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Car Park Investment 2020
2020-09-15 | Author:
Due to the ever-increasing property prices in Hong Kong, many people are turning to car park spaces as an investment opportunity. In the past two years, car park investments have achieved record-breaking transaction volumes each month according to various real estate agencies. This has fueled speculation in the market and now many people are interested in investing in car parks.
Top considerations for parking space investment - 1. Building Deed of Mutual Covenant Restrictions
If you are considering investing in parking spaces, it’s vital to check the Deed of Mutal Covenant (DMC) of the building to find out if renting or selling parking spaces to non-residents is permitted, or whether the new buyer/tenant must be an existing resident of the building development. Don't underestimate this because it can have a significant effect on the rental value. Some investors have had to learn this the hard way, leading to them forfeiting their deposits because they were not aware that the number of potential tenants was restricted.
Top considerations for parking space investment - 2. High initial down payments and mortgage costs
Under the current mortgage policy rules, the maximum loan to value ratio for independent car parks is capped at 40% and the loan repayment term is 15 years. Whereas for private car parks the loan to value ratio is higher and the loan repayment term is longer. Buyers of investment parking spaces should note that if they already hold a mortgage over another property and apply for a mortgage to purchase an additional car park as well, then their own purchasing power will be reduced and the loan they apply for will be subject to a 10% reduction. In the case of an independent car park, the maximum loan permitted would be reduced from 30% to 20%.
Additionally, the mortgage approval requirements stipulate that the debt-to-income ratio (DIR) and the upper limit for the stress test will be lowered by 10 percentage points, i.e. the total monthly DIR will be lowered from 50% to 40%. Under the stress test conditions, the maximum loan permitted shall be reduced by 10% from 60% to 50% and the mortgage rate is to be adjusted upwards from 2 percentage points to at least 3 percentage points
Top considerations for parking space investment - 3. Car Park Location
Hong Kong people who love to take care of their cars will choose their parking spaces very carefully. Therefore, as an investor, you need to pay attention to the location and the condition of the parking space, such as whether it is close to the entrance or exit, and whether it is wide enough for larger private cars. Is the width of the parking space wide enough to park a large private car? If the parking space is large enough, it can appeal to a range of different tenants with various sized cars including, for example, a large 7-passenger car. On the other hand, if the space is so small that you can only park a small car, the number of potential tenants will be limited which will affect the rental value.
You should also pay attention to the turnaround space, whether there is a column space, whether it is open or indoor, the water pipes on the ceiling may leak into the car, etc. All of these could potentially affect the rental price of the parking space in the future.
Top considerations for parking space investment - 4. Potential for long term growth
First, it’s important to understand the supply of parking spaces, the occupancy rate, and the parking space to resident ratio of the housing estate. If the ratio of residents to parking spaces is 1:1, then under normal circumstances, the supply of the housing estate is already sufficient, and the value of the investment will likely be lower. On the contrary, if there are fewer parking spaces available compared to the number of households that require car parks, then the demand and therefore appreciation potential will be greater.
Investors should pay attention to the size of the estate to which the car parking space belongs and also whether the flats on the upper floors are large. If many of the residents are families, the chance of them owning a car is more likely, which could lead to a natural demand for parking spaces. On the contrary, if only single-user tenants live in many of the upstairs flats or apartments, then there is probably less chance of them needing to own a car. In this case, investors attempting to rent out car parking spaces in these housing estates would naturally find it more difficult. Lastly, investors should never buy a parking space purely out of "greed", as it is difficult to let it out due to geographical factors.
Check out the latest car park listing