The Highs & Lows of Buying Property in Hong Kong

You.Hello there. You're listening to episode 91 of Expat Property Story, the show for expats and remote investors investing in UK property.You're listening to Expat Property Story, a podcast in which I share my story to smooth the wave for you to have your own pat property story.No amazing guests this week because I thought you might like to hear about mine and my wife's experience of buying property here in Hong Kong. This is a part of our story that I touched upon during season one, when we chronologically covered our expat property story but didn't really explore in much detail. And since purchasing property in Hong Kong is so different from buying in the UK, I thought it deserved its own episode. So now seems like as good a time as any to plug this hole in our story. But before we get started, I'd just like to remind Hong Kong listeners that this coming Saturday will be the first Saturday of the month if you're listening to this episode on its day of release. Which means that if you're in Hong Kong this Saturday, the 3 June, we'll be having our second meetup at the Urban Bakery in the Landmark

30 A.m..So if you're new here and you're wondering what I'm talking about, I mentioned on a recent episode that a few of us here in Hong Kong have started a tradition of meeting up on the first Saturday of each month to talk about anything and everything to do with UK property. And we've also started a WhatsApp group for those who attend. So if you've not got anything better to do on the first Saturday of each month,come on down. I also offered to publicize meetups in other parts of the world and Mandy from Dubai has been in touch,saying that she's part of a group that meets up on the first Wednesday

00 P.m. Onwards at the Holiday Inn,at or in or on Science Park in Dubai.You can tell I haven't been to Dubai yet, so I'm presuming that that means the next meeting will be on Wednesday, June 7.Mandy said they also have a WhatsApp group and if anyone wants to join,just pass me your mobile number via the podcast website www.expatpropertystory.com and I'll pass the number on to Mandy. We now have listeners in 130 countries, so if you want to organize a meetup in your neck of the woods, then let me know. So,just to recap, if you're in Hong Kong, we meet on the first Saturday of

30 A.m. And the first Wednesday of each month at the Holiday Inn at the Science Park in Dubai. And if you want to join the Dubai WhatsApp group chat, then get in touch via the podcast website www.expatpropertystory.com.And while you're there, it would be great if you could write a review as good as this one from Noel, who's also from Dubai, and this is what he had to say an incredibly insightful podcast with great guests that have walked the walk. When I came across the podcast initially,I enjoyed it and was learning so much that I pretty much binge listened like you would a good Netflix series.Now then, back to buying property in Hong Kong. If you've been with us since the start, you will know that we first thought about buying property in Hong Kong around ten years ago, after the stocks and shares contained in the pension plans set up by our supposedly independent financial advisor had stalled. Meanwhile, the value of the flat we had been renting since 2008 had doubled in value from the equivalent of 360,000 pounds to around 700,000 in just five years.But at the time, we felt it would have been too risky. And to be fair, if we concentrate on the decision itself and ignore the benefit of hindsight, it's a decision I still stand by.Because if we'd have bought at that time, we'd have been overstretched financially and would not have been able to make our mortgage payments had one of us lost our jobs. However, although we could still not afford to buy a property that we'd have been happy to live in, in Hong Kong, as property prices continued to rise and our stocks and shares continued to stall, we started to explore the idea of buying a smaller property as an investment.The first one we looked at was in what people here call the secondary market,which means it's not a newly built apartment. This particular property was on Hong Kong Island in an area that was already quite popular, but subsequently became super trendy.To be fair, we hadn't made a conscious decision to buy at that stage.We were just having a look. But properties here age very quickly due to the humidity, and the one we were looking at was pretty shabby,so we left it at that. That may be one of the reasons why people tend to prefer new build developments here rather than focusing on the secondary market. Newly built properties also offer a range of attractive amenities to potential buyers, such as clubhouses with indoor and outdoor swimming pools, private pool,party venues, Tempin bowling alleys, tennis courts,squash courts, gyms, saunas, steam rooms,wellness centers and beauty clinics, study rooms, reading rooms and even music rehearsal and recording studios.In a city that's continually developing, which is an attractive place to live for those with money from the mainland, new builds offer the opportunity to live in an environment with all the latest technology, design and convenience.A couple of years went by and property prices continued to climb.So in July 2015, we looked again.This time we looked at a new development that was being built close to where we were living, and we started looking at buying a place to live in ourselves.As opposed to for investment. This time we looked at a new development that was being built close to where we were living, and we started looking at buying a place to live in ourselves as opposed to for investment. By this stage, we had a fair amount saved within the pension plan. So we went to look at the show home, which was nowhere near the development itself. We were given a lift in a nice car and showed around the flat. The development consisted of twelve towers and six houses with a total of more than 1400 units.By the time we became interested, the units had already been on sale for a few months, and there were not that many left that were available to buy within our budget. Prices in Hong Kong are determined by floor and view. Price goes up with each floor, and you pay