Property investment

The Week Explained: Space for car park investment

PUBLISHED : Monday, 03 December, 2012, 12:00am
UPDATED : Monday, 03 December, 2012, 4:26am

There's a general rule of thumb for property investment which goes something like: "When hot property is in the news, the wise investor allows the newsmen to get on with it while they keep well away." This is all well and good but hot property news is a frequent event in Hong Kong and waiting for markets to cool can take a very long time indeed.

At the moment the hot property news surges around the fantastic prices being paid for parking spaces. Prices for these slots have effortlessly soared above the HK$1 million mark and punters have been salivating over reports of quick profits earned on these investments.

We learn that in the space of just 24 hours some car parking investors have managed to pocket up to HK$300,000. It sounds too good to be true but it is entirely plausible.

Car parks represent the lowest cost point of entry for property investors and banks are keen to lend about half of the purchase price at a time when repayments are quite modest. Moreover, they provide an alternative to the cooling prices in the residential market emanating from government measures to impose new taxes on speculators in this sector.

So the hype has some foundation, but wily investors always have to ask themselves - are they buying into a good story or are they buying a solid investment?

As ever, at times like these, we need to listen to the great investment guru, Warren Buffett, who questioned why some people only become interested in investments when prices are on the up. He was talking about stocks but his strictures apply equally to property. "I'm going to buy hamburgers for the rest of my life", he declared. "When hamburgers go down in price we sing the Hallelujah chorus in the Buffett household. When hamburgers go up, we weep. For most people, it's the same way with everything in life they will be buying - except stocks."

Property is even more like hamburgers than stocks because people are going to need a place to live, an office for their companies, a retail space for their shops and, yes, a place to park their cars. But when the property market is looked at this way we are talking about end-users who have to find premises and only have two choices: buy or rent.

And here's the rub because you can't put purchases on hold indefinitely, not least because, in Hong Kong, times when property prices fall are overwhelming outnumbered by the times when prices rise.

I know something about this from personal experience because I completed the purchase of my first property in Hong Kong on June 1, 1989. Three days later the troops moved into Tiananmen Square to crush the democracy protests and there were repercussions in all directions, not least in the Hong Kong property sector where prices instantly slumped.

I felt pretty bad about this (not just, of course, from the investment angle) and my sentiment was not improved by getting a smirking phone call from a fellow journalist who asked how I was feeling about my purchase. What followed was that I had a very nice place to live and eventually sold it for three times the price I paid. As for the phone caller - well, he left Hong Kong declaring he could not afford to live in a place where property prices were so crazy.

The lesson here is that property buyers need to make a clear distinction between acquisitions for end use and for speculation. It is pretty clear that speculators are advised to put purchases on hold when markets get overheated, whereas end-users really need to consider a host of other factors.

Sometimes, the overheated nature of the property market simply makes a purchase too expensive, but at other times if you need somewhere to live or even a place to park a car you will be aware that when purchase prices rise, rentals tend to rise over time. This means that you will have to spend more money renting and there is no hope of getting any return.

Moreover, there is never an absolutely "right" time to buy, but the focus should be on the intrinsic value of an investment. In Hong Kong, property will always be in demand and supply is finite, therefore end-users rarely lose out even if they might be able to gain more by buying during one of the rare price dips.