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the Hong Kong market
 
Understanding leasing
 
 
The market back to top

The Hong Kong leasing market is like nowhere else.  On first sight it appears to be full of negatives; rents are very high, the standards of architectural design and interiors can be poor, and space is limited.  But the upsides come in the form of great lifestyle and the financial benefits of a generous tax regime.

Habitat is known within the landlord community for having high quality clients and therefore doors are often opened to us that might remain closed to others.  We receive large quantities of new stock on a daily basis however a significant amount of time and judgment is invested by the team on weeding out the gems from the mediocrity.

Hong Kong landlords generally strive to elevate rental rates long term, however when the market swings in their favour they can be notoriously non negotiable.  This is as a result of them not having to service large amounts of borrowing on their property holdings, and unlike almost anywhere else in the world a Hong Kong landlord will often let a property sit empty rather than accept what they consider to be a below market rental.

With so many transient residents and with supply being almost finite, levels of demand are very high.  In addition the market can be very volatile; trends move much more rapidly than in cities like London or New York.  Therefore our advice to clients is to prepare to respond quickly to opportunities when they present themselves, remain flexible and be open minded.


Square footage back to top

In Hong Kong the square footage of a property is a frequently quoted, however we tend to take the emphasis off its importance as it can be misleading and confusing.  Here are the terms that you will hear being used.

Gross floor area – this figure combines the internal area (typically measured to the outside of external walls) with an apportioned share of the common areas of the building.  This includes the lobbies, hallways, clubhouse, gym, stairwells, management offices and any other shared spaces.  Therefore the larger the building, the more facilities it contains, and generally the newer it is the more it inflates the gross floor area figure. So as you can see it does not directly relate to your
living space.

RVD area or saleable area – this figure is the internal area (typically measured to the outside of external walls) of the property.  Spaces such as terraces, gardens, useable roofs, are not included.  Therefore this figure is a truer reflection of the space that you get to live in.

Efficiency – this figure is produced by dividing the RVD/saleable area by the gross floor area.  Therefore it gives a quick indication on how useable the space is in relation to the amount of money being asked for it.  Typically older buildings have a higher efficiency however they feature fewer shared facilities. Newer Buildings have lower efficiency but have more facilities.

It is important to note though that there is no standard definition of these terms and developers are free to interpret them individually and generally do so to their own benefit.


Term of lease back to top

Lease terms are typically two years with a ‘break-clause' that is exercisable at the end of the first year by giving notice in accordance with the lease agreement. This usually requires two to three months notice i.e. total occupancy of 14 to 15 months and is typically only exercisable by the tenant.


Rent back to top

Typically the rent quoted is exclusive of management fees and rates (you will hear the figure being referred to as $90,000 “EX”).  The rent level is fixed for the two year period of the lease; however rates and management charges can change, although normally only by minimal amounts.

We would normally try to negotiate a rental to be “inclusive” of both the rates and management fees resulting in a fixed figure over the two year term.  


Management fees back to top

A management fee is charged on top of rent to cover the cost of building maintenance, security and the general upkeep of amenities.  The more amenities offered in a complex (e.g. pool, tennis court, shuttle bus etc) the higher the management fee.  Management fees in older buildings are typically considerably lower as fewer or possibly no amenities are offered.


Government rates back to top

There is a charge levied by the Rating and Valuation Department that affects all property. Government Rates usually amount to 5% of the rental, and landlords typically pass this cost onto the tenant.  These rates are charged quarterly and are payable in advance.


Utilities back to top

All utilities such as telephone, gas and electricity are payable by the tenant and are registered in the name of the tenant.


Initial holding deposit back to top

Once the general terms of the lease have been agreed in an initial offer letter, a holding deposit is required to be given to the landlord.  The initial holding deposit is normally one month's rent, management fees and rates.  On the signing of the formal tenancy agreement this deposit is adopted as the first month’s rental.  Typically the holding deposit is refundable if the tenancy agreement fails to be agreed upon and signed, there are however occasional cases when the holding deposit is forfeited.


Security deposit back to top

As in most countries the security deposit is held to ensure compliance with the terms of the lease agreement.  Typically the security deposit is two to three months of the total monthly rental (including rates and management fees), and more often than not when it is a personal and not a corporate lease three months is insisted upon.


Legal fees back to top

Each party bears their own legal costs of reviewing the lease agreement prior to signing.


Stamp duty back to top

The total stamp duty payable is shared between the landlord and the tenant.  You can calculate your stamp duty at the Inland Revenue website.


Agency fee back to top

The standard agency fee payable to Habitat is half of one month’s total rental (including rates and management fees) payable by both the Landlord and the tenant on the signing of the formal tenancy agreement.


 
 
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T: +852 2869 9069 · info@habitat-property.com
1201-05, 12/F, Yu Yuet Lai Building, 43-55 Wyndham St, Central Hong Kong
EA License C-024430
 
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