more for a property with a sea view than you do for one facing the mountain. The Chinese are also quite superstitious,and because the word for the number four in Chinese is easily confused with the word death, they avoid naming flaws 414,24, etc. And will miss out the 40s altogether.And because developers want to appeal to as many people as possible,they will also avoid the number 13 to appeal to Westerners.By contrast, the Chinese word for the number eight sounds like the word for wealth, so eight is thought to bring good fortune. This was never more apparent than on the 8th day of the 8th month in 2008, when more than 16,000couples got married in Beijing, and the city's biggest maternity hospital saw a sixfold increase in scheduled Caesarean section appointments for that day. The result of all this superstition is that the top floor in many apartment blocks can be named 70, when in fact,after you take away all the bad luck numbers, there are probably around 55floors in a block. We wanted a three bed, so all we could afford, and it would have been a struggle, was an apartment on the lowest floor with a glimpse of the mountain between two blocks of the neighboring estate on the other side of the road,all the way home from the show flat. My wife and I wavered between yes and no, at times coming to a decision only to think of yet another factor or possibility that would affect our decision. By the time we got home, the agents there are often two in these scenarios were applying pressure to take us to a solicitor to sign the papers.We said we needed more time and would let them know.Now, if you ever watch programs like Million Dollar Listing or Selling Sunset,and if you think the agents there are pushy, well, Hong Kong sales agents are on another level. These guys had given us their business cards and we got out of the car and went into our block.If you're a Hong Kong listener, you'll know that it is notoriously difficult to get past the doorman in a Hong Kong apartment block if you're not resident there. So imagine our surprise ten minutes later when we heard pounding of fists upon the door. No prizes for guessing who it was. They hadn't even used the intercom to ring the bell from the ground floor. I think this just brought our decision forward,and we came to the same conclusion we'd reached the first time we'd thought of buying. Namely, that we'd have been overstretched financially and would not have been able to make our mortgage payments had one of us lost our jobs. This turned out to be a good decision, as sure enough,within six months one of us lost our jobs, which would have made life much more complicated than it needed to be had we bought the apartment. So that was that.Or was it? Property prices continued to rise,stocks and shares continued to stall, and we started to think about buying to let rather than buying to live. In Hong Kong,another development was being built in our neck of the woods. In fact,in our part of Hong Kong, the population is set to increase from 80,000, as it was when we moved there in 2008,to 270,000 by the time they finished. And in fact, this regeneration scheme is so huge they're reclaiming a massive 130 land from the sea. What attracted us about this new development we were interested in was that this one would include one bed flats,which no other existing developments in this area provided.We figured that there was a significant demand for one beds in the area,given its proximity to the airport and the new bridge to mainland China. By now we had cut down our living expenses and sorted out our finances and were ready to invest.We would cash in some of the stocks and shares from the pension plan and buy a one bedroom flat in this new development.It was a great idea, but unfortunately everyone else thought so too, and it was a hot market in Hong Kong. When demand is high, developers will sell the flats in phases using a lottery system. The lottery system involves prospective buyers registering their interest in a property, which in our case back in 2015,involved writing a check representing, I think, around 5%of the price. The check would only get cashed if you were successful in the lottery. At this stage, the developer will randomly pick names from the pool of registered buyers, who then advance to the live lucky draw where the winner's names are digitally pulled from an imaginary hat. I should point out at this stage that batches of properties within a development are often released in phases, which allows developers to ensure a steady flow of sales,gauge market demand and adjust prices accordingly.The developers argue that this allows for a fair and transparent process that reduces the potential for accusations of bias or favoritism,but from where I'm standing, there's nothing to stop them rigging the ballot. By limiting the number of units available at any one time,the developers create not just exclusivity, but also a sense of urgency and competition between buyers,and therefore allow them to drive up their prices and garner more interest in their project. In short, the end result is a heightening of pressure designed to lead the buyer down a path marked fear of missing out. To cause even more of a frenzy, hong Kong developers often offer even more incentives to buy by holding lucky drawers for those who register to buy, featuring a range of prizes, including discounts on the purchase price, flexible payment plans, luxury cars and holidays, or even 20 pound supermarket coupons.And to hold your hand through this process is your friendly but pushy sales agent, ready to do whatever it takes to get the deal over the line in order to get their hands on their commission from the developer.So when a new development initially goes on offer, you will find swathes of unregulated sales agents swarming around upmarket locations such as the International Finance Center in the heart of Hong Kong's business district, ready to pounce on anyone who looks them in the eye, and plenty that don't. Stuffing the brochure for a new build development in your face, closely followed by their business card. If you remove the brochure from your face and into your hand, this was the lie of the land then,when we registered our interest to buy a one bed apartment back