• Investing in Hong Kong Office Space & Buildings: Complete Guide

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    Hong Kong is a major Asian financial hub and known for having the most expensive real estate market in the world. The area of Central captures most of the headlines and where prices have increased massively in the past years.

    Many are surprised how resilient the market remained throughout the COVID-19 pandemic as well.

    Foreign investors still show a great interest in commercial real estate and particularly office space in Hong Kong. Therefore, I have written this article where I explain how it works when investing in office space and buildings.

    Topics covered:

    • Can foreigners buy office space in Hong Kong?
    • Hong Kong’s Office Space Market
    • Areas to Invest in Office Space
    • Taxes when Buying Office Space & Buildings
    • How can I find office space for sale in Hong Kong?

    Can foreigners buy office space in Hong Kong?

    Foreign individuals and companies cannot buy commercial real estate on a freehold basis in Hong Kong.

    The remaining option is to invest in a leasehold property, which is subsequently used by the company or rented out. You can also lease a unit that is owned by another entity.

    Even if individuals could buy commercial real estate, my main focus is to explain how companies can invest in Hong Kong office space and buildings. Office space can fetch tens or sometimes hundreds of millions of US dollars.

    Naturally, this leaves many private investors out of the market. And even if you’re an individual investor, you’ll most likely manage the purchase through a company anyway.

    I also want to highlight the tax-savings you can enjoy by investing in commercial properties such as office space or buildings compared to residential real estate. This is something we will review later in greater detail.

    Hong Kong’s Office Space Market

    Hong Kong is well-known for having the most expensive office space market in the world and where the area of Central gets the most attention. It has managed to retain this position, mainly due to an increased interest from mainland Chinese.

    By comparison, office space was around 30% higher in Hong Kong’s Central area than in London’s West End just a couple of years back.

    I do believe that it’s more interesting looking back at market prices pre-COVID. In Q1 2018, CBRE issued the following list of the most expensive office markets in the world.

    The difference is staggering:

    • Hong Kong (Central), China: USD 306.57 / sq.ft.
    • London (West End), UK: USD 235.01 / sq.ft.
    • Beijing (Finance Street), China: USD 200.91 / sq.ft.
    • Hong Kong (Kowloon), China: USD 189.56 / sq.ft.
    • Beijing (CBD), China: USD 189.44 / sq.ft.

    But, the market was hit hard during the COVID-19 pandemic and the average vacancy rate reached a record level of 12%.

    Also, Hong Kong has suffered from a low supply of office space, something that might change in the coming years and affect prices.

    First of all, many of its buildings are old. Corporations have also complained about the lack of units and high leasing fees.

    While local banks and real estate companies do believe that the market will remain resilient thanks to favorable interest rates and increased demand, others aren’t that certain.

    JLL, for example, predicts that the market will make a comeback, but rents will fall by around 5% to 10%.

    Areas to Invest in Office Space

    Below I share highlights and details about the most popular areas to invest in office space in Hong Kong. If there’s anything else you wonder about, feel free to write a comment at the end of the article.

    Central

    Central has the highest real estate prices in the world and most international banks have their Asian headquarters here. Rates can reach HKD 20,000 to HKD 35,000 for a small-sized office with 2 to 3 workstations.

    Add 2 workstations and the rate will most likely reach HKD 50,000. With that said, Central is also the home to many high-end restaurants, flawless transportation, and it’s the financial heart of the city.

    It’s not a place where people typically live due to the high real estate prices and the density of offices, embassies, and government buildings.

    Having an office in Central can be beneficial if you want to attract talents and new customers, but it comes at a high price.

    Wanchai

    Wanchai is more suitable for medium-sized companies and you won’t find as many financial institutions here. With that said, there’s still plenty of things to do here and Wanchai is renowned for its sprawling commercial activity.

    There are plenty of hotels, office buildings, parks, and also the Hong Kong Convention and Exhibition Center in the area. Rates are comparably low here and range from around HKD 15,000 to HKD 30,000 if you go for 2 to 5 workstations.

    The rates also differ quite much depending on where in Wanchai you lease units.

    The rates typically include fees for kitchen facilities, internet, meeting rooms, reception services, AV equipment, and parking.

    Causeway Bay

    Causeway Bay is the home of many shopping centers and stores in Hong Kong. On the contrary to office space, you’ll find more companies operating in tourism, retail, entertainment, and hospitality here.

    But, it can be worthwhile looking for office space or buildings here, especially if you work in any of these industries. Rates are on the same level as Wanchai here and it has the largest amount of department stores in the city.

    Taxes when Buying Office Space & Buildings

    Hong Kong is infamous for having significantly high buyer’s and seller’s stamp duties for residential real estate. Luckily, office space and buildings are treated differently and you won’t be subject to massive tax burdens.

    With that said, as transactions can be in the tens or hundreds of millions of US dollars, it’s important that you’re well-versed in the local tax system and understands your obligations.

    Below I have listed taxes and fees you should be aware of before engaging in Hong Kong’s commercial real estate market.

    Keep in mind that rates change frequently and you should reconfirm your tax burden with a local credible partner.

    Buyer’s Stamp Duty (BSD)

    A Buyer’s Stamp Duty was introduced to cool down the overheated residential property market and can reach as high as 30% for non-resident foreign investors.

    The commercial property market is not as overheated, as such the buyer’s stamp duty is significantly lower and increases progressively:

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

    The Inland Revenue Department (IRD) of Hong Kong has created clear explanations about the various taxes foreigners are subject to on their website. I recommend you checking IRD’s for news and advice.

    Annual Property Tax

    Investors also have to pay an annual property tax of 15% for commercial properties.

    Worth mentioning is that you can make relevant deductions of the taxable amount where some examples could be costs that arose due to maintenance and repairs.

    Special Stamp Duty (SSD)

    If you sell a property within a certain time you might be subject to a so-called Special Stamp Duty (SSD). Perhaps you have heard about a similar tax in Singapore called Seller’s Stamp Duty.

    Again, the duty was introduced to cool down the local real estate market and to avoid speculation, where buyers resell units too quickly for a profit.

    Keep in mind that the SSD is charged for both commercial and residential property and multiplied by the appraised value.

    The Special Stamp Duty rates are as follows:

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

    Again, IRD has provided detailed guides regarding the SSD which I recommend you to read if you want to learn more about the duty.

    Capital Gains Tax

    Even if capital gains tax doesn’t exist in theory in Hong Kong, you can be subject to the tax if there’s a clear pattern where you trade real estate with a profit incentive.

    Here, the government reviews each case manually and individually to determine whether a person should be subject to the tax or not.

    How can I find office space for sale in Hong Kong?

    Searching for office space or buildings that suit your needs can be a lengthy process and require dedication and time. Yet, as you might be new to the Hong Kong market, your best option is generally to find a local partner that can help with the screening.

    There are plenty of international real estate companies available as well as local firms. Examples of some of the most reputable agents that can help you to find and buy office space and buildings are:

    • CBRE
    • Knight Frank
    • JLL
    • Cushman & Wakefield
    • Colliers

    To summarize, you’ll find practically all large-sized multinationals here.

    Scrolling through listings can be time-consuming and it’s always convenient to have a reliable partner that can present multiple options at a start. This will allow you to save time and get support instantly, which is particularly important if you have a client at your other end.

    This is something that Asia Property HQ can help you with as well as we work with leading and credible partners throughout APAC. Simply fill in the form below and you will get contacted earliest possible!

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