Big profits to be made as investors snap up apartments in SoHo and Mid-Levels
In today's real estate market $2 million doesn't go far but search out buildings dating from the 1950s and 60s and you may be surprised to find reasonable value.
Agents in SoHo and Mid-Levels say they have noticed a pickup in interest from both Chinese and western buyers in recent months who are seeking flats in old buildings as investment properties. In most cases that means the building are without parking, elevators or other amenities such as 24-hour security. On the plus side, the flats often have better floor space utilisation, high ceilings and other character touches that can help attract higher yields on the rental market.
Thanks to the recovering economy, a typical 550 square foot flat located in a quiet building near the escalator in Central should attract a minimum monthly rental of $8,000. Spend $100,000 to knock down a few walls, lay new hardwood floor and upgrade the kitchen and the monthly rental value should increase to $12,000 to $15,000, according to property agents in the area.
Assuming the flat was purchased for around $2 million and add renovation costs, the investment would offer a nominal yield of about 7.5 per cent. That is safely within the threshold of value investment according to financial analyst Henry Chan of Quamnet. To be extra safe, he advises looking at the deal using a formula where taxes, maintenance costs, building fees and other expenses are deducted from rental income. In most cases, the actual yield ends up about 80 per cent of the figure quoted by estate agents.
With more jobs being created in the banking and financial services industry, there shouldn't be too much trouble finding a tenant at a reasonable rent, according to Kingsway estate agent Brian Ng. Most flats that are upgraded to include modern kitchens and bathrooms generally last on the market for only a few weeks - even if they are priced at the high-end of the spectrum.
They can also be good bets on capital appreciation. The market for old flats in buildings around Mid-Levels and SoHo has risen about 50 per cent in the last year, according to estate agents. In some cases the appreciation has been more dramatic, with flats in well-located buildings on quiet streets with good air quality appreciating 80 per cent or more.