in2015. When the first list of lucky winners was released, we were disappointed to not be included on the list.And when we lost out on the second phase, we began to lose hope.But third time came around and we received a call from our agent saying that our name was on the list and we were going to the ball.The final, for want of a better word, was to be held in a hotel or an exhibition center somewhere. I don't really remember all the details, but what I do remember was that when we got there, they had made the room as small as possible using portable room dividers,and all the chairs were tightly packed together, giving the effect of being crammed in like sardines. Loud music blared from the two big screens at the front of the hall, where the numbers of the winners would be displayed. One by one, our sales agent collected our number from the admin team at the front, and after what seemed like an eternity, the show began. As each lucky ticket was displayed on the screens, an announcer would bellow the winning number down the microphone. For those not able to see, each winning ticket announcement was accompanied by an ear splitting shriek of excitement from the lucky winner.These yelps of joy diminished gradually with each passing announcement as the realization dawned that there were fewer and fewer properties left to choose from, as it was all done on a first one,first served basis. Those like us, whose numbers did not appear, would look enviously jealously on at the smiling faces of those being led out of the room to pick their units of choice, still under pressure from those next in line who did not have to wait for those in front to choose. It all reminded me of the time we were once in the Serengeti and came upon a scene straight out of a David Attenborough film in which a male lion gouged on a freshly slaughtered Thompson's gazelle while the female lions and their cubs awaited their turn, while the hyenas looked anxiously on plotting their next move. While the vultures watched from the treetops,hoping for some scraps that no one else wanted.Well, we were the vultures by the time our number finally got called. More out of hope than expectation,we shuffled into the room, which had a model of the development set up in the center and details of which flats were still available.It's wise to do your research around the costs of all the potential properties you're interested in, as nearly every single unit has its own unique price and therefore financing cost. And,as I said, you have to be able to act fast and think on your feet before the people behind you snap up what you might have snared had you been quick enough off the mark. But we could only afford a one bed apartment on a low floor, and as expected,they were all gone. We went home disappointed,but perhaps not as disappointed as if we bought something we couldn't really afford in the heat of the moment, it was all good training and preparation for my later forays into the world of auctions,which you can check out in episodes 35 to 49.A couple of months later, in November of 2015, we got a call from the same agent we've been dealing with. She told us about another new development in a completely separate part of Hong Kong, in an area called the Gold Coast. Now, I've never been to the real Gold Coast in Australia, at least not yet anyway, but I'm pretty sure it's more gold than the one in Hong Kong. But the Hong Kong version, which is not as gold as the real thing, is still a pretty nice part of the New Territories. And a new tunnel under the sea was being built, which meant that the airport would be just a 20 minutes drive away. And this particular development was in the shadow of the fairly new Harrow International School, which is part of the famous Harrow School on the outskirts of London. So again,the agent took us to the show home, which again was nowhere near the actual site of the development. Like last time, we could only really afford a one bedroom apartment on the lowest floor, with a view of the road leading in and out of the estate. The clubhouse came with all of the usual amenities which people have come to expect in Hong Kong,but at a price. As the service charge was a hefty 200pounds a month. This development was not in such high demand that it warranted a lucky draw. But whether by force of habit or otherwise, the agent was still so keen to get us to commit and to get the deal over the line that rather than wait for us to sort out the logistics of paying the deposit, she actually offered to make up the shortfall herself on her own credit card.We decided to go ahead and buy the property for around 400,000 pounds. We had to make a snap decision as to whether to buy the property together or in one of our names. If we chose to buy jointly and we subsequently wanted to buy another property, there would be a 15%stamp duty for buying an additional home. So we bought in one of our names. The next step was to arrange a mortgage.If I remember correctly, I think we paid 5% immediately to secure the deal, followed by another 5% maybe 30 days later before completing and clearing the balance some six months later. In May of 2016, via a combination of a mortgage loan and by cashing in around half of the stocks and shares in our pension plan, we found a company that provide mortgage comparisons at no charge. And after comparing the different products,we chose one and the representative came out to meet us and we signed up for a product that was kind of a hybrid of an offset mortgage linked to a current account. Development was not due to complete until December 2017, so we would have money going out but not coming in for 18 months.As is often the case with new build developments, the completion of the development was delayed, which is always a risk, if not a nailed uncertainty when buying off plan. And it was not until March 2018that we received the keys. Unfortunately,everyone else received the keys at the same time, so it was a renter's market and it took us two months to find a tenant who got a good deal due to the oversupply and diminished demand caused by lots of stock entering the market at the same time.Another argument against buying new build off plan developments.My mindset at this stage was much less developed and far