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Hong Kong serves as a consolidation hub in Asia and has plenty of third-party logistics facilities and warehouses.
It has transformed from having much manufacturing in textiles, plastics, and shipbuilding to primarily becoming the home of many logistics service providers.
While the residential real estate market has become the most expensive in the world, there are plenty of investment opportunities in Hong Kong’s commercial real estate market.
Today, I explain how foreign investors can buy industrial real estate and what you must pay attention to.
Topics covered:
- Can foreigners buy industrial real estate in Hong Kong?
- Hong Kong’s Industrial Property Market
- Asian eCommerce Markets Drive the Demand for Warehouses
- Industrial Areas in Hong Kong
- Benefits of Buying Industrial Property in Hong Kong
- How can I find industrial buildings for sale?
- Taxes
Can foreigners buy industrial real estate in Hong Kong?
Foreigners have no particular issues to acquire real estate in Hong Kong but it can only be done on a leasehold basis. As such, you cannot own real estate on a freehold basis, no matter if it’s residential or commercial.
In this article, we primarily focus on how it works when buying industrial properties and warehouses through companies as this is most common among institutional investors, third-party logistics companies, and manufacturers.
A common practice is to set up a local joint-venture or a limited liability company and make the purchase through the entities. This cannot only limit your tax burden but give you more protection and increased ownership rights.
As explained in my separate article about investing in commercial real estate in Hong Kong, it’s also common that people buy shares of companies that hold residential or commercial real estate.
SCMP has written a comprehensive article about the benefits, disadvantages, and processes of this method.
Hong Kong’s Industrial Property Market
Hong Kong’s real estate market took a hard hit as the introduction of a National Security Law was followed by protests and later repeated lockdowns during the COVID-19 pandemic.
Prices fell as much as 30% at the same time as foreign investors became more conservative and took a more protective stance.
However, thanks to China’s quick recovery during the pandemic and the mainland Chinese investors’ craving for Hong Kong real estate, Hong Kong’s commercial property market seemed to rebound significantly quicker.
There’s much uncertainty regarding Hong Kong’s commercial real estate market at the moment and while sources claim that we will see a strong rebound, some aren’t that certain and believe that prices will continue to fall.
Asian eCommerce Markets Drive the Demand for Warehouses
We’ve seen a tight supply of warehouse space which is needed to meet the growing eCommerce markets in the region.
Not only does Hong Kong serve as a consolidation point for its local market, but also the mainland Chinese and Southeast Asian eCommerce markets.
As you might know, mainland China has the biggest eCommerce market in the world and it’s predicted to grow significantly in the growing years. The benefit of using Hong Kong as a fulfillment hub is that the city doesn’t have any import taxes or VAT.
Its English-speaking workforce developed the logistics industry, and its strategic location helps to boost the local logistics market as well. Third-party logistics companies like UFL, Easyship, Zhenhub, and Storkup all have offices here.
Maybe most importantly, the biggest eCommerce marketplace in Southeast Asia, Lazada, has its fulfillment center located in Hong Kong. From here, Lazada dispatches orders to Singapore, Malaysia, Thailand, Vietnam, the Philippines, and Indonesia.
It’s also common for foreign companies to consolidate and ship products from Hong Kong into mainland China when selling on Tmall Global and JD Worldwide, for example.
A new large-sized complex will be built at Kwo Lo Wan (KLW) at Hong Kong International Airport (HKIA) and planned to be ready by 2023. The complex will increase the supply of premium warehouse space by as much as 15% to 20%.
Industrial Areas in Hong Kong
Hong Kong used to be a manufacturing hub for textiles and video games alike. Previously, you could find industrial facilities in the central areas as well as in the outskirts.
It’s even common that investors purchase industrial properties and convert these into residential units. The process is called the re-purposing of apartments and started to become popular when production moved to the southern cities of mainland China.
Nowadays you mainly find third-party logistics operators and logistics facilities in Hong Kong, a reason we focus on areas with clusters of these kinds of companies.
