Investors can end up feeling neither too rich nor savvy
Travellers on the Mid-Levels escalator may have noticed a large billboard depicting one good egg among a multitude of lemons and proclaiming 'you can never be too rich or too savvy'.
The advertisement promotes a British company called Instant Access Properties, which has just set up in Hong Kong to sell flats in overseas property developments at what it claims are steep discounts to their market prices. Potential investors should take extreme care before buying, however, or instead of getting rich, they could end up with egg on their faces.
Instant Access works like an investment club. Clients sign up as members and are then offered the chance to buy flats in developments in Britain, Spain, Portugal and potentially other places. The idea is that by buying 'off plan', which means a year or two before the development is completed, the investor can get in cheaply and earn a decent return from renting the property out when it is finished.
It is a formula that has proved highly successful for Instant Access. In Britain, the company claims to have more than 5,000 members and carries enormous heft in the market. Hong Kong managing director Paul Cornish says Instant Access accounted for 5 per cent of sales of newly built flats in Britain last year - a chunk of real estate worth $11 billion.
But membership of the club is not cheap. Firstly, investors pay a joining fee of $48,800, which will rise to $68,800 if they put off signing up until next month and a hefty $88,800 if they delay until next year.
This sum entitles customers to receive property sales pitches from Instant Access. Typically, the firm will single out city-centre apartment block developments in northern English towns such as Leeds and offer them to members as lucrative investments.
'Our buying power allows us to secure significant discounts from the developers,' explains Mr Cornish, saying Instant Access can often source properties at 15 per cent below their market price.
If members decide to buy - and having already parted with $88,800, most do - they must put down a deposit of up to 15 per cent and pay Instant Access a 3 per cent commission. The company offers to arrange financing through an in-house mortgage broker and put buyers in touch with letting agents.
It sounds like a sweet deal, but the risks of buying unfinished investment properties, sight unseen, in a different country are considerable.
Instant Access stresses its due diligence and that it obtains independent valuations for each flat. Still, any assessment of the value of an uncompleted flat, especially in the complex British market, must be highly subjective, and any discount will be strictly notional.
Moreover, with numerous similar schemes at work, developers in Britain are now building specifically to satisfy demand from investors rather than from owner-occupiers. That means that with the property market faltering, resale values on the secondary market are doubtful and rental yields far from assured.
Losses from such investments are increasingly common. British newspapers in recent months have been peppered with articles about unfortunate investors who have fallen foul of similar schemes and been left seriously out of pocket.
For Hong Kong investors financing their purchases with a cross-currency mortgage, the risks are even worse. Over the past 12 months, sterling and the euro have each fluctuated by about 13 per cent against the Hong Kong dollar. That sort of volatility can leave an investor feeling neither rich nor savvy.