Capitalizing on Hong Kong's Real Estate Market: High Yields and Book Profits from Long-Term Residential Investments

The latest data from the Midland Property Research Centre reveals a promising trend in Hong Kong's real estate market, with the book profit ratio rising to 65.8% in September, up from 63.8% in August. This increase is based on registered secondary private transactions with known purchase prices, excluding internal transfers and special transactions.

The rise in the book profit ratio is primarily attributed to a greater proportion of transactions involving properties held for longer durations. Notably, the percentage of resale cases for properties held over 15 years increased from 31.2% in August to 35.5% in September. In contrast, properties acquired in recent years—when market prices peaked—reflected lower book profits. Only 11.6% of turnover cases in September involved properties held for 5 years or less, down from 15.8% in August. This rebounds in book profit, despite falling property prices, signals a resilient market.

To delve deeper into the relationship between holding periods and book profits, I analyzed the top two book profit transactions for September from Memfus Wong across ten popular estates. I cross-referenced these transactions with HSBC’s e-valuation and assessed the latest market rents to estimate yield returns.

Among properties held for over 10 to 15 years, Kornhill recorded a book profit of HK$2.2 million, yielding approximately 3.6% for new buyers. City One Shatin also performed well, with two transactions yielding book profits of HK$2.18 million and HK$2.73 million, both generating yields exceeding 4% based on latest market rents from Centaline Agency.

For properties held between 15 to 20 years, seven developments recorded nine transactions with yields ranging from 3.7% to 4.7%, based on market rents from HK$18,000 to HK$28,000. In the over 20 years category, the yields varied from 3.3% to 5%, with market rents spanning from HK$11,000 to HK$29,000. Notably, Whampoa Garden achieved the highest yield of 5%, as its transaction price was under 10% of the market price according to HSBC’s evaluation.

Interestingly, around 70% of the transactions registered in September were priced below market value, reflecting lagging indicators that may not fully capture current market conditions following recent interest rate cuts. The announcement of interest rate reductions by Hong Kong banks on September 19 marked the beginning of an easing cycle. This shift, coupled with subsequent economic stimulus measures from the central government, has led to increased sales of new properties, with secondary transactions rising in tandem.

This trend not only highlights the market's performance post-interest rate adjustments but also sheds light on the positive impact of the economic stimulus initiatives launched by the central government.

The recent policy address that relaxed mortgage terms and permitted investment immigrants to purchase luxury homes has further boosted market sentiment. With multiple favorable factors converging, property prices are anticipated to rebound in the fourth quarter, and profit margins for secondary private residential properties are expected to stabilize and improve.

Overall, the Hong Kong real estate market is exhibiting signs of recovery, driven by the combined effects of interest rate cuts, economic stimulus measures, and proactive policy changes. This environment presents a hopeful outlook for investors, as analysts continue to monitor market performance and adjust their projections accordingly. The potential for high yields and book profits from long-term residential investments remains strong, making this an opportune time for interested buyers to engage with the market.