Hong Kong's wealthiest on the hunt for bargain property buys abroad

Centrally located luxury property prices are 30% more expensive in Hong Kong than elsewhere in Asia.

According to SMART Investment & International Property Expo, the global economic crisis is a somewhat quagmire for many Hong Kong investors - on the one hand the value of real estate assets in some economies has dropped to a level to become attractive but the inherent market instability also weights on their minds. However, with no easing on the local property market or on inflation, more and more Hong Kong investors are scouting across the globe for real estate investments that are showing signs of recovery, it said.

Hoi Cheung, director of the SMART Investment & International Property Expo commented “if you look closely at Hong Kong’s domestic market from the perceptive of local investors, there are few signs that spiraling property prices and inflation in Hong Kong are in check, property rental yields are low, stocks are underperforming, bank interest rates remain at 1-2% due to the US-HK dollar peg, it’s no wonder we are seeing more and more Hong Kong investors rebalancing their investment portfolios in favour of overseas property. It's a great way to park your cash for a decent return.”

Here's more from SMART Investment & International Property Expo:

As Hong Kong property prices continue to soar, local investors are seeking overseas options especially in those markets that are currently perceived to be undervalued as in the cases of Malaysia, Thailand, UK, USA, Japan and etc. These markets are bargain buys for Hong Kong's wealthiest but compared to local property prices they are increasingly seen by the mass affluent as highly desirable and affordable buys. Centrally located luxury property prices in Hong Kong now averages US$20,371 per square metre, compared to US$2,996 for Thailand, US$2,182 for Malaysia and even next to Japan it is a still a bargain at US$15,122 per square metre. Typically a condominium in the residential neighborhoods of Kuala Lumpur are priced just less then US$200,000, for that price investors might be lucky to get a car park space in Hong Kong.
Amazing statistics by Jefferies Sean Darby shows that for the price of one parking lot space in Hong Kong, you can buy 5 homes in the United States! The average price for a fully decorated 2,500 square feet U.S. house costs less than $250,000 - an absolute bargain compared to the millions that a similar size Hong Kong property commands. Inevitably such huge property price discrepancies have pushed many Hong Kong investors to look to overseas property.
Furthermore rental yields in Hong Kong remains one of the lowest in the regions, with properties in the range of 1.5-2.5% pa.

This outward push trend is further aspirated by projected residential property prices in Hong Kong set to rise to 15% by the end of 2012, according to the latest housing market analysis from Knight Frank. This is compounded by research by Coutts in Asia, which shows limited returns from Hong Kong property over the next few years. As an asset class, property is unlikely to remain a hedge against inflation and investors may consider alternatives such as overseas property as means to diversify their investment portfolios.

The idea to invest overseas has become increasingly more attractive as property developers ply on inducements. It is almost ubiquitous now to be offered free furniture, guaranteed rental yield, low interest, low deposit entry and of course the premise for high capital appreciation and good rental returns. Local newspapers have not lost the courting for Hong Kong buyers as pages are dominated by overseas advertisements scrambling to attract Hong Kong buyers. The challenge according to Cheung is getting target audience face-to-face to conclude any sales..

It is not just developers courting Hong Kong investors; governments are also offering incentive programmes to entice inward investment or jump-start its ailing market. Some overseas developers are capitalising on such programmes that offer a win-win scenario for investors. For example, the “EB-5 program” offers permanent U.S. residency to any foreigners with at least US$500,000 in invested ventures that create at least 10 jobs in the U.S; similarly Malaysia runs the popular Malaysia My Second Home programme; Australia have the National Rental Affordability Scheme (NRAS) giving investors tax-free incentives for 10 years. Given all the incentives and the domestic push factors it’s no wonder buyers from China and Hong Kong accounted for $9 billion of U.S. home sales in the 12 months ending in March according to National Association of Realtors, such impressive figure are not isolated to the United States.

The decision to invest in any particular country is not just based on incentives. Also Hong Kong investors aren’t just looking into markets that are hit hardest by the financial crisis with falling prices; decision are also made based on retirement or children’s education objectives as well as attributes such as the lifestyle, familiarity with culture and language, weather, air quality, food, schools, safety and the quality of life that the Hong Kong dollar can buy. Popular overseas investment destinations are therefore countries with inexpensive high standard of living as well as strong investment opportunities. Project wise Hong Kong investors tend to favour large golf and gated community, harbour front/sea views, new constructions and CBD apartments with demonstrable rental returns.