more cautious than the one that I have now, and I hadn't really grasped the concept of leverage and good debt versus bad debt. We were not only overpaying on our mortgage back in the UK to try and clear the debt as soon as we could, like a good little boom as we'd been brought up to be,but we'd also decided to take a 15 year mortgage as opposed to a 25 or a 30 year product on the new flat in Hong Kong. The net result was that when we finally started receiving the diminished rent, it was nowhere near covering the mortgage payments. But in the grand scheme of things, it didn't really matter at that stage, as we had not decided to go all in on property, so we didn't have any alternative plans for the cash anyway.The good news was that by the time the tenants moved in in May of 2018, the property was worth the equivalent of 600,000 pounds. Remember, we'd bought it for400,000 pounds, so in two and a half years it had gone up a whopping 50% in value. These gains made us seriously question whether the pension plans we'd taken out under the guidance of our supposedly independent financial advisor were really the best place for our money to be working.Longtime listeners will know all of this, of course, but if you're new here,there is a fuller version in season one, which runs from episodes one to 34. But the gist of it is that we decided to look at ways to get more property. I had started to get more clued up on all things financial by this stage and had discovered the Tax Cafe series of books. And one book in particular, which I reviewed in episode 63 called Tax Planning for Nonresidents and nondoms, taught me that if we moved back to the UK and subsequently sold our Hong Kong property,the UK government would be entitled to capital gains tax on our Hong Kong profit from selling the flat. So we needed to sell at some point before returning to the UK. And for more expat tax tips and tricks, check out the Tax Season episodes23 to 29. So by the time the tenants were taking up residence in May 2018,if we could have sold, we would have. So why didn't we? Unfortunately, in order to cool the market,the government had introduced stamp duty penalties for people flipping property for profit. So for property owned for six months or less,the penalty was 20% of the sale price. Property owned for between six months and a year would trigger 15%,which reduced to 10% for those properties sold between one and three years after purchase.So to avoid the 10% penalty, we would need to wait three years after completion, which would be May 2019.And that wasn't the end of the bad news. In January 2018,Donald Trump began imposing tariffs and other trade barriers on China to try and promote domestic manufacturing in the US.This had a negative effect on property prices in Hong Kong.The value of our flat started to slide through 2018.Meanwhile, the tenants told us that they wanted to move out after a year,which was perfect, as this coincided with the culmination of the three year period for extra stamp duty. So we put the property on the market with three different agents and received no offers for a couple of months. In August, we received an offer at the equivalent of 550,000 pounds, but we thought we could get more, so we rejected it. Little did we know that the protests were about to start, which would have a drastic effect on Hong Kong as a whole and the price we could expect to achieve for our flat. This is what is meant by trying to catch a falling knife. It was the first time we'd ever tried to sell a property and I have to say I much prefer buying than selling.We then received another offer at just 500,000pounds, which felt way too low for us to accept.So again, we said no. Prices continued to slide. People were so spooked about the situation in Hong Kong that one of my colleagues told me that people were worried that the government would limit the amount you could withdraw from the bank and move abroad.This proved to be nothing more than rumor, but it gives a flavor but it gives a flavor of how things were at the time.Prices continued to head south. We were offered 490,000pounds. We still said no. And then the government announced the relaxation on eligibility requirements for the government mortgage scheme. The ceiling for 90% mortgages would be doubled from HK$4million, so 400,000 pounds to8 million, making homes more affordable for more people.This gave a mini boost to the market. And with the protests still affecting daily life, we received a new offer at 500,000 pounds.And having learnt our lesson around holding out for what we wanted rather than what the market dictated, we reluctantly accepted. We figured that the faster we could get that money out of Hong Kong and put it to work in the UK property market, the better. So while we could have sold it for 550,000 pounds a few months previously,we had still made over 100,000 pounds in three years. We now had a significant pot of cash to play with to scale our portfolio. As a quick reminder of how we built our portfolio to date, we started by releasing equity from our original flat in London. We used these funds to buy a three bed house which was developed into a five bed student HMO in Nottingham,which we then mortgaged to release funds to repeat the process,this time with a six bed student HMO, also in Nottingham. So with the cash released from our second HMO,the funds from selling our flat in Hong Kong and 100,000pounds raised through private investment, we were able to buy three more HMOs in 2020 in the middle of COVID Lockdown, which is a story in itself and worth going back to season one for, if you haven't already done so.For this week's exotic listener location, we're off to Luxembourg,which I have apparently been to, but I was too young to remember it. We only have one listener there. So if it's you, and even if it's not, I'd love to hear if you've ever thought of buying where you are now or whatever else is on your mind. Is there something you're struggling with in your Expat Property story? Let me know by leaving a message via the podcast website www.expatpropertystory.com.So I hope you've enjoyed this glimpse into the Hong Kong property market. And if you did, then share the show to spread the word. You've been listening to expat property story.