Priced out of Hong Kong: first-time property buyers look abroad snapping up deals in Tokyo and Melbourne

Increasing numbers of Hongkongers are taking advantage of favourable exchange rates to purchase overseas

PUBLISHED : Sunday, 06 September, 2015, 6:05pm
UPDATED : Monday, 07 September, 2015, 3:26pm

Becoming a property owner once seemed an impossible dream for accounts clerk Janet Chan. With 200 sq ft flats in Sheung Wan costing up to HK$4 million, it looked like even one-room apartments were beyond her reach. But this year, after a four-month search, Chan found a similar sized flat that she liked, paid HK$900,000 and finally became an owner - in Tokyo.

What's more, the flat comes with a tenant, which brings in HK$4,000 in monthly rental income. It's a good investment, she says.

The rent is paid in yen, so rather than incur charges for remitting it to her Hong Kong bank each month, Chan keeps the money in an account in Japan, which she can dip into on future trips to the country.

Watchful local investors have long sought out properties in Japan, as the yen slid steadily for more than a decade. But the trickle of buyers has grown into a wave. It's especially attractive to young people who cannot afford a downpayment on a flat in the city. As property prices continue to set record highs in Hong Kong, those in Japan have fallen up to 70 per cent in the past 16 years, according to business consultants Deloitte.

Property agents say the trend started two years ago and gathered momentum as the yen fell, hitting an eight-year low against the US dollar this year.

Local experts have produced guides to buying property in Japan, including Baniel Cheung Tin-sau, a business consultant and adjunct professor at the University of Hong Kong.

Responding to the demand, specialist Japanese property agent JP Housing has grown from a single-office operation in 2012 into a chain with eight branches across Hong Kong and Macau.

The company registers about 80 transactions each month, with Hongkongers making up 70 per cent of the clientele and the rest coming from Macau and the mainland, says CEO Derek Lee Hon-pan.

Lee says four out of five clients will buy without setting eyes on the property, and Janet Chan was among them.

The agency sent her internet links about potential properties and she used Google Maps to view the neighbourhood. Chan eventually bought a flat near the Suitengumae subway station in a business district.

"I went to the JP Housing branch twice. One was to have a video chat with the estate agent in Japan. Through a Putonghua-speaking interpreter, he explained the contract details to me and we closed the transaction," she recalls.

Chan plans to keep the flat for at least five years because owners are liable to a 30 per cent tax in Japan if they sell soon after buying a property, but the tax rate is halved after five years.

"I always lose money in stock investments and I can't afford property in Hong Kong, so I bought one in Japan," she says.

Prices in Japan are very attractive for first-time buyers from Hong Kong, Lee says.

"The cheapest 200 sq ft one-bedroom flats in Tokyo only costs about HK$700,000. And in Fukuoka they cost about HK$400,000. The demand for such flats is high in Tokyo, which has a population of 13 million, with vacancy rate of just 4 per cent," he says. "Like subdivided flats in Hong Kong, the smallest apartments in Japan have the highest return rate."

Now Lee's clients are beginning to move upmarket. While they targeted small flats two years ago, clients are looking more more expensive properties these days.

"For HK$3 million, you can buy a 1,000 sq ft apartment in a good location. Some buy an entire block and turn it into a hostel … People pay in full for small flats but get a mortgage to buy the bigger properties. The Bank of China and the Bank of Communications in Japan provide mortgages of 50 to 60 per cent."

Lee, too, invested in a two-storey block with six flats two years ago in Ikebukuro, a commercial and entertainment district in western Tokyo.

"It cost over HK$2 million for the whole block. The flats range from 100 to 200 sq ft in size, and I get monthly rental of about HK$3,000 from each of them."

For local buyers, agents such as JP Housing offer the convenience of a one-stop service.

"We have 10 staff in Japan who help clients look for properties and deal with post-purchase administration. As stipulated by Japanese law, we charge a 3 per cent transaction fee plus 60,000 yen [HK$3,890] for commission. For management matters like collection of rental and other liaison with the tenant, we charge 5 per cent of the rental."

