Single serviced apartments on sale for first time in HK

HONG KONG: Individual serviced apartments are being offered for sale in Hong Kong for the first time.

The launch by the family-owned Ovolo Group will test the market's appetite while allowing the company to raise cash to expand as property prices continue to rise.

"This move has been done before, with various big chain properties selling the residences wing within their main hotel, [but] not by any serviced apartment providers in Hong Kong," said Girish Jhunjhnuwala, Ovolo's founder and managing director. "Ovolo is now applying a similar model and testing the market's appetite for it, which could quite possibly start a trend."

The money the sales would earn was a secondary consideration.

Last month the group launched 28 flats for sale at its 222 Hollywood Road serviced apartment building in Sheung Wan. They are priced at around HK$12,800 (RM4,990.31) per sq ft, or between HK$8.3 million and HK$12 million per flat. The building has 48 flats. They all measure 650 sq ft but four also have terraces which range in size up to 404 sq ft.

Market response has been positive, with 167 viewings for the flats, Ovolo said.

Buyers who let Ovolo continue to manage and lease their units — which are now renting out at a monthly rate of around HK$38,000 per unit — have been offered a guaranteed net yield of 3.3% per year for two years, paid quarterly. Those buyers who plan to live in the apartments will have to pay management fees of HK$1,820 a month and will receive no returns.

Ovolo bought the Hollywood Road building and another block at 111 High Street from Kush Serviced Apartments for HK$448 million nearly two years ago. It invested HK$10 million to renovate the building.

"Some owner-operators are selling their units for capital to expand their portfolio while continuing to manage the properties. It is a way to establish their brand name in the management market," said Raymond Fung Ngok-chung, investment director of property consultancy firm Knight Frank.

Previous transactions of serviced apartments in Hong Kong have typically involved the sale of the entire building, mainly to other operators and fund managers who tend to take a tougher stance over prices, Fung said. By selling instead under the strata-title-ownership model to individual investors, an owner could generate 10 to 15% higher profits.

Applying such a strata-title concept to sales of serviced apartments was new to the city, Fung said, but was likely to get the attention of investors since demand for flats was high, the market was flooded with capital and the interest rate was low.

Around 10 serviced apartment blocks have been sold in each of the past two years, Fung said.

Edina Wong Lai-mun, senior director of residential leasing at property agency Savills, said the profits on offer to owner-operators who wished to sell their serviced apartments were high, given that property prices had risen sharply in the last decade.

"I think they mainly want to realise the capital gains now on offer," Wong said.

The sector had seen strong growth in the past two years, said Wong, with the number of serviced-apartment establishments up by 10%. Serviced apartments offer owners high and stable returns.

The average occupancy rate for serviced apartments is over 90%, according to Savills. The agency says rents for hotel-like apartments rose 20.7% last year, and rents for other serviced apartments rose 13.7%. Savills forecasts a further increase in rents of 10 to 15% this year.

Ovolo — which operates 245 serviced apartments in Hong Kong and plans to open 63 more in West Kowloon in the first quarter of the year — said the net yield on serviced apartments was above 4% per year, which was attractive.

Anne-Marie Sage, Jones Lang LaSalle's regional director and head of residential leasing and relocation services, said the industry would be further boosted by an influx of overseas professionals once the economies of the US and Europe recovered.

She said the firm saw a 35% increase in families coming to Hong Kong last year and expected demand to remain strong throughout this year. — SCMP

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