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Kenneth Ko

Canada's strong economy and appreciating currency have made virtually everything there - from property to education - more expensive for Hong Kong people.

For families, whether they are Canadians or Hong Kong Chinese who are sending their children to Canada's universities or planning retirement there in the longer term, the rising costs are hardly welcome.

Since early 2003, the Canadian dollar has appreciated by more than 30 per cent to a level around HK$6.60 to $6.70 on the weakening of the dollar, and analysts are expecting further upside potential.

Darwin Forer, vice-president for Asia of Alberta-based Redev Properties, said the US dollar would continue to weaken while the Canadian dollar would rise further, especially on higher oil prices.

'Everybody talks about the Canadian dollar being high now. It is not high. It was just staying at low levels in the past few years.

'When I moved to Hong Kong 15 years ago, it was HK$6.80 and it is HK$6.60 to $6.70 now,' he said.

He said the appreciating Canadian currency was affecting families with children studying in Canada and those planning to retire there. According to Redev Properties, the number of student visas issued for Hong Kong people to study in Canada has declined from 2,101 in 2003 to 1,831 in 2004 and 1,686 in 2005. The strong Canadian dollar and rising education costs are partly to blame for the decline.

Mr Forer suggested that investing in commercial properties with stable recurrent income as a proper way to hedge against currency risk.

'When you invest C$50,000 in a commercial property in equity, there is another C$50,000 of mortgage. You are actually buying twice as many Canadian dollars and hedging your currency risk,' he said.

With more than 25 years' experience in property development, Redev Properties is specialising in acquisition and operation of shopping plazas, particularly in Alberta.

Brett Cameron, sales director of the company, said the group had developed its own shopping plazas and condominiums but changed its business model to focus on purchasing existing properties and syndicating them for individual investors to participate in a shared ownership.

He said the group secured good tenants for its plazas with long-term leases to make sure rental income was secure, which provided investors with a net positive cash flow to support school and local living expenses.

With the strong resources-based economy of Canada and in particular Alberta, he said property prices had been rising steadily over the years so investors would also benefit from capital gains in the long term.

Mr Forer said about 90 per cent of individual investors in its shopping plazas were local people living in Alberta. Hong Kong and Singapore buyers accounted for the two biggest overseas buyers, followed by investors from Thailand.

'Interestingly, half of our customers in Hong Kong are investment professionals themselves. Some are Canadians but the majority are not. They include Hong Kong Chinese, British, Australians, New Zealanders and Americans.' he said.

With rents going up at a fast pace, he said property prices would jump accordingly because the value of commercial properties was linked directly to the return on investment or rental income.

The return on commercial properties was much higher than residential properties in Canada because the tenants shouldered the costs of the management company, taxes and the upkeep of the property.

'In addition, the tenancy in Canada is not like Hong Kong. The average lease in Hong Kong is 2 years while in Canada you've leases of at least 5 years. Many of our tenants are on 20-year leases,' he said.

'The capitalisation rate of return is over 6 per cent in Canada - that's rental income based on the purchase price. In Hong Kong, it's 3.5 per cent on commercial property at best.'

The group is marketing two shopping plazas for sale in Asia including Hong Kong, Singapore and Bangkok. A minimum investment of C$25,500 will gain a stake in the properties.

The Whitemud Crossing Shopping Centre in Edmonton has the City of Edmonton Library as its anchor tenant. The other project for sale is Castleridge TD Plaza II in Calgary.

'Both are existing well-established, fully leased properties. You invest today and receive cash flow tomorrow. You are not buying a unit as it is not a unit trust. It's a direct ownership in property,' Mr Forer said.

'We are looking for long-term investors. In Hong Kong, long-term investment is two years. What we mean is 5 to 10 years for the investment in our shopping plazas.'



How to beat the strong Canadian