25 October 2017 - The term ‘haunted house’ brings to mind scenes from popular culture movies like The Conjuring or The Shining for many Westerners. But frequently, people from Western cultures would be surprised to discover that real haunted houses are actually quite prevalent in Hong Kong.
The Dark Energy that Flows Through the Home
Of course, we’re not discussing houses with a connection to the afterworld. Haunted houses in Hong Kong do not have a formal legal definition, but are generally considered to be properties where people have died in accidents (explained or otherwise), been murdered, or taken their own lives. Chinese culture generally believes Feng Shui in haunted houses are held to be “negative” and the dark energy can lead to bad luck to those who reside in the flats.
This has led to a number of interesting market behaviors, such as property owners trying to offload these properties at below market prices. Average haunted house properties sell for 20% to 30% below comparable property values. They may not be appealing to people who look for properties for self-use, but are attractive to enterprising investors who attempt to profit from these discounted haunted properties.
Haunted Properties: Is the Return worth the Risk?
Despite the “negative” Feng Shui associated with haunted properties, they are perceived as good rental property investments by some Hong Kong investors. Rarely, are they purchased for self-use. Renters of haunted house properties are frequently expats or individuals who don’t share the beliefs of Chinese culture. Interestingly enough, younger generation Chinese are also less bothered by the grim past of a property. Rental fees combined with the natural increase in property costs frequently lead to very solid returns of 8% to 10%.
One noticeable haunted property transaction occurred last year. A haunted property in Tsuen Wan Centre was purchased by an investor at close to HK$1.2m in 2012 and sold to a couple at HK$1.6m. Counting the HK$0.4m profit and the rental income earned during the 5 year period, the return on investment (ROI) was approximately 35%.
Taikoo Shing has been crowned as one of the leading blue-chip estates in Hong Kong. Despite the fact the previous tenants had committed suicide in the unit, a property in Banyan Mansion in Taikoo Shing was sold at HK$12.3m this year, i.e. HK$ 12,118 per square foot. Although the transaction price was 23% lower than market value, the owner still managed to make a return on investment (ROI) of as high as 45% with the purchase price of HK$8.48m in 2010.
In Olympic Station, an apartment neighboring a haunted property in Harbor Green was transacted at HK$ 9.77m earlier this year. The investor bought the unit at HK$7.05m in 2014. A brief holding period of three years has earned him a net profit of HK$2.65m, which is a 35% ROI.
Rental prices can also be depressed by the knowledge that an unnatural death occurred within a property. In such cases, rental prices are usually 20-40% lower than market price, depending on the nature of the incident. A haunted 600 sq. ft. Mid-Levels flat with two bedrooms was bargained down from a market rental of HK$25,000 to HK$15,000 a month, a full 40% below what would have been expected. Nevertheless, the off-set in property price could still make this a worthwhile investment property.
Knowledge from the Grave of Bad Investments
Haunted property investments have the potential to yield considerable returns. At the same time, it could be a risky decision and potential investors are advised to do their due diligence before investing in haunted properties in Hong Kong.
When buying a haunted property, you should investigate the chance of selling or renting it out. It does not only depend on its relatively low rental or selling prices, but also a few more factors, including location, public transport, facilities and the overall lifestyle residents can enjoy in the surrounding neighborhood.
Furthermore, banks in Hong Kong generally will not approve mortgage applications for haunted properties. Investors should take this into consideration before making the buying decision. Nevertheless, getting a bank valuation on the property is still essential in assessing the property’s worth.
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