If You're Ready to Expand Your Real Estate Holdings Into Hong Kong, One of the World's Most Upscale Luxury Markets, Here's How to Get Started
While foreign luxury real estate investment into any market can be an exciting and lucrative endeavor, Hong Kong real estate stands above all others. Exotic, luxurious, and with the potential for extremely high returns, the former British—now Chinese—territory has increased its standing on the world stage considerably over the past decade.
As a result, it's widely regarded as an excellent location to do business. It's one of the top three financial hubs in the world—along with London and New York—and is viewed as a top luxury housing market. Some consider it the best for luxury housing. For property investors, it's a huge draw.
Though not as complicated as other foreign real estate markets to enter, Hong Kong does have its own nuances when it comes to buying property. Here are four tips for getting into Hong Kong luxury real estate.
What Ownership Means
Before we get too far into acquiring property in Hong Kong, it's helpful to first understand what ownership here means. Yes, a foreigner can buy real estate in Hong Kong. In fact, there's no real threshold to clear and the process is relatively straightforward.
Overall interest rates and business taxes are incredibly reasonable, with the latter considered to be some of the most business-friendly in the world. And while there's a catch with taxes on private purchases, these conditions have made Hong Kong a popular place for property investments.
If you want to buy land, it's a slightly different story. While this guide focuses mainly on the acquisition of properties such as luxury condos, we will note that land buys are possible. These purchases are based on the Land Tenure System and Land Policy overseen by Hong Kong's Lands Department.
The overall leasehold policy is concise. The key points being that 1) All land in Hong Kong is owned and leased by the government, and 2) State land can be leased to the public for a set period, currently set at 50 years.
To put this into perspective when buying property such as a condo, you are effectively purchasing co-ownership of the state lease (with other homeowners) and hold exclusive rights to your condo.
Purchasing and the Cost of Ownership
The process of purchasing a property in Hong Kong mirrors that of a domestic transaction in most respects. Basic tenets apply includes:
- Acquiring mortgage pre-approval
- Identifying a property and making an offer
- Entering into a Provisional Agreement
- Moving into a Formal Agreement
- Signing Final Mortgage Agreement and closing
While it is a straightforward process, some caveats apply:
- Successful purchases almost always include a Hong Kong Realtor® and property lawyer (ideal for large or multiple transactions) in tow. As it is domestically, you want them both to carry excellent local knowledge and spotless reputations.
- When securing a local bank loan, they will be most interested in the property or properties you're buying and your goals for the acquisition. They look favorably upon your income if it comes from Hong Kong (although it's not a requirement). Residency and nationality (with some exceptions) are of little issue.
- Initial deposit (paid with provisional agreement) is typically 5% of the purchase price. The Further Deposit paid (with formal agreement) is also 5% of the purchase price. Total deposits paid should equal 10% of the purchase price. If it doesn't, a Balance of Price is due to pay the remainder.
- The entire transaction—not counting property search—takes between six to eight weeks.
One other aspect to be mindful of while acquiring Hong Kong property is stamp duty or property tax. Foreign buyers are responsible for two stamp duties: Ad Valorem stamp duty (AVD) and buyer's stamp duty (BSD). The AVD for non-resident foreigners is a flat rate of 15% (its lower for permanent resident first-time buyers). The BSD is paid by non-resident foreigners at the time of purchase and is a flat rate of 15%.
That translates into a 30% tax on your property purchase. It's a steep price to pay on top of already lofty real estate prices. The heavy tax burden, with the BSD only being in place since 2018, is aimed at controlling prices.
Luckily, renting out property in Hong Kong comes with no restrictions.
Where to Buy
Due to its size and how the city is laid out, finding the right property in the right area of Hong Kong can be quite a challenge. Unsurprisingly, the optimal spots to purchase investment properties are also the most popular areas for expats to live. As noted above, a knowledgeable and well-regarded local real estate agent will guide you in the right direction.
That said, it's critical to conduct your own due diligence and get a feel for the landscape. Even the most basic of Internet queries are helpful as just a fraction of familiarity goes a long way, especially if you're a first-time Hong Kong buyer. Here's a brief overview of some of the more popular investment and expat areas to start your search.
Happy Valley and Jardine's Lookout
Both favorites of expats with families in tow, Happy Valley and Jardine's Lookout are located just above Victoria Harbour on Hong Kong Island. Happy Valley is closer to the major commercial districts of Bowrington and Causeway Bay. It is home to a number of park spaces as well as the Hong Kong Jockey Club and Happy Valley Racetrack (horse racing).
In the hills above Happy Valley is the more exclusive, self-contained Jardine's Lookout. You don't need to venture far for amenities and there are a number of hiking opportunities above the main residential areas. Both Happy Valley and Jardine's Lookout are near several highly-rated international schools.
Centrally located on the mainland, Kowloon Tong is known for Beacon Hill and Festival Walk, a massive shopping center. Broadcast Drive is where Hong Kong’s over-the-air television stations broadcast. The area is home to many of Hong Kong’s elite and wealthy residents. It is a major draw for expats thanks to the above-average home sizes and a large contingent of international schools within the district.
Stretching east across Hong Kong Island, from just below Victoria's Peak towards Happy Valley's western edge, is the centrally located Mid-Levels. It has long been a favorite of expats who appreciate the district's proximity to the Central District and its glam-filled work hard, play hard sensibilities. Property here isn't cheap, especially in its central and eastern sections, where families take advantage of the close proximity to well-regarded international schools.
If you're seeking out an under the radar area to start your Hong Kong investments, North Point is worth a look. Often lost among the more popular and widely-known districts to the west, including Causeway Bay, Central, and Mid-Levels, real estate prices are not as extravagant here as in other parts of the city. Maybe not as chic, the area does carry a far more authentic vibe, and recent development is making outsiders take notice.
No tour of Hong Kong real estate hotspots is complete without mentioning The Peak, one of the city's ritziest, most sought-after neighborhoods. The Peak is where iconic photos of Victoria Harbor and Greater Hong Kong are often snapped. It's also home to many ultra-private compounds, tucked into the mountainside and behind thick foliage and guarded gates. Although its nine-figure homes rarely hit the open market, understanding the environs of The Peak helps a buyer appreciate the more affordable (relatively speaking) districts that sit adjacent to it, such as Mid-Levels, Happy Valley, and Jardine's Lookout.
Situated on the southern side of Hong Kong Island, Repulse Bay (along with neighboring Stanley) is secluded from the major bustle centered around Victoria Harbour. Though don't confuse seclusion for a slower pace of life. Beaches, shopping, and dining supply the region with plenty of energy. It's also becoming a preferred landing pad for expats, especially those with considerable wealth. Many of these tycoons are concentrated in Deep Water Bay, which carries the more apt moniker of Billionaire's Row.
A major reclamation project gave West Kowloon most of its territory and a huge boost in development. Home to commercial and residential project Union Square with Hong Kong's tallest building, the International Commerce Center, as its anchor, the area has seen real estate prices skyrocket over the past decade. The architecturally significant Hong Kong West Kowloon Train Station is also adjacent to Union Square.
As with any foreign investments, one must consider the potential for unrest, turmoil, or other events beyond their control. Considering Hong Kong's dynamic as a world-class commercial, financial, and entertainment center, and continued growing pains finding an identity under Chinese rule, any investment comes with a bit of risk.
Add in the global COVID-19 pandemic and it’s little surprise that the Hong Kong real estate market has grown a bit tepid in the first half of 2020. Even so, the city remains pro-investment and is an excellent property play assuming the dollars, commitment, and patience are there to see the return.