Income & Outgoings

The average rate of return on a leased property in Hong Kong is approximately 8% annually to the owner, and the average lease period is 2 years. Actual cash flow is determined based on the purchase price of the home, the mortgage payment on the apartment or property and the rent payable.

For example; a property buyer pays 40% down and offers a mortgage for the remaining 60% (HKD$3,000,000) at a prime rate of 5.50%. The standard amortization schedule in Hong Kong is 25 years, so the monthly interest and principal mortgage payment is approximately HKD$18,500. If you purchased this property in any of the expat populated areas listed above, you will normally be able to demand a higher rent than you would a rental property in a rural, predominantly Hong Kong citizen area. At the average of 8%, this property could be rented at nearly HKD$20,000 per month, with a cash flow of almost HKD$1,500 per month, an annual cash flow of nearly HKD$18,000.

Rental income is taxed at 17.5%. With a tax due of roughly HKD$3,000, the annual net profit is approximately HKD$14,500 providing, in this example, an ROI of 0.725%. Deposit amounts, variable interest rates, and rental return may be optimized to provide better returns on invested capital than in this example.

Many multi-owned buildings are managed by professional property management firms, which will be agreed upon in the Deed of Mutual Covenant or Management Agreement. There are also management firms available for individuals or corporations owning single property locations as well.

Property managers often times charge a percentage of monthly rent, on average 1% to 4%, depending on the quality and level of service provided. It is standard for property managers to collect rent, demand rent and penalties for late payments, as well as conduct the majority of eviction processes, if necessary. Many property management firms are also turn key and do everything imaginable for the owner, aside from the actual purchase. The firm will advertise to find and qualify renters, sign all contracts on behalf of the owner, maintain and upkeep the property, and find new tenants when necessary.

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ExpatFlats - Rental Income & Outgoings