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Weekend Property

Charge sheet: hefty management fees add to escalating costs of real estate in Hong Kong

Fees are set by a property management company hired by the building owner, or the owners’ association

PUBLISHED : Friday, 15 September, 2017, 9:35am
UPDATED : Friday, 15 September, 2017, 11:03am

You’ve found a flat and negotiated the lease. Now there’s the matter of the management fee. Fees in Hong Kong are some of the highest in the Asia-Pacific, although some analysts might try to dispute that.

When you’re already paying among the highest housing costs in the world, being asked to shell out an additional sum might seem a bit rich.

Thomas Lam, senior director of property management at Savills, says management fees are reasonable in Hong Kong considering the benefits they provide tenants and landlords.

Expect the management fee to be around 10 per cent of the rental figure.

“Say the rental is HK$100 per square foot – then the management fee will be around HK$10 [per square foot],” Lam says. So just like property prices themselves, what you’ll pay depends on where you live: while the HK$10 benchmark might be the norm for a high-end flat (say on Mount Nicholson for instance), at new developments in Kai Tak, where rentals can be found at about HK$40 per square foot, you’d only be paying HK$4 [per square foot] in management fees.

These fees are not set by the landlord but by a property management company hired by the building owner, or the owners’ association.

The fees go into a trust account and are used to primarily pay staff costs – whose salaries are reviewed every two years in accordance with Hong Kong’s Minimum Wage Ordinance – and other operating expenses.

According to Lam, as a general rule for residential developments 40 per cent of management fees may go to staff costs; about 10 per cent for utilities; 10 per cent for cleaning; and 20 per cent for the clubhouse including staffing, maintenance and facilities maintenance; and 5 per cent for other expenses. The balance covers the manager’s remuneration, a monthly surplus held on behalf of the owners and the reserve of a “sinking” fund to pay for repairs.

“Tenants today mostly like pools, nice clubhouses, and staff on hand to serve them – so they have to be prepared to pay for that from the management fee,” Lam says.

But is there room to negotiate this fee? Generally not, says Joshua Miller, CEO of property agency OKAY.com. If you’re buying or renting a flat, bargaining power of around 5 to 10 per cent below the asking price might be achieved, whereas management fees are fixed and beyond the landlord’s control.

“The market practice is generally to bracket property management costs into the rent paid by the tenant – so property management is included in the monthly rent about 90 per cent of the time,” Miller says. “A few landlords do choose to separate the management fees, though it is not negotiable as it’s still a fixed cost to the landlord.”

Options to pay less are to choose a simpler building which perhaps has only a cleaning/maintenance crew, where the management fee might be as low as 5 per cent, he says. “If there are full time security guards, a front desk, more elevators, common areas and facilities, then the fee is higher relative to the rent – up to approximately 10 per cent.”

Or you can stay in a village house. Some management fee will usually be charged in a village house rental, but this may be marginal compared to developed estates and more ad hoc, Miller says. “There aren’t on-site staff or facilities, but the landlord does need to get contractors in to handle repairs.”

Miller advises that a tenant or buyer should take everything into consideration, including management fees, and look at the overall cost of the property relative to the value – its size, facilities and location – but also areas of potential savings. For example, an in-house gym may avoid the need for outside gym membership. A central location might cut down on monthly transport costs.

“Tenants cannot directly reduce or minimise property management fees as a standalone item – they should consider them a fixed component of the total cost, and weigh up the decision to rent a property on the overall proposition,” Miller says.

But don’t expect that just because Hong Kong flats are getting smaller, the management fee may also shrink.

On the contrary, Lam says that smaller flats in new developments generally have larger community areas, which are costly to maintain, especially in the light of rising wages.

Lam sees one solution as designing buildings for operational efficiency. For instance, instead of a 10-tower development having 10 lobbies, which all need to be staffed, he suggests that one or more lobbies could be shared across the whole estate. More automation – of the car park and main entrance access – could also reduce the impact of rising labour costs.

“Incentives like this could trim the operating expenses including the management fee,” he says. “As a tenant, I’d be happy with that.”