May 15, 2017 9:00 am JST

Hong Kongers flock to foreign real estate

Exorbitant local prices driving middle-class buyers abroad

KEIICHIRO MORIYASU, NQN staff writer

Hong Kong newspapers are packed with advertisements for overseas properties.

HONG KONG -- The Asian financial center of Hong Kong has become a hotbed of investment in foreign real estate as soaring property values price residents out of the local market.

Investing fever

One striking thing about living here is the advertising for overseas properties that fills weekend newspapers. Ads for real estate outside Hong Kong -- in such places as the U.K., Australia, Canada, Malaysia, Thailand, Taiwan and Japan -- outnumber those for local properties.

In April, this reporter looked in on a briefing session by a real estate agency on a newly built condominium in downtown Tokyo. More than 20 Hong Kongers thronged the hotel conference room.

Tokyo property prices will rise going into the 2020 Olympics, the speaker explained as attendees nodded along. The yen has been falling because of Abenomics, so this is a good buy from a currency standpoint as well, the speaker said.

Units varied in size, with layouts typical for urban residences. Renting one out via Airbnb or similar services should provide a return of more than 5%, an approaching sales representative said, adding that loans for up to 70% of the price are available. One unit was apparently sold on the spot, without the buyer even seeing the property firsthand.

Before the boom, purchases of foreign real estate by Hong Kongers were intended largely for relocating or studying abroad. Buying as an investment began picking up around 2009, with interest growing steadily since.

Homes in Hong Kong are too expensive to afford, so people are looking overseas for alternative investments, explained Neo Cheung Wing-tat, CEO of Convoy International Property Consulting.

A Convoy survey of about 1,000 randomly selected residents in February and March found that 10.4% own real estate abroad. Nearly 40% of these said they do not have property here. In other words, a sizable

number of people made their first such purchases overseas. Many foreign-property owners reported monthly income at or above 30,000 Hong Kong dollars ($3,850), indicating that the trend is not limited to the wealthy.

Out of reach

A Centaline Property Agency index of existing-home prices hit record highs for 12 weeks in a row through the first week of May and has nearly tripled since December 2008. Though the worldwide trend toward monetary easing in the wake of the global financial crisis pushed property values higher nearly everywhere, the rise has been particularly pronounced in a Hong Kong that has seen a constant influx of money from mainland China.

The inability of young people to buy homes is becoming a social issue. Apartment sizes are steadily shrinking to bring prices down to affordable levels, leading to the appearance of ultrasmall units. A 19-sq.-meter room near the University of Hong Kong recently went for 3.86 million Hong Kong dollars, Cheung said. Real estate anywhere else looks like a bargain by comparison.

The understanding in places like Japan that foreign investment is a pursuit for the wealthy does not apply here. The boom is driven by middle-class Hong Kongers who are buying real estate abroad because they cannot afford to at home. The ease of finding information online, an increase in banks offering loans for rental or investment properties, and measures to curb speculative investment in Hong Kong housing are all contributing to the trend.

Hong Kong remains awash in money, with one measure of its money supply doubling in eight years, and 90% of residents do not own foreign properties. This raises the question of what the next big target will be. In the Convoy survey, the four investment destinations in which respondents expressed the most interest were the U.K., Australia, Japan and Canada. Of these, only Japan is not part of the Commonwealth, with which Hong Kong has strong historical ties.

Cheung, who has worked in Japan, offered his take on the materials this reporter received at the briefing session for the Tokyo condominium.

This is too expensive, he said, adding that anything over 10 million yen ($88,000) more than the market price, with advertising costs and the like tacked on, is overpriced. That was a close call.

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