Shop around for your dream space
The king of Lan Kwai Fong made timely investments and there is no reason why others cannot do likewise, writes Elizabeth Horscroft
While many of us may dream of becoming the next king of Lan Kwai Fong, there is only one at the moment, Allan Zeman, who made an early investment in a forgotten area of Central and turned it into an empire of eateries and bars.
Many of us would like to emulate Mr Zeman's success in commercial property investment but think it is too late and that we will be priced out of the market.
However, some local agents would disagree with that, acknowledging that while limited means would be an impediment, a good return on commercial property in Hong Kong was not the sole domain for the ultra wealthy and established developers.
Even Lan Kwai Fong is not out of reach. Colliers International has 52D'Aguilar Street up for sale by public tender. Because this is a tender offer, Colliers International declined to give a price range, but Dominic Lee Chak-lam, assistant manager, Hong Kong investment at the company, said that a shop in Lan Kwai Fong, not a whole building, recently sold for HK$110million.
The firm estimated the net yield at 52 D' Aguilar Street would be about 4 per cent with existing tenants.
Mr Lee said it was possible and viable for someone with a few spare million dollars to buy commercial property as an investment in Hong Kong. 'There are some shops available for sale which are worth about HK$10million,' he said.
An investor with limited capital will need to go further afield to second tier locations such as Tai Po, Sha Tin and elsewhere in the New Territories. Mr Lee helped a company sell a shop in Tai Po for a lump sum HK$26million two years ago and he said the quality of the property was very good.
For those who feel being on Hong Kong Island is the best bet, there are commercial property opportunities in Wan Chai for about HK$10million.
While a lower-end shop could have a good rental income and property appreciation, Mr Lee said there was a trade off. The shop would be small, perhaps of poor quality, off a main street and with a local tenant as opposed to a big-name chain store.
'Wan Chai is not a main shopping and entertainment area like Causeway Bay, but it is changing. One day a spot in Wan Chai may be a good location,' Mr Lee said.
Others disagree. Citing the high cost of entry in the market, Peter Yuen the head of investment and sales (Hong Kong) at Savills (Hong Kong), thought investing in commercial property was a long shot for most people.
Savills recently concluded the sale of a ground floor shop on Russell Street in Causeway Bay for HK$178million. 'This sum is way above the affordability of most people,' Mr Yuen said.
But, like most investments, if you have the money it is relatively easy. The process for owning commercial property in Hong Kong is streamlined and similar to buying a residential unit.
Mr Yuen said commercial property was a good investment in Hong Kong because the borrowing cost was low with commercial mortgage rates around 4 to 4.5 per cent. 'We are optimistic about [the] retail sector taking into account ... domestic consumption and increasing tourism.'
This forecast bodes well for commercial landlords who receive a percentage of their tenant's revenue. The first rule of buying property is to find a good location. Determining where that is, in most cases, takes a pinch of luck. The most common commercial properties considered good investments in Hong Kong are in prime retail districts where there are many tourists. 'The demand [for commercial property] is rising, driven by local investors in prime areas such as Tsim Sha Tsui, Causeway Bay and Mong Kok.'
But, while the location may be good now, that might not be true in three to five years. Do some research before buying.
Investors should examine the physical condition of the property too. Does anything need to be reinstated or are there any illegal structures or title issues?
Mr Lee said because prices had risen a lot since 2004, potential investors needed to have a prime location and a quality property for worthy returns.
The best type of commercial property to buy - office, retail or industrial - depended on many factors, but Mr Yuen said office space now seemed to be outperforming the others simply because it had fallen behind for a long time. He said that retail assets were relatively less volatile.
The process of securing a property is straightforward and an agent and lawyer should take care of the details. First, find a trustworthy agent to search for the ideal property and tell the agent your plan for the property. This plan should include your desired yield, expected risk, location and whether this would be a short- or long-term investment. Together you find a site, inspect it and negotiate with the owner.
After agreeing on the price and other commercial terms with the owner, the agent will prepare the provisional agreement for both parties to sign. After that, your lawyer will handle the remaining paperwork and you may apply for financing from banks. With the title in hand you may just feel like the king of your own castle.