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Last year, the Hong Kong economy was hit hard by political unrest and the ongoing trade war between China and the U.S. The two incidents have since pushed the Hong Kong’s economy into technical recession, possibly worse than the 2008/09 financial crisis and the Asian Financial Crisis. Coupled with the recent outbreak of COVID-19, it puts the whole territory on a long road to recovery. As a result, experts are predicting that Hong Kong property prices are likely to fall across the board in 2020.
Owing to a scarcity of land, Hong Kong was considered one of the world’s most expensive cities to own or rent property. However, with prices expected to fall by as much as 20%, that doesn’t mean it is still affordable to buy a property in Hong Kong: For a one-bedroom apartment in the city centre, it can still easily cost you more than US$1.5 million even after a drastic price correction.
If you’re rich, you can probably afford to buy and own a few residential properties in Hong Kong to collect stable rental income. But if you want to invest in commercial assets like office buildings, shopping malls or hotels, it would be a lot harder. Unless you’re a rich tycoon like Li Ka-shing or Lee Shau-kee, it’d probably be out of reach for the typical investor as one commercial building can easily cost a few hundred million to few billion Hong Kong dollars.
But that doesn’t mean you can’t enjoy the benefits of sticky tenants and a prime location that a Hong Kong commercial asset can offer you. With REITs, it is possible to own a stake in multibillion-dollar commercial properties in Hong Kong and earn a slice of the rental pie. That’s why we’re such a big fan of REITs when it comes to building stable and growing passive dividend income.
Similar to Singapore and Malaysia, Hong Kong has its own REIT market that attracts investors from all over the world. At the time of writing, there are 10 listed Hong Kong REITs for investors to choose from. If you strongly believe that Hong Kong will eventually recover from the current political unrest and virus outbreak, then this will be a perfect time to look at the Hong Kong stock market.
Just like what we did with the calculation of investment returns for S-REITs and M-REITs since their IPOs, we are going to do the same for Hong Kong REITs that have been listed for at least 10 years and evaluate their performance.
Once again, we assume that David (a fictional character) invests HK$10,000 in each Hong Kong REIT from the day it listed. Since David is a hard-core income investor, he doesn’t want to come out with any money to subscribe to any rights and is prepared for any share dilution. Let’s also assume that he neglects to sell his nil-paid rights from which he can make a profit from.
For example, if David invested in Prosperity REIT during its IPO, his initial investment of HK$10,000 would’ve grown to HK$13,800 (+38% in capital gains) by 31 Jan 2020. If we include the dividends he’s received over the years, David would have made even more in Prosperity REIT as his initial investment of HK$10,000 would have grown to $22,900 (+122% in capital gains and dividends). Overall, his total annualised return in Prosperity REIT from 2005 to 2020 is 5.67%.
If David invested HK$100,000, then his investment would’ve grown to HK$229,000. Basically, the more money he had invested, the more he would have made. And the longer he holds, the more dividends he’s going to receive. So after investing for more than ten years, here are the top three best-performing Hong Kong REITs for David.
Note: We’ve excluded brokerage costs, currency exchange gains/losses and taxes that might be applicable to foreign investors.
3. Fortune REIT (annualised return: 6.95%)
Since 2003, every HK$10,000 investment in Fortune REIT would’ve turned into HK$18,700. Including dividends, this would cumulatively become HK$31,300.
2. Sunlight REIT (annualised return: 8.05%)
Since 2006, every HK$10,000 investment in Sunlight REIT would’ve turned into HK$19,000. Including dividends, this would cumulatively become HK$29,600.
1. Link REIT (annualised return: 16.42%)
And the most prosperous REIT in Hong Kong is not Prosperity REIT but… Link REIT. Since 2005, every HK$10,000 investment in Link REIT would’ve turned into HK$76,700. Including dividends, this would cumulatively become HK$97,800!
In summary, here is David’s overall performance:
Similar to many Singapore and Malaysian REITs, Hong Kong REITs have also delivered decent annualised returns. It is important to remember that David didn’t need come up with any additional capital to subscribe to any right issues; the table above is his actual score. However, if he had subscribed to them (including excess rights), he would have made more money since rights are usually sold at a discount. Most importantly, David continues to receive regular quarterly dividends from his investments in Hong Kong REITs rain or shine.
As you can see, REITs remain a great option for anyone who wants to build a steady and consistent stream of passive income. However, please note that you shouldn’t buy or avoid a REIT just based on the data above as past performance is not necessarily indicative of future results. It’s highly important to have a proper investment process to help you identify and invest in the right REITs that will give you a steady stream of passive income and capital gains down the road.
Finally, just a quick reminder: 2020 applications to join Dividend Machines close on Sunday, 1 March 2020, at 23:59 hours. If you’re looking for a way to learn how to invest in dividend stocks and REITs and build multiple streams of passive dividend income, then we highly recommend you check out Dividend Machines before applications close!
Once the deadline has passed, Dividend Machines will only reopen in 2021. So if you miss this round, you’ll have to wait a year (or more) before we accept new applications again.
Happy investing and we hope to see you on the inside! 🙂