The Battle for Yield: Residential Flats vs. Car Parking Spaces
Recent data from the Land Registry indicates that there were 284 transactions of pure parking spaces in January, representing a decline of approximately 17.7% from December's 345 transactions. This marks three consecutive months of declining activity. As there is typically a delay in the registration of signed sales contracts, January's transactions primarily reflect the market conditions from December 2024.
In January, the most significant drop in parking space transactions occurred in the segment valued over HK$2 million, which saw only 41 transactions compared to 69 in December—an approximately 40.6% decrease. For parking spaces priced at HK$1 million or below, transactions fell to 105, down 25% from 140 in the previous month. Notably, transactions for parking spaces valued between HK$1 million and HK$2 million remained stable, increasing slightly to 138—a 1.5% rise from 136 in December.
When analyzing performance by district, Kowloon recorded 81 transactions, down about 8% from December's 88. The New Territories experienced a more significant decline, with 152 transactions, a decrease of approximately 22.4% from 196. Meanwhile, Hong Kong Island reported 51 transactions, declining about 16.4% from 61 in December.
Based on transaction records from January, I categorized the parking space transactions into three price ranges:
1)????? Transactions Valued Over HK$2 Million
In developments such as The Merton and Oasis Kai Tak, the asking rents were set at HK$5,300 and HK$6,000 per month for spaces valued at HK$2.15 million and HK$2.11 million, respectively. These properties offer potential yields ranging from 3% to 3.4%. For example, a transaction in Marini, located in Festival City, had a price of HK$2.2 million and an asking rent of HK$5,300, resulting in a yield of 2.9%.
2)????? Transactions From HK$1 Million to HK$2 Million
In Taikoo Shing and The Waterfront, transaction values were HK$1.23 million and HK$1.12 million, with rental yields of 3.8% and 3.4%, respectively. Another transaction in Lohas Park had a price of HK$1.8 million and a prevailing market rent of HK$5,100, yielding 3.4%.
3)????? Transactions Valued Below HK$1 Million
Analysis of residential estates such as Greenwood Terrace, Mei Foo Sun Chuen, and Kingswood Villas revealed yields ranging from 3.6% to 4% for parking spaces priced between HK$0.925 million and HK$0.98 million. These spaces can typically be leased for approximately HK$2,900 to HK$6,000, maintaining a rental yield above 3%.During times of economic prosperity, many people tend to buy cars, and parking space prices may rise before property prices. Conversely, during economic downturns, many owners reduce their car usage, leading to more owners selling their car parking spaces, which causes parking space prices to drop faster than property prices.
During economic upturns, the demand for cars typically increases, leading to a rise in parking space prices before property prices escalate. Conversely, during economic downturns, many owners reduce car usage, resulting in a higher number of parking spaces being sold, which can cause prices to drop more rapidly than those of residential properties.
For investors who acquire parking spaces during economic lows, immediate rental opportunities may be limited due to decreased demand. Therefore, it may be prudent to use the space for personal purposes initially and then rent it out at a higher price when demand improves.
Historically, investing in parking spaces has a lower entry threshold compared to purchasing residential properties. The associated costs, including management fees and maintenance expenses, are usually lower for parking spaces. However, many private parking spaces can only be purchased by property owners, and the price volatility of parking spaces tends to be greater than that of residential properties, introducing a higher risk factor.
Recent interest rate cuts have led to increased buyer activity in the market for smaller properties, especially for long-term rentals. Investors targeting top estates could achieve rental yields exceeding 3.6% while benefiting from potential appreciation in resale value as the residential market stabilizes in the coming years.
Investors should also be aware of the restrictions when renting out or transferring car parking spaces. Some developments stipulate that parking spaces can only be resold or subleased to owners or residents, while others require the parking space to be purchased alongside the property unit. Such restrictions can significantly narrow the pool of potential tenants or buyers, impacting the overall investment value.
Residential properties and parking spaces both offer investment opportunities, each with its advantages and risks, primarily depending on individual investment goals, market conditions, and the economic environment. Investors should conduct market research and forecast their investment portfolio for the coming years to make informed decisions.
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