• Investing in Hong Kong Hotels: An Overview

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    Hong Kong’s hotel industry has been strong historically and remains one of the most popular options among foreign hotel investors.

    As hotel investments can fetch hundreds of millions of US dollars, choosing the right location should be one of your main priorities. Selecting an area with much foot traffic, commercial activity, and proximity to landmarks is equally important.

    Due to ongoing protests and the pandemic, the hotel market was affected in Hong Kong, resulting in plummeting rates. In late 2020, the government decided to cut stamp duties for commercial properties, to support the declining market.

    This isn’t necessarily a bad thing. Novice investors can find discounted deals in sought-after areas.

    Topics covered:

    • Can foreigners buy hotels in Hong Kong?
    • Investing in Hotels Through Companies
    • Hong Kong’s Hotel Market
    • Areas to Invest in Hotels
    • Benefits of Investing in Hong Kong Hotels

    Can foreigners buy hotels in Hong Kong?

    Despite having one of the most efficient business environments globally, real property ownership is regulated by Asian standards. The government has introduced both a buyer’s stamp duty and ad valorem stamp duty totaling 30%.

    Besides, foreigners can only get access to leasehold properties and with terms generally ranging up to 99 years. Regulations are on par with Vietnam where freehold ownership is not available.

    In short, leasehold ownership means that you cannot own the property outright, but lease it from the government.

    Investing in Hotels Through Companies

    Due to the large deal sizes when investing in hotels, Ultra-High-Net-Worth-Individuals (UHNWIs) and companies acquire hotels through companies.

    Benefits include personal protection thanks to limited liability as well as tax structuring.

    One example is when Pan Sutong, the chairman of Hong Kong investment conglomerate Goldin Group, paid HKD 2.5 billion for a 3-story residential mansion in Deep Water Bay.

    Being a permanent resident, Pan would have been subject to a 15% buyer’s stamp duty if he bought the unit as an individual.

    By using a shell company for the investment, the rate was just 0.2% and he made a whopping saving of HKD 370 million.

    Hong Kong’s Hotel Industry

    Hong Kong has one of the most active hotel markets. It’s the meet-up point for events, celebrities, artists, and business meetings. The tourism industry is a pillar of the economy and contributed as much as 4% of the GDP in 2017.

    It also accounted for 7% of the total employment in the country.

    As a result, Hong Kong and Australia are two of the most popular options among hotel investors in Asia. The hotel market brings similarities to that of Singapore, something we will review later in this article.

    Yet the market suffered much due to the ongoing protests in 2019 and the pandemic in 2020. In the first and second quarter of 2020, Hong Kong, Japan, Thailand, and Vietnam were the lowest performers in Asia.

    During the first nine months of 2020, only one hotel transaction was made despite deep discounts. Compare that to 2019 when we saw seven transactions in the market.

    One reason is the small land area and that Hong Kong hotels cannot gain from domestic traveling as we saw in Vietnam, for example.

    To revive the industry, the Hong Kong Tourism Board (HKTB) announced a 2021-22 plan, with several flexible short-term and medium-to-long-term strategies, preparing for the return of visitors.

    Looking at figures, there are more than 300 hotels in Hong Kong with more than 80,000 rooms. Occupancy rates have increased and hovered around 90% in the past years, but decreased in 2019 and 2020.

    Benefits of Investing in Hong Kong Hotels

    Below you can find some of the outspoken benefits of investing in the Hong Kong hotel market. These are just examples and the list could be longer.

    1. Lower taxes

    As mentioned, the commercial real estate market is significantly less overheated than the residential market.

    You won’t be subject to hefty buyer’s stamp duties, for example.

    Investing in commercial properties comes with fewer tax obligations and can result in higher net yields.

    2. The most visited city globally

    According to Euromonitor, Hong Kong is the world’s most visited city thanks to its competitiveness, beauty, and international atmosphere. Around 60 million visitors travel to the city yearly, which is an astonishing number.

    Naturally, we see a high demand for hotel nights which drives occupancy rates.

    3. The purchasing power of visitors

    Hong Kong is renowned for attracting travelers with high disposable incomes.

    People who visit the city predominantly come from mainland China, as well as business travelers. As a result, the average traveler is willing to spend much on hotel nights.

