What HK property boils down to

If you want larger living space, and have a limited budget, your two choices in Hong Kong are:
1) Live in an old, run down place
2) Move further away from Central

We chose option 2).

Monthly housing expenses
$7,554.70 - Interest (average over 48 months)
$2,078 - Management Fee
$675 - Government Rates
$405 - Government Rent
$598 - Home Insurance
-$1,424.17 - Home Loan Interest Tax Rebate capped at $100K
$9,886.53 - TOTAL

on a per square foot basis, this is $9,886.53 ÷ 2,837 square feet = $3.48 per square foot.
which can be used to compare against the rent price per square foot of other properties.

Monthly housing cashflow
$16,442 - Mortgage repayment instead of just interest
everything else the same
$18,773.83 - TOTAL


Owning versus Renting
The HK government believes the rateable value is $13,500 per month. They are not far off in their calculation compared to $11,519.33. Landlords in Seasons Monarch are asking $25,000 per month in rent. Therefore your monthly saving by owning rather than renting in Seasons Monarch is $25,000 - $9,886.53 = $15,113.47.

In 4 years time when you want to sell your house, the savings accrued will be $15,113.47 X 48 months = $725,446.36.


Profit Potential of Owning
Non-capital expenses when purchasing the property were:
$281,250 - stamp duty
$2,500 - solicitor's disbursements
-$42,000 - HSBC cash rebate
$241,750 - TOTAL

Total cash used in 4 years:
$2,250,000 - deposit
$253,340 - renovation cost
$241,750 - non-capital expenses when purchasing the property
$18,773.83 X 48 - monthly housing cashflow
$3,646,233.84 - TOTAL

Assuming the renovation cost is added to the cost base of the property, then the property after renovation should be worth $7,753,340.

Loan principal outstanding after 4 years is $4,887,374.20 maximum.

A conservative estimate on the capital appreciation of your house would be that it is in line with inflation in Hong Kong. The inflation rate in Hong Kong is 2.8% at February 2010. Of course if the property appreciates faster than the inflation rate, the cash-on-cash return would increase. e.g. for a moderate annual growth rate of 5% or bullish rate of 10%.

Annual Growth Rate - Cash after repaying mortgage - Net Cash Return - Cash-on-Cash Return
2.8% - $3,771,497.16 - $125,263,32 - 3.44%
5% - $4,536,859.03 - $890,625.19 - 24.43%
10% - $6,464,290.89 - $2,818,057.05 - 77.29%

If you did not own you would not enjoy any capital gain on the property you are renting. However, with the opportunity cost of not buying a property with your cash, you could leverage and make money from another investment, i.e. share investing.

Net Profit at the end of 4 years, total capital gain % at the fourth year
Capital Gain % - Profit/Loss
Nil - -$716,303.63 loss
11.68% - $189,286.47 (2.8% p.a.)
21.55% - $954,541.13 (5% p.a.)
46.41% - $2,882,021.45 (10% p.a.)


Net Savings at the end of 4 years, total capital gain % at the fourth year
Capital Gain % - Profit/Loss instead of renting (saving of $725,446.36)
Nil - $9,142.72
11.68% - $914,732.83 (2.8% p.a.)
21.55% - $1,679,987.49 (5% p.a.)
46.41% - $3,607,467.81 (10% p.a.)

Basically, the property could be sold for 0.12% less than the cost base of the property, and you would still be the same as if you had rented. This is the only fair comparison that should be made. Therefore there is plenty of upside potential and minimal downside risk.