Kwai Chung
Kwai Chung is located to the North West of Sham Shui Po and the home of various container terminals and centers. Many logistics companies have set up operations here, including Floship, V Logic, Hutchison Logistics Center, and Hoi Kong Container Services.
Thanks to its strategic location and many logistics facilities, Kwai Chung is undoubtedly one of the most interesting areas if you look to invest in logistics space. It also borders to Tsing Yi which is one of the stops when traveling to the airport by train.
Tsing Yi
Tsing Yi borders to Kwai Chung and the South Eastern parts of the island have a high density of logistics facilities and container terminals. Examples include the impressive Kwai Tsing Container Terminal 9.
Companies that have offices and facilities in Tsing Yi include Maple Tree Tsing Yi Logistics Center, Shine Logistics, Asia Logistics Hub SF Centre, and DB Schenker.
Being strategically located between the Hong Kong International Airport and the city of Hong Kong, Tsing Yi should be at the top of your list when making research for potential investments in logistics facilities.
Kennedy Town / Sai Wan
Despite being located in the western parts of Hong Kong island, which is considered some of the most prominent areas, you can find old-style industrial buildings in Kennedy Town and Sai Wan.
The areas don’t have logistics facilities and container terminals like the above-mentioned areas but could be worth having a look at if you still want to be close to the financial district.
Benefits of Buying Industrial Property in Hong Kong
Hong Kong’s residential real estate market is known for being one of the most expensive and overheated in the world. Investing in commercial real estate, on the other hand, is sometimes proven to be more lucrative.
The benefits of buying industrial properties compared to residential dittos mainly boil down to tax obligations and real estate prices:
- Lower stamp duties
- Lower down payments
- Less overheated market and competition
- Future market potentials
How can I find industrial buildings for sale?
Hong Kong is the home of many real estate agencies, both local and international. The agencies provide listings as well as personal consultancy to help potential buyers.
With that said, the listings can be limited and it’s sometimes hard to find up-to-date information available online.
My general recommendation is therefore to approach an agent and to receive information about available units instantly and assure that the information is up-to-date.
Examples of real estate agents include:
- CBRE Hong Kong
- Savills Hong Kong
- Knight Frank Hong Kong
- Midland Realty
- Centaline
They can also help you with information related to taxes, buying procedures, and similar. You must get your feet wet before you engage in the local real estate market, a reason why I suggest you get advice first-hand at a start.
Asia Property HQ can connect you with leading real estate companies in Hong Kong that have years of experience in helping foreigners.
If you’re currently looking for industrial real estate in Hong Kong, feel free to write a message in the form below and we will come back earliest possible.
Taxes
Hong Kong has some of the highest residential real estate taxes in the world. The buyer’s and seller’s stamp duties were introduced to cool down the market and can reach up to 30% for non-residential foreign buyers.
Industrial property taxes, on the other hand, are comparably low. Below I have listed some of the most important taxes that you should get knowledge of.
Buyer’s Stamp Duty (BSD)
The Buyer’s Stamp Duty for industrial real estate 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%
I recommend that you check the Inland Revenue Department (IRD’s) website for more information and consult with your Hong Kong partner.
Annual Property Tax
The annual property tax is 15% and paid yearly.
Keep in mind that you can make deductions of the taxable amount in case the costs are relevant such as for maintenance and repairs.
Special Stamp Duty (SSD)
Investors who purchase and sell properties within a certain time limit are sometimes subject to a Special Stamp Duty (SSD). Singapore has a similar tax which is called Seller’s Stamp Duty and with the same purpose.
The tax is multiplied by the appraised value and charged for both residential and commercial property transactions.
The rates are as below:
- The holding period for 6 months or less: 20%
- 6-12 months: 15%
- 12-36 months: 10%
You should also read about the Seller’s Stamp Duty on the IRD’s website.
Capital Gains Tax
The Hong Kong government generally doesn’t charge buyers with a capital gains tax. However, it sometimes levies a capital gains tax to buyers that speculate in the market.
They review cases individually, make sure to do sufficient due diligence before the purchase and sale of a property to assure whether you’re subject to the tax.
