Hong Kong
Last Updated:
Jun 03, 2010
Hong Kong’s favorite pastime is property speculation. In March 2010, the property price index was up 30% from a year earlier (27.4% in real terms), according to data from the Ratings and Valuation Department (RVD).
Aside from buyers from Mainland China, buyers from Russia, Japan, and other Asian countries were spotted buying luxury properties at the Peak. Property investors-cum-speculators include individuals and companies “diversifying” into other fields.
The buying frenzy is fueled by very low interest rates in the US (mirrored by Hong Kong due to the currency peg) and prospects of global economic recovery. Foreign trade is the key driver of Hong Kong’s economy.
In response, on June 1 the government implemented nine new measures to increase transparency and cool down the market. New guidelines for developers require full disclosure and restrict overly aggressive advertisements including the use of “show flats” or sample units.
Developers are also required to announce house prices three days before selling any unit and disclose transactions involving company executives and their relatives. The government also raised the stamp duty for luxury homes and promised to increase land supply.
There is a long history of anti-speculative measures in Hong Kong and, in several cases, they added to house price volatility. Long-time property players already see it as part of the cat-and-mouse game between speculators and regulators.
Aside from buyers from Mainland China, buyers from Russia, Japan, and other Asian countries were spotted buying luxury properties at the Peak. Property investors-cum-speculators include individuals and companies “diversifying” into other fields.
The buying frenzy is fueled by very low interest rates in the US (mirrored by Hong Kong due to the currency peg) and prospects of global economic recovery. Foreign trade is the key driver of Hong Kong’s economy.
In response, on June 1 the government implemented nine new measures to increase transparency and cool down the market. New guidelines for developers require full disclosure and restrict overly aggressive advertisements including the use of “show flats” or sample units.
Developers are also required to announce house prices three days before selling any unit and disclose transactions involving company executives and their relatives. The government also raised the stamp duty for luxury homes and promised to increase land supply.There is a long history of anti-speculative measures in Hong Kong and, in several cases, they added to house price volatility. Long-time property players already see it as part of the cat-and-mouse game between speculators and regulators.
Analysis of Hong Kong Residential Property Market »
RENTAL YIELDS
Last Updated: Apr 27, 2010
A rising tide lifts all boats…Hong Kong’s property market rose an amazing 27% during the year to the end of Q1 2010, the highest property price rise in the world.
Larger used apartments in Mid Levels now cost around US$24,000 per square metre, and the Peak is even more expensive at US$33,000 per square metre.
Unsurprisingly, rental yields are extremely low in Hong Kong and gross rental yields of around 2.5% to 3.0% are typical in the high-end areas. Given that the Global Property Guide’s figures are for gross rental yields, i.e., do not make any allowance for periods when the apartment is vacant, for legal costs, administration costs, cleaning and repairs, rental taxes, property taxes, and other taxes, etc, it is safe to say that landlords of high-end apartments in Hong Kong earn very little on their apartments.
Of course, buyers are hoping that values will rise even more. Which, given low interest rates and a bubbling economy, could well happen.
Hong Kong is not a ‘typical’ market. It is a place where the rich choose to park assets in the form of apartments, as part of a diversified asset-safeguard strategy - like Monaco and Singapore. Such markets typically have lower rental yields than more ‘normal’ housing markets.
Larger used apartments in Mid Levels now cost around US$24,000 per square metre, and the Peak is even more expensive at US$33,000 per square metre.
Unsurprisingly, rental yields are extremely low in Hong Kong and gross rental yields of around 2.5% to 3.0% are typical in the high-end areas. Given that the Global Property Guide’s figures are for gross rental yields, i.e., do not make any allowance for periods when the apartment is vacant, for legal costs, administration costs, cleaning and repairs, rental taxes, property taxes, and other taxes, etc, it is safe to say that landlords of high-end apartments in Hong Kong earn very little on their apartments.
Of course, buyers are hoping that values will rise even more. Which, given low interest rates and a bubbling economy, could well happen.
Hong Kong is not a ‘typical’ market. It is a place where the rich choose to park assets in the form of apartments, as part of a diversified asset-safeguard strategy - like Monaco and Singapore. Such markets typically have lower rental yields than more ‘normal’ housing markets.
TAXES AND COSTS
Last Updated: Dec 10, 2008
Effective Tax Rate on Rental Income |
|||
| Monthly Income | US$1,500 | US$6,000 | US$12,000 |
| Tax Rate | 12.2% | 12.2% | 12.2% |
| Click here to see a worked example | |||
Source: |
Disclaimer | ||
Rental Income: Net property income is taxed at 15% (previously 16%). Net income is computed by deducting a standard 20% for repairs and outgoings.
