Why Hong Kong property market continues to entice investors despite yield compression

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An aerial view of Hong Kong’s Central District. Photo: Winson Wong

Martin Wong Shiu-kei

Martin Wong Shiu-kei, director and head of research and consultancy of Greater China at Knight Frank.

Published: 12:05pm, 6 Apr 2021Updated: 12:05pm, 6 Apr 2021

Like many other types of investors, property investors take into account market yield when they make investment decisions. In general, yield is regarded as the annual return one can achieve from investments compared to capital value. Property yield measures the annual rental return investors can expect as a percentage of purchase value.

In Hong Kong, the market yields of different types of residential properties dropped quite notably over the past 10 years, from a range of 2.5 per cent to 3.7 per cent in early 2011, to the current level at 2 per cent to 2.4 per cent, according to data published by the Rating and Valuation Department.

The trend has been similar, but less obvious for non-residential properties in the city during the same period. The market yield of Grade A offices declined to 2.6 per cent from 3.1 per cent, while that of retail properties eroded to 2.7 per cent from 3.1 per cent. It dwindled to 3.1 per cent from 4.1 per cent for industrial premises, mainly in private flatted factory buildings.

The yields for Hong Kong properties are among the lowest in major Asian markets. The average yield for non-residential properties is 4.5 per cent to 5.5 per cent in Tier-1 mainland Chinese cities, and 3.6 per cent to 4.6 per cent in Tokyo, according to data compiled by Knight Frank. They generate 4 per cent to 6 per cent in Singapore, and 6 per cent to 8 per cent in Kuala Lumpur and Jakarta.

Last year, Hong Kong recorded 59,880 residential transactions and 13,442 non-residential transactions, according to government records, marking a drastic decline from the boom year of a decade ago. There were 135,778 residential and 26,961 non-residential transactions in 2010.