Although the yen slide made purchases in Japan particularly attractive in the past, Lee reckons potential buyers should bear in mind the currency has about bottomed out: "There's not much room for it to drop further."

Nevertheless, cultural factors make Japanese property a safe and convenient form of investment, he says.

"There's no need to provide furniture for Japanese tenants as they don't like using old stuff. Landlords only have to ensure there is a hot water supply and air conditioning, so they are spared the hassles of furniture maintenance.

"Also, there isn't the problem of rent arrears in Japan. They have a well-established system to prevent recalcitrant non-paying tenants. Only people with local residency and a guarantor can rent a residence and all tenants must make a one-off rental insurance payment amounting to half a month's rent. The rental must not exceed one-third of his salary."

Nippon Wealth is among the new players that have entered the market to tap Hongkongers' growing interest in Japanese property. The company, which opened in May, provides wealth management and referral services for properties valued at more than HK$3 million. After clients fill in a questionnaire stating their preference in location, size of the flat, distance from train stations and so on, its partner estate agents in Japan will help identify suitable properties. They also collaborate with management companies which help with rent collection and other administration.

Nippon Wealth executive director Fumio Matsushima sees keen interest from Hong Kong investors. "Our partner told us that they have to set up weekly bus tours for Hong Kong customers looking for Japanese properties. Shinsei Bank [the biggest shareholder in Nippon Wealth] is the main mortgage provider and we will continue to look for alternatives to expand choices for clients."

Matsushima says Japan's improving economy makes it attractive for Hong Kong investors. "In the past 20 years, Japan's economy was not very good. But partly thanks to Abenomics, the sentiment has improved and the economy has somewhat stabilised and it has been reflected in property price [in recent years]. And because of the 2020 Olympics, there's a lot going on in Tokyo," he says. "These are the elements supporting the market."

Nippon Wealth clients can secure mortgages of up to 65 per cent through Shinsei Bank but Matsushima says the company plans to provide a lending business in future, offering direct mortgages.

Hongkongers have also been looking at Australian properties, which is why real estate agent Merit USA Property switched its focus to Australia from the US market.

Founder James Li Hoi-chi says overseas property purchases have gained momentum in recent years as quantitative easing led to currency depreciation.

Overseas properties hold special attraction for locals as the Hong Kong dollar is pegged to the greenback. And greenback is going strong while other currencies keep dropping due to quantitative easing
James Li, founder of Merit USA Property

"Money has been losing value in recent years and people want to invest in bricks to keep their money's worth. When I set up the company in 2011, US property had bottomed out. We specialised in properties in Atlanta [Georgia], which sold for as little as US$50,000 to US$80,000 then. But later the US market went back up so we looked for another market."

Li, who lived in Sydney for 10 years before returning to Hong Kong to set up his company, says the Australian market offers stability. "The political environment is stable. There is nice weather, friendly people and a good network of schools which are popular with locals. The entry threshold is also low. Recently, we found a flat for only A$290,000 [HK$1.57 million] on the Gold Coast. Apartments in Melbourne that sell for below A$500,000 are most popular with Hongkongers."

"Overseas properties hold special attraction for locals as the Hong Kong dollar is pegged to the greenback. And greenback is going strong while other currencies keep dropping due to quantitative easing."

But foreigners can only buy property under development in Australia, Li says.

His clients usually get information about suitable properties from the company's weekly sales talks rather than from visiting Australia. The agency gets its commission from property developers and charges clients 7 per cent of rental for managing the properties. Mortgages are usually secured from Australian banks such as Westpac, which have branches in Hong Kong.

IT business analyst Felix Hui, who lives in his own flat in Hong Kong, bought an 860 sq ft two-room flat in Melbourne for A$700,000 in April.

"I looked for flats in Hong Kong for some time. Once I saw a flat I liked but its value shot up one month later so I couldn't afford it any more.

"I paid a 10 per cent deposit and my Australian flat will be completed in 2017. Future rental will go towards paying off the mortgage. But I can gain from the rising value of the house."