Tread cautiously as rent yields fall in property market
WITH relatively low rental yields prevailing, investors should look carefully for bargains to minimise risks amid the volatile interest rate environment, property experts say.
Cash-rich investors keen to enter the market prefer prime and unique properties.
A. G. Wilkinson and Associates' assistant director Michael McGuire said investors should look at properties offering a yield of no less than 8 per cent per annum on current effective rents.
With the prime lending rate at the double-digit level, investors tended to ask for tangible discounts to market prices for the properties in order to achieve sustainable returns, he said.
Office, residential and retail property prices had corrected in unison significantly since October last year. Rents had also fallen and current investment yields were still not attractive enough.
Mr McGuire said residential investment yield based on current asking prices was about 5.5 per cent, while prime office yield was about 6.5 per cent.
Yields needed to measure up either as a result of a drop in interest rates, which would effectively reduce investors' holding costs, or due to further decreases in property prices, he said.
Investors should focus on buying something 'very prime' in the residential, office or retail property sectors where prices had adjusted substantially and were at more acceptable levels.
Investors buying tenanted properties had to take into account the possible negative rental reversions on the expiry of existing leases, he said.
'Whether investors should return to the market now depends on the yield they can attain.' Cushman & Wakefield director of Hong Kong investments Simon Chow said some banks were especially conservative in extending finance to people buying investment properties.
While the yields were not so attractive, investors could still consider snapping up bargains to benefit from capital appreciation gains in the longer term.
In his view, investors should go for grade A offices in Central, Wan Chai and Admiralty, especially those with a good tenant mix.