Capital Gains: No capital gains tax exists in Hong Kong.
Inheritance: Inheritance tax or estate duty was abolished from February 11, 2006.
Residents: Taxation in Hong Kong is based on the territorial source principle; i.e., where the income was earned. Income derived from outside Hong Kong is not taxed in Hong Kong.
Capital Gains: No capital gains tax exists in Hong Kong.
Inheritance: Inheritance tax or estate duty was abolished from February 11, 2006.
Residents: Taxation in Hong Kong is based on the territorial source principle; i.e., where the income was earned. Income derived from outside Hong Kong is not taxed in Hong Kong.
BUYING GUIDE
Last Updated: Dec 05, 2006
The total roundtrip transactions costs of buying and selling an apartment are low, with the maximum scale of charges only 7.8%. This is inclusive of the real estate agent 's fee (0.5% to 1%) and stamp duty (0.75% to 3.75%). Legal fees are around 0.5% to 2%.
LANDLORD AND TENANT
Last Updated: Jun 20, 2006
Landlords have an easy life in Hong Kong.
Rents: Rents can be freely negotiated in the private sector, which comprises about half of the rental market.
Tenant Security: The Landlord and Tenant (Consolidation) Ordinance 2004 removed security of tenure, i.e. domestic tenants no longer have the statutory rights to renew their tenancy at prevailing market rates.
Rents: Rents can be freely negotiated in the private sector, which comprises about half of the rental market.
Tenant Security: The Landlord and Tenant (Consolidation) Ordinance 2004 removed security of tenure, i.e. domestic tenants no longer have the statutory rights to renew their tenancy at prevailing market rates.
ECONOMIC GROWTH
Last Updated: Jun 03, 2010
Out of recession
Hong Kong is a small bustling metropolis, a corporate and financial centre where Western and Eastern influences converge. A former British colony, Hong Kong became a Special Administrative Region of China after Britain’s 99-year lease expired in 1997. It enjoys a high degree of autonomy from China.
Hong Kong has one of the highest GDPs per capita in Asia at US$30,726 in 2008. With 7 million people occupying about 1,100 sq. km., it has also one of the world's highest population densities.
After four consecutive quarters of contraction, the economy grew by 3.3% in Q2 2009 from the previous quarter, lifting Hong Kong out of recession. The December 2008 and May 2009 stimulus packages helped stop the decline in GDP. Overall, the economy is expected to shrink by 2% in 2009 but will bounce back in 2010 with a 5% growth, according to IMF.
The fall in exports and imports slowed to 12.8% and 12.7% in Q2 2009 from the previous year after sliding by 22.7% and 21.4% in Q1 2009.
The decline in private consumption also slowed to 1% in Q2 2009 from the previous quarter, indicating the gradual return of consumer confidence. This followed the 6% drop in private consumption in Q1 2009.
"Price pressures should remain muted and, given our current outlook for global commodity prices, consumer price inflation should end 2010 close to zero," said the International Monetary Fund in its report.
Deflation in Hong Kong began in June 2009 with a 0.9% contraction in prices. In August 2009, the fall in prices accelerated to 1.6%.
Hong Kong has one of the highest GDPs per capita in Asia at US$30,726 in 2008. With 7 million people occupying about 1,100 sq. km., it has also one of the world's highest population densities.
After four consecutive quarters of contraction, the economy grew by 3.3% in Q2 2009 from the previous quarter, lifting Hong Kong out of recession. The December 2008 and May 2009 stimulus packages helped stop the decline in GDP. Overall, the economy is expected to shrink by 2% in 2009 but will bounce back in 2010 with a 5% growth, according to IMF.
The fall in exports and imports slowed to 12.8% and 12.7% in Q2 2009 from the previous year after sliding by 22.7% and 21.4% in Q1 2009.
The decline in private consumption also slowed to 1% in Q2 2009 from the previous quarter, indicating the gradual return of consumer confidence. This followed the 6% drop in private consumption in Q1 2009.
"Price pressures should remain muted and, given our current outlook for global commodity prices, consumer price inflation should end 2010 close to zero," said the International Monetary Fund in its report.
Deflation in Hong Kong began in June 2009 with a 0.9% contraction in prices. In August 2009, the fall in prices accelerated to 1.6%.
