New property investment

I have signed a provisional agreement for the sale and purchase of a small apartment in the Mid-levels. Completion is scheduled for late June.

I have to admit that I thought long and hard about whether this was a good time to be purchasing another property. The positive factors that influenced the decision:

1. limited supply of new properties coming on stream in general and in the Mid-levels in particular (although one of the few new projects is right across the road);
2. Hong Kong is awash with liquidity. The market slowed in the second half of last year but is now showing positive signs of picking up again;
3. yields are higher than bank deposit and bond rates (although less than interest rates on mortgage loans).

The property itself is attractive for a number of reasons:

1. good transport links which will improve should the MTR extension go ahead;
2. a good view. The apartment used to have good views from both the original living room and the bedroom. The view from what used to be the bedroom has been largely built out by a new development. The view from the living room on the other side of the apartment is unlikely to ever be completely built out;
3. a reasonable projected yield of about 4.6% (net yield on gross cost). This is based on what it should rent for in its current condition. If I spent some money redecorating this could be improved;
4. I have the option of configuring the apartment as a studio (current layout) or a one bedroom (original layout).

The only negative factor was the rising interest rates.

I also considered the reported softness in the property markets in some other countries such as the US but found it hard to see why weakness caused by oversupply in one market should affect the market here? Lastly, I disregarded my dislike of holding cash in an inflationary environment - that would be a reason for investing somewhere but not necessarily a reason for investing in Hong Kong residential property.