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Peggy Sito

Property agents nevertheless warn  of hidden costs that may eat a large chunk of the rental income

Buying property has always been seen as the safest investment in Hong Kong. However, not everyone can splash out several million dollars on brand-new flats. So that makes aged properties valued between HK$1 million and HK$2 million a tempting investment.

With a deposit of between HK$300,000 and HK$600,000, anyone can purchase a 30- to 40-year-old  flat,  assuming you  take out a 70 per cent mortgage, and become a landlord.

However,  property agents warn that there are some hidden costs when buying old properties that may eat a large chunk of the rent you receive.

'Don't just focus on the rental return quoted by property agents,' said Hendrick Leung Lee-chung, director and general manager of Centaline Finance, a mortgage broker of property agent Centaline Property Agency.

'While you are attracted  by the above-market rental income, you should bear in mind that the high rental return also reflects the limited capital growth potential of the aged properties,' said Mr Leung.

'In the sales market, there is a huge price differentiation between new and aged properties. But this is not the case in the rental market. As the price of old homes is cheaper than  new ones but rents they receive are similar, that makes the rental return of aged properties higher.'

At present, the rental return  in mass housing properties  that are less than five years old is 4 per cent. The rental return on aged properties  is between 5 per cent  and 7 per cent.

'Buyers will bear a higher risk for buying aged properties as  the ability to resell is lower. And banks usually will not provide mortgage offers as attractive as new ones,' Mr Leung said

Maintenance costs are another concern. 'Sometimes, it will eat a big portion of the rents,' said Shih Wing-ching, chairman of Centaline (Holdings), parent of Centaline Property.

The government has tough requirements on property owners to keep their properties in good  condition. This could be a big cost for owners, said Mr Shih.

'I would rather use the HK$600,000 to buy The Tracker Fund than buy an aged property. At least, the fund's performance will be  in line with the market and at least you can avoid extra costs like property management fee,' said Mr Shih.

Buggle Lau, chief analyst of Midland Realty, said owners of old properties in aged districts would find it more difficult to get quality tenants as they would opt for better living standards, such as clubhouse facilities.

Property agents said buyers should try to look for aged properties with capital appreciation potential. For example, these are properties with redevelopment potential or those  in  districts that  will see a dramatic upgrading and improvement  such as Kennedy Town.

Property agents said demand for aged properties in the area had been on the rise, buoyed by the MTR's West Island rail line extension plans from Sheung Wan to Kennedy Town via Sai Ying Pun.

For example, an investor who bought a 580 square foot 40-year-old unit in Belcher's Street in March for HK$1 million sold the flat recently for HK$1.38 million, according to property agent Century 21.

'More expats and Hong Kong tenants who used to live in other districts are more willing to move to Kennedy Town  now that New World Development's Merton  has been built,' said Helen Yeung, head of Century 21's Kennedy Town branch.

'Rents are cheaper when compared with Sheung Wan and Central and infrastructure has been improving with the completion of Route 7 and the proposed MTR line.'

Mr Shih at Centaline said property prices in Kennedy Town would  rise if the proposed rail line  went ahead.

Even so,  that will take time. The MTR last month  obtained the Executive Council's go-ahead  for detailed planning of the project, which has been on the drawing board for 20 years.

Despite the go-ahead, the MTR and the government have been in dispute over funding for the project, with the corporation saying it needs subsidies to meet a promised return of 1 per cent to 3 per cent above its weighted average cost of capital.



Cheap, old flats seem attractive