prices and leases are significantly cheaper in places like Quarry Bay, Kowloon, and Sham Shui Po.

    You have many people in circulation in many of these areas, which can be beneficial if you buy a restaurant, a shop, or a hotel, for example.

    Commercial Property Taxes

    The same as it goes in Singapore, property taxes are generally lower when acquiring commercial property in Hong Kong.

    Below I’ve listed the most notable taxes:

    Buyer’s Stamp Duty (BSD)

    The Buyer’s Stamp Duty for residential property sums up to 30% for non-resident foreigners.

    The Buyer’s Stamp Duty is significantly lower for commercial property and increases progressively as follows:

    • Up to HKD 2,000,000 = 1.5%
    • HKD 2,000,000-2,176,470 = 3%
    • HKD 3,000,000-3,290,330 = HKD 90,000 + 20% of excess over HKD 3,000,000
    • HKD 3,290,330-4,000,000 = 4.5%
    • HKD 4,000,000-4,428,580 = HKD 180,000 + 20% of excess over HKD 4,000,000
    • HKD 4,428,580-6,000,000 = 6%
    • HKD 6,000,000-6,720,000 = HKD 360,000 + 20% of excess over HKD 6,000,000
    • HKD 6,720,000-20,000,000 = 7.5%
    • HKD 20,000,000-21,739,130 = HKD 1.5 million + 20% of excess over HKD 20,000,000
    • HKD 21,739,130 = 8.5%

    For more information about the Buyer’s Stamp Duty, I recommend that you visit the Inland Revenue Department’s (IRD’s) website.

    Annual Property Tax

    The annual commercial property tax is set to 15% and paid, as it speaks, annually.

    You can also make deductions of the taxable amount if the costs are considered relevant, might it be for maintenance and repairs.

    Special Stamp Duty (SSD)

    If you buy and resell a property within a specific time period you can be subject to a so-called Special Stamp Duty (SSD). In Singapore, the tax is called Seller’s Stamp Duty and has practically the same purpose.

    The tax is normally charged based on the appraised value and applies to both residential and commercial property.

    The Special Stamp Duty rates are as follows:

    • The holding period for 6 months or less: 20%
    • 6-12 months: 15%
    • 12-36 months: 10%

    You can also read more about the SSD on the IRD’s website.

    Capital Gains Tax

    You’re generally not charged with any capital gains tax in Hong Kong.

    Yet, the tax can be levied in case you’re trading property (buying short term and speculating).

    Each case is treated individually and I recommend you contact the IRD for more information to get an individual assessment.

    FAQ

    Below you can find some commonly asked questions and my replies.

    Can I live in a commercial property in Hong Kong?

    Many Hong Kongers (and foreigners) decide to live in their office units, even if this is illegal. The units often have great amenities with kitchens and showers.

    Some claim that the government looks between its fingers and maybe it’s not strange as many Hong Kongers are priced out of the market. Up to 200,000 people live cramped in small “cages” or apartments as small as parking spaces.

    The government has even taken an initiative to allow the usage of steel containers as homes, which truly shows how expensive residential property is.

    How can I find commercial property in Hong Kong?

    You can find commercial property with help from local partners that specialize in commercial real estate. It’s important that the partner has a wide network and long experience catering to foreigners.

    Besides, you can also find commercial property on listing websites online.

    Some companies that can help you to buy commercial real estate are:

    • Asia Property HQ
    • Colliers
    • JLL
    • HongKongOffices
    • Spacious
    • Savills

    How much do I have to pay my agent?

    The agents normally pocket a commission of 1%. As mentioned, you should also work with a property lawyer that can help you through the conveyancing process.

    Conclusion

    When you read about the commercial property market in Hong Kong, you mostly see reports analyzing the prices of prime offices in Central (Hong Kong’s CBD).

    Still, you have a number of other options when buying commercial real estate.

    Commercial property has become more sought after, there are many reasons for this. For example, the property taxes and prices are lower, at the same time, you can gain significantly high yields if you buy in the right area.

    Another advantage is that you have many options to choose from, like hotels, parking lots, restaurants, gyms, warehouses, and more.

    Investors also buy industrial property and turn these into residential property. This is referred to as re-purposing and has become increasingly popular since manufacturing started moving to mainland China.

    All in all, buying a commercial property can be a great investment, but beware of the risks and study the market well in advance before buying.

    I’ve not covered co-living spaces or co-working spaces in this article. I also recommend you to read my separate articles, if you’re interested in investing in co-living spaces or co-working spaces in Hong Kong.

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  • 1 Responses to “Investing in Hong Kong Commercial Property: The Definitive Guide

    1. Alan C. Fleming at 7:21 pm

      I work in real estate sales in Ottawa, Ontario, Canada.
      I am looking to connect with someone in Hong Kong who may have clients interested in investing in Canada. I could share property details and find local legal representation to complete acquisitions. Please contact me or have someone experienced in real estate sales reach out to me. My contact information is: Alan Fleming (613) 299-5050

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