Individual investors drifting towards industrial property
Industrial units are proving increasingly popular as stamp duty is low and down payments are small compared with buying a residential flat
Property investor Rainbow Chan has found her pot of gold in Wah Tak Industrial Centre in Kwai Chung.
Three months ago the Tsuen Wan housewife, who is in her mid-40s and lives in an apartment owned by herself and her husband, invested HK$1.38 million in a 567 square foot industrial unit in the industrial estate.
Based on the latest transaction prices in the estate her unit is now valued at HK$1.8 million, which means that if she decided to sell it today she could pocket a profit of some 30 per cent after just three months.
"The price increment is quite impressive. It is much better than my expectations," said a beaming Chan.
Investment sentiment in industrial real estate has been booming since the last quarter of 2012, driven by rising liquidity, falling interest rates and the attraction of small down payments compared with investments in residential property.
According to Ricacorp Properties, average monthly transactions in the sector exceeded 1,000 in the last quarter of 2012, up from 700 deals completed in the first quarter of the year. "Prices in the last quarter rose 15 per cent on average," said Raymond Chu, senior district director of industrial-commercial real estate division of Ricacorp Properties.
Investors are attracted to the sector partly because the lump sum required is small and, compared with investing in shops, offices or flats, the price tags are low. "The smaller lump sum, the bigger the price growth you can achieve," he said.
Chu cited the example of a 687 sq ft unit in the 34-year-old Kingswin Industrial Building in Kwai Chung, which had sold for HK$980,000 at the end of June last year, according to data from Midland Realty. The asking price for such units is HK$2.19 million, Ricacorp Properties data shows.
According to Chu the trend towards investing in industrial properties began in Kwun Tong, where a number of new properties were offered for sale in the last quarter of last year. Selling prices averaged from HK$7,000 to HK$8,000 per sq ft, while second-hand properties were priced at more than HK$5,000 per sq ft.
Agents said investors shifted their attention to Kwai Chung and Tsuen Wan this month, where prices of new industrial properties were still below HK$5,000 per sq ft on average. Some new properties on offer in Tsuen Wan such as One Midtown and Billion Square were also attracting investor attention, said Chu.
Given the strong demand for industrial units, agents expect prices will continue to rise, with the sector attracting new buyers who previously invested only in residential property.
Investor attention has shifted away from the residential sector since the government unrolled further measures aimed at curbing prices, including a buyer's stamp duty on purchases by non-locals and companies.
Other new investors include the post-1980s generation, who were attracted by the small lump sums required, rising prices and low stamp duty, said Chu. Duty payable on an industrial unit bought for less than HK$2 million is just HK$100.
Agents said a group of young investors recently combined to jointly buy a unit costing around HK$1 million. Each needed to invest just HK$100,000 after getting a 50 per cent mortgage.
Tenants could be easily found for such properties and rental yields were around three per cent, added Chu. "The quality of new industrial properties has improved. They attract occupiers moving from more expensive areas such as Tsim Sha Tsui."
Wu Yik-sum, a small investor who started investing in industrial properties in Kwai Chung and Tsuen Wan five years ago, said despite concerns that there was an oversupply of industrial space, demand was strong for older properties. A retired manufacturer, Wu owns more than 10 aged industrial properties including warehouses in the area.
Some Hong Kong manufacturers had moved back to the city from the Pearl River Delta, Wu said, and they targeted aged industrial properties because rents were cheap, said Wu. Housewife Chan said her 567 sq ft unit in Wah Tak Industrial Centre asked for a monthly rent of HK$4,800 a month or HK$8.5 per sq ft.
Other tenants include artists and musicians.
"But yields on the units have begun to fall recently as prices have risen very steeply in the past few months," he said.