    4. Investment options

    Despite being an Alpha+ city and the commercial center in Asia, Hong Kong has a wide range of hotel options available.

    You can find everything from hostels, budget hotels like Chunkin Mansion and some of the most upscale hotels in the world.

    Examples of hotels located here include Sheraton, InterContinental, The Peninsula, Pullman, and Marriott, just to give you a few examples.

    Investors will have plenty of options available if they have the budget to invest in a Hong Kong hotel.

    Areas to Invest in Hong Kong Hotels

    Hong Kong is divided into the territories of Kowloon, Hong Kong Island, and the New Territories. With 60 islands, the total size is almost 35% bigger than Singapore’s, even if some parts are hilly with jungles, particularly in the north.

    Navigating the hotel market and scouting upscale hotels can be challenging and a reason why I added this section.

    East Tsim Sha Tsui

    East Tsim Sha Tsui has the largest concentration of hotels thanks to its strategic location.

    Located on the Southernmost point of Kowloon bordering Kowloon Bay, you will be a short ferry or taxi ride away from Hong Kong Island.

    Some of Kowloon’s landmarks are in the vicinity, including Nathan Road, Hong Kong Cultural Center, Hong Kong Museum of art, just to give a few examples.

    Hyatt Regency, Regal Oriental Hotel, and Sheraton are both located in East Tsim Sha Tsui, but it’s mainly known for being the home of The Peninsula Hong Kong, opened in 1928, and a colonial-style luxury hotel.

    The area has some of the most expensive rates on average in the city. A kilometer to the west, you’ll find the International Commerce Center. It’s one of the most iconic skyscrapers in the city and home to The Ritz Carlton Hotel.

    Sha Tin

    Sha Tin is located north of Kowloon and around 10 km away from East Tsim Sha Tsui.

    You won’t find as many commercial and upscale areas here due to the traveling distances, but there is a cluster of hotels available in the area.

    Alva Hotel, Royal Park, and Regal Riverside all offer a beautiful view of the Shing Mun River.

    Travelers and residents enjoy a beautiful view of the surrounding hills and parks. Examples include the Ma On Shan Country Park, Tai Po Kau Nature Reserve, and Lion Rock Country Park.

    A few kilometers away to the northeast you can also find the upscale hotel of Hyatt Regency.

    Rates in Sha Tin are around 50% lower than the premium hotels in East Tsim Sha Tsui.

    Mong Kok

    Nathan Road runs through the major shopping area of Mong Kok, a densely populated area with much foot traffic. Thanks to much commercial activity, a handful of hotels have popped up here.

    Mong Kok is not as high-end as the areas of Wan Chai and East Tsim Sha Tsui, for example, and famous for its narrow streets, shopping, tailors, and restaurants. Hilton Garden Inn and Cordis are two premium hotels located in the area.

    Rates in Mong Kok are lower than East Tsim Sha Tsui and slightly higher than Sha Tin.

    Central / Wanchai

    Central and Wan Chai are neighboring areas on Hong Kong Island and popular for business travelers. Rates are similar to that of East Tsim Sha Tsui when comparing hotels with equal standards.

    Four Seasons Hotels is one of the most famous, offering a magnificent view of the Victoria Harbor in Central. A 5-10 minute walk away you can also find The Pottinger.

    Novotel and The Hari are located within just 200-meters in Wan Chai. A few hundred meters to the north and closer to the bay you’ll find Grand Hyatt Hong Kong, one of the most upscale hotels in the city.

    Central and Wanchai are home to some of the most expensive hotels in Hong Kong.

    Closing notes:

    Hong Kong has some of the highest real estate prices in the world. Buyers should be careful when structuring the purchase, choosing the location, and the hotel itself.

    The market has suffered much due to the ongoing protests and pandemic but is traditionally a strong market. Asian investors prefer Australia and Hong Kong as the go-to destinations for investments in hotels.

    This can open for more opportunities with discounted units and a rebounding market. As mentioned, the commercial property market is subject to lower taxes as the market isn’t as overheated compared to the residential ditto.

    The highest concentration of hotels is primarily in East Tsim Sha Tsui, Sha Tin, Mong Kok, and Central. Rates are typically higher here as well. If there’s anything else you wonder about, feel free to write a comment below or contact us directly.

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