Jo Gray and business partner Jeff Ovens, both from Britain, are unfazed by slowing sales in Hong Kong's housing market and the continuing turmoil in global financial markets.
On the contrary, they are actively on the prowl for potentially rich pickings in one of the most unlikely segments in the city's property market - so-called Chinese buildings, or decades-old, low-rise and walk-up residential blocks, most of which have no lifts.
'We see rising demand here for spacious flats, renovated to European standards and which provide character, so that a homeowner can go home at the end of the day to relax and unwind. These qualities are often missing in flats in newly-built, high-rises,' said Gray, a retail fashion and homeware specialist.
Gray and Ovens, an engineer, moved to Hong Kong from London to practice their professions, as well as dabble in property investments - specifically flats in old buildings which they renovate for lucrative returns. In the past few years, they have achieved double-digit profits from old flats that they bought in Central and Mid-Levels, renovated to European standards and sold at a premium - a practice known as 'flipping'.
However, a series of government-initiated, anti-speculation measures - aimed at curbing booming property prices - have virtually halted flipping activities in the city. More stringent bank lending has also curtailed activities of short-term players.
The two are now looking instead to buy and hold high-yielding properties even as they continue regenerating and breathing new life into the flats of clients of their firm, Grovens Living, a Hong Kong-based boutique interior design, renovation and construction company.
'One of our properties generates a rental yield of 7 to 8 per cent which, compared with low bank savings interest and uncertain gains in the highly-volatile stock market, is one of the best in the world. There are certainly handsome gains to be made in renting out high-quality flats,' said Gray.
Square-shaped flats, which offer lots of space and are furnished according to stringent European quality and design standards - often command a significant premium over similarly-sized units even in the same building, she said.
Ovens noted that the European concept of living - often characterised by an open kitchen that spills over into the rest of the apartment - is slowly but steadily gaining traction among Hongkongers. 'All our designs and inspirations are Western, and this puts us ahead of the game,' Ovens said.
Gray and Ovens are eyeing new projects beyond the refurbishment of individual flats. 'We're joining forces with some investors and pooling our funds for the purpose of possibly buying up an entire walk-up residential building,' said Gray.
'We're looking at potential projects in Wan Chai and Aberdeen. Wan Chai used to be a sleazy melting pot, but is now undergoing an evolution, with lots of nice boutiques and restaurants. Lee Chung or Wedding Card Street is also being redeveloped, and old properties in the district are still affordable compared to those in Mid-Levels,' Gray said.
Potential residential rental yields of about 5 per cent in Wan Chai are attractive compared to yields elsewhere in the city, or even in London where yields range between 2 per cent and 3 per cent.
Like Gray and Ovens, Darrin Woo, executive director of local property developer Blake's, is an advocate of preserving Hong Kong's built heritage. 'We like old properties because there's a lot of character which can't be replicated by glitzy new towers,' said Woo. 'There is always a market for people looking for something that's different, something with character in an old neighbourhood.'
Blake's successfully applied this formula when it acquired a 1960s five-storey Chinese building at 226 Hollywood Road in Sheung Wan.
'Instead of tearing it down, we decided to preserve it and reconfigure the layout of its flats. We also added a lift, and set up a spacious 700 sq ft lobby and a retail shop on the ground floor,' he said. 'We originally targeted to achieve a 25 per cent required rate of return, but we actually exceeded this and we even have a retail shop on the ground floor. Our buyers were mixed, including some who are based in London and who travel to Hong Kong frequently. The strongest selling point of our units is the fact that they have much more character than others in nearby high-rise blocks even if they have marble finishes,' he said.
Woo said Blake's was actively looking at acquiring suitable old buildings in Sheung Wan and Wan Chai. Both areas are relatively old, but they enjoy lots of building services and other infrastructure support.
'Six months ago, no one wanted to sell and there was a big gap between the price that vendors were asking and the level that buyers were willing to fork out. We feel that with the current climate, owners will be more open to negotiations,' he said.