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July 12, 2018

In a city notorious for its lack of space, car parking spaces are emerging as an alternative option for investors hunting for value in Hong Kong real estate.

It might sound mind-boggling to spend more than US$430,000 on a single car parking space, but when you can sell it—just nine months later—for US$760,000 (HK$6,000,000) the investment starts to make more sense.

This was the case for one Hong Kong couple who achieved just over US$5,600 (HK$44,444) per square foot when they sold their small slice of concrete in one of Kowloon’s luxury apartment complexes. That’s far more than the average price for residential property in the city, which rings in at under USD 2,000 per square foot.

The record-breaking transaction is a reflection of “a sharp supply-and-demand imbalance,” says Dorothy Chow, from JLL’s Valuations and Advisory Services team in Hong Kong.

Many car parking spaces in new residential buildings in Hong Kong are held by developers and are not for sale. “So when even just one single car parking bay comes onto the market, people will bid aggressively for it,” she says.

In a bid to lower the number of cars on the city’s roads, government policy around car parking provisions has become increasingly stringent with some new-builds only offering one space for every seven or eight residential units. In spite of this, the number of private car registrations in the city has grown in recent years, leading investors to speculate that prices will continue rise.

Hong Kong isn’t the only place where individual car parking spaces can command eye-watering price. The most expensive single car parking space in London sold for more than US$637,000 back in 2014, while in Manhattan single bays have sold for more than US$600,000 in recent years.

An alternative investment?
In Hong Kong, globally renowned residential real estate prices are one reason investors are turning toward alternative property assets.

“When the money that your average person on the street earns is not enough to buy them a residential unit, they will start looking for alternatives,” says Chow. “Car parking spaces are a lower lump sum option, and in light of the recent appreciation in car park prices, some see it as an achievable property type.”

Still, most major car park transactions in Hong Kong remain for en-bloc ones—car parks with 20 or more bays, rather than single spaces. Chow says the number of these deals is also on the rise, with the market dominated by local investors using them for capital value optimisation, or to stratify them and sell off the individual spaces.

So are car parks a worthwhile investment? Although the market is currently buoyant, Chow isn’t so sure—for Hong Kong at least.

“Investors are only looking at a yield of less than three percent, sometimes just two percent. I don’t think that’s a healthy or sustainable option over the long-term,” she says. “If there is a downturn in the market or the economy, people may sell their cars or drive less frequently, and they may not need parking spaces. If that happens, rental returns would suffer.”

Click to read more about why capital controls see Chinese investors change but not slow.

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Dorothy Chow

Valuations and Advisory Services, JLL Hong Kong

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