With over 30 years of experience in property investment, Joseph Ng Goon-lau has always been a cautious and methodical investor. Ng has always invested with the principle of “the higher the discount, the safer the investment”, he specialises in small and mid-size homes and only considers purchasing a unit if its price is under the market rate by a certain percentage, and regardless of circumstances, never becomes emotionally attached to a property. In recent years, he has established himself as the ‘King of Half-title Properties’, turning his focus to ‘half-title homes’, meaning he only buys part of the home’s ownership.
“When I buy a half-title home, I share its ownership with other people. Unless the home is offered at around 60% of the market price, I wouldn’t consider buying it,” Ng says. He adds that because of the incomplete ownership, banks are likely to provide mortgage loans to the new buyers of these properties. In addition, if the buyer purchases less than half of the share of a home, it may be tricky for them to come to an agreement with other co-owners on the leasing or resale of the property, resulting in an undesirable situation where the buyer cannot make profits from their investment. With this, there are two key things to look out for when buying an ‘alternative property’—such as a half-title home—which are sufficient funds and sufficient percentage of ownership.
“I once inspected a unit—one of the owners wanted to sell his one-third share, while the other two-thirds share was owned by his sister,” Ng recalls. “For homes like this, you won’t have the decision-making power with only one-third of the share, so even if the price was reasonable, I wouldn’t consider buying it.” Ng shares that his current portfolio includes around a dozen properties but declines to reveal how many of them are half-title homes.
To balance the return and risk of investing in half-title homes, Ng has set a price rule for himself, “It would be ideal to buy these types of homes at 70% of the market price, 75% is also acceptable.” He explains that if he bought a home at 75% of the market rate, even if housing prices dropped by 25%, he could still make it even; however, if the prices dropped by 30%, then he’d suffer a loss. Therefore he believes that “the higher the discount, the safer the investment”, and if there isn’t enough room for depreciation, he would rather leave an investment opportunity alone.
A Housing Market Plunge is Unlikely
When asked if he thinks the housing market will experience a deep plunge, he notes that most of those who purchased homes in the past decade have a rather strong financial footing, so unless it’s for some unexpected personal emergency, it’s unlikely for them to sell their homes at slashed prices. “Just look at the primary market, the tiniest discount offered by developers can attract a swarm of buyers these days,” he says. “For the time being, I don’t see a possibility for Hong Kong’s overall housing prices to drop over 10%. Affordable offerings in the secondary market are rare and immediately snapped up, which indicates that demand still exceeds supply by a lot. Right now you can’t even find that many truly good bargains at auctions.”
A couple of months ago, Ng purchased a rooftop home at HK$400,000, which is being rented out for HK$6,800 a month. With an annual rate of return over 20% Ng can get his original investment (excluding renovation costs) back in just five years with rent income. He says that in recent years, he buys more homes than he sells and as the market remains sluggish at the moment, he is actively looking for more bargain opportunities.
Snatching up a property that you love at an affordable price is no easy feat. Apart from having enough funds readily available, you need to do a lot of homework beforehand.
Ng has the advantage of having real estate agents notifying him of available bargains. Meanwhile, he also finds auctions to be an ideal place to find good properties at discounted prices. “Usually, I would find the past transaction prices of a property and use that as a reference to determine my reserve price,” he says. “The atmosphere of an auction room is unpredictable, but the important thing is to not be swayed by it. Once the bids exceed my reserve, I immediately stop bidding. It takes patience.”
Ng recalls a memorable experience that took place over 30 years ago. “It was 1987, and I came across a Mid-Levels unit at an auction. The building was located on MacDonnell Road and was opened for occupancy in 1956. The unit had a construction area of 1,600 square feet, and a saleable area of 1,200 square feet,” he says. “The auctioneer started the bidding at HK$1.02 million (HK$638 per square foot), and the bid increment was HK$10,000. It was a bidding war between me and another buyer and once the bid went over my HK$1.1 million reserve, I gave up. Strangely, the lot was later withdrawn.” Ng says what happened next was far more interesting, “I suspected at the time that my rival in the auction room was in fact the homeowner, and after some digging, it turned out that I was right,” he continues. “So I went to the owner and asked to purchase the unit directly from him. I ended up buying it at HK$1.04 million, and resold it two years later at HK$2.69 million.” For Ng, the combination of patience, caution and a high level of risk aversion has paid off big time, and this lesson should be learned by any property investor who wants to succeed in the long term.