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Commercial property is an untapped area for many investors, but you can reap great yields if you do your research and dedicate some time and effort.
In fact, you have a number of options if you decide to buy commercial property including everything from retail property, industrial property, and not to forget – car parks.
Still, the commercial market is rarely spoken about in the media. You mostly hear about how prime office prices change on a quarterly basis.
In this article, you’ll learn about the following:
- Hong Kong’s commercial property market
- Buying industrial property in Hong Kong
- Buying car parks in Hong Kong
- Buying commercial property through a company in Hong Kong
- Commercial property taxes in Hong Kong
Hong Kong’s commercial property market
Hong Kong’s market is one of the freest in the world and highly speculative. That’s why you often read articles about it in newspapers like SCMP, Bloomberg, and Straits Times.
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 sub categories, like restaurants, hostels, hotels, car parks, warehouses, I think you get my point. 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 to find 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 period as short as a decade.
Why are land prices increasing in Hong Kong
Land is scarce and in a very high demand. Mainland Chinese individuals pour in and developers from the mainland now plays a bigger role in Hong Kong’s real estate market. Prices have increased immensely and are pushed to new breathtaking levels.
Property prices are significantly higher on Hong Kong island (Central)
You might be turned off when reading how overvalued Hong Kong property really is, but you should be careful in your research.
The fact is that property prices and leases are significantly cheaper in places like Quarry Bay, Kowloon and Sham Shui Po.
You have more people in circulation in many of these areas as well which can be beneficial if you plan to buy a restaurant, a shop, or a hotel, for example.
Buying industrial property in Hong Kong
Even if industrial property has increased much in value over the years, it can be a good substitute if you find office spaces or apartments too expensive.
In fact, 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 assign some time for research and maintenance if needed.
Converting an industrial property into a non-industrial property on Hong Kong
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 (just to mention a few).
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. In fact, this sub-sector has been among the most under supplied in the past decade.
Buying car parks in Hong Kong
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 a 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 buying 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 results than residential property.
Investors can earn great profits, not just by acquiring residential property, but also when buying commercial property, like car parks.
Buying commercial property with a company in Hong Kong
Buying property in Hong Kong can be expensive as property taxes are among the highest in the world.
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 sell companies in exchange for the property, which will bring taxes a lot.
Even if you’ll be able to enjoy tax benefits, there are a number of 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 and don’t do enough due diligence beforehand
Commercial property taxes in Hong Kong
The same as it goes when buying commercial property 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) for commercial property
The Buyer’s Stamp Duty for residential property sums up to 30% for non-resident foreigners, which is, well… a lot.
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 you to visit the Inland Revenue Department’s (IRD’s) website.
Annual property tax for commercial property
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) for commercial property
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:
- 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 for commercial property
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 to contact the IRD for more information to get an individual assessment.
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 look between its fingers and maybe it’s not strange as many Hong Kongers are priced out of the market. In fact, up to 200,000 people live cramped in small “cages” or apartments a small as parking spaces.
The government has even taking 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 through different listing websites and companies who specializes in commercial real estate.
Some companies that can help you to buy commercial real estate are:
The agents normally pocket a commission of 1%. I also recommend you to hire a property lawyer that can help you through the conveyancing process.
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 among, like hotels, parking lots, restaurants, gyms, warehouses, and more.
Some people go as for as buying industrial property and turning 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 commercial property can be a great investment, but beware about the risks and study the market well in advance before buying.