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Buying Property - seeking opinion of the experts :)

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  1. #11

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    Quote Originally Posted by bdw:
    I am a HK permanent resident (as long as I visit once every 3 years). You are saying this doesn't make me 'resident' for HK tax purposes and grant me the usual allowances and deductions that all other HKers would receive? So the IRD uses some other formula for determining tax residency?

    Cannot claim mortgage interest as a property related expense? Bloody hell, I have to do some more research on this topic, seems quite different from how I do my taxes in Australia.

    Double tax on this HK property is another problem for me. Have to declare this HK property in my Aussie taxes, since I'm Aussie resident now. At least in my Aussie taxes I should be able to claim my mortgage interest as a property related expense.
    Hong Kong does have a 'tax resident' consideration similar to Australia.
    Not sure how this applies to Hong Kong taxes on non Hong Kong Tax Residents though - but here are the definitions of a HK tax resident:
    https://www.ird.gov.hk/eng/tax/dta_cor.htm
    bdw likes this.

  2. #12

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    Original Post Deleted
    Can't you put the investment property inside a legal entity with the entity taking the deduction? Then you draw down on net cash flows as a shareholder of the entity if needed? This is the strategy deployed by many investors in the US. LLC is the most common vehicle.- one for each property as well to shield your from tenant and other liabilities that insurance may not cover. Don't see why it cannot be done here. In fact, maybe you can structure this in your home country despite the property being in HK if the laws in your home country are more favorable.

  3. #13

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    Quote Originally Posted by tura:
    Hello,

    We both are Hong Kong PRs.
    Currently living in a 3BR rental flat on Hong Kong Island. Our current flat is big and we are happy living here, no way we can afford to buy it.
    But we want to buy some property here as an investment.
    Taking advantage of the current situation, do you guys think it'll be a good move to buy a property worth around 5M-7M (apartment maybe) and then rent it out?
    Means paying current rental and loan EMI as well. But I'm thinking the rent coming in from the acquired flat will ease the burden of EMI payment.
    Which areas will be better in Hong Kong for such investment?
    New Property is good idea?
    Seeking advice please!!
    If you want exposure to real estate as an asset class why not select from various REITS avaialble in the US. You will get the risk profile you want and can drill down into unique fundamentals related to student housing (big fan of this), commercial properties, residential, industrial warehouses, and even hospital and health care. You get liquidty and income without all the BS of managing a property yourself in HK. If you are looking for direct appreciation on property itself IMO there are far better opportunities on the horizon in the US especially with the impending crisis in RE due to fallout from the virus. The cloud of 2047 protests and HK's role within China are dark clouds hanging over the prroperty market here LT IMO.

  4. #14

    I think most of this has been made in posts above, but the HK position on taxation of rental income can be summarised as follows:

    1. property is in your own name: you pay "property tax" calculated at the rate of 15% of the gross rental income less (i) government rates (but not government rent) and (ii) statutory allowance for repairs and maintenance equal to 20% of the gross rental.

    Deduction for interest expense cannot be netted off against rental income in calculating property tax. Instead it is taken into account when you apply for personal assessment and effectively becomes a deduction against your income tax (of course, if you have no income subject to personal assessment you end up in the bizarre position of not getting a deduction for interest at all!)

    2. property is held through a company: the company pays profits tax at the prevailing company rates calculated after deducting all relevant business expenses.

    If you have enough property income the tax saving will exceed the costs of running a company so this is a better option BUT current rates of stamp duty make moving a property from your name to a company a non-starter these days.

    shri, bdw, GRRR and 1 others like this.

  5. #15
    Original Post Deleted
    I agree with you on this except for the interest expense deduction – interest expense is a cost of generating the rental income ad should be deductible against the rental income. It's a strange quirk in the otherwise simple HK tax system that it's only deductible against personal income which is taxed under a separate regime.
    bdw and GRRR like this.

  6. #16
    Original Post Deleted
    That's because "property income" is taxed under a separate tax regime to "personal income" such as salaries. Each tax is calculated and paid separately. Although I do not understand why, HK tax law puts the deduction for interest expense on a mortgage used to acquire a rental property in the "personal income" bucket instead of the "property income" bucket where it belongs.

    There's a note on it in this paper from the HK IRD (in fact Q1 seems to exactly cover bdw's situation as a non-resident):

    https://www.ird.gov.hk/eng/pdf/pam55e.pdf
    shri and GRRR like this.

  7. #17
    Original Post Deleted
    I think you're reading it correctly and it's consistent with my own experience where the interest expense on a rental property goes on our personal tax returns rather than the property tax returns where we put the rental income,

  8. #18

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    @tura - don't let the discussion about taxes scare the f' out of you.

    Taxes and death are inevitable and it is just human nature that we remain obscessed about them. (Not saying the discussion is valid or not, but I do think it might unreasonably scare you.)

    Also, while I agree with the whole REIT thing in general, I don't think it should dissuade you from purchasing a property if you can afford it. With REITs / stocks you're not getting the easy and relatively safe and cheap leverage you'll get from property - and you're putting a bunch of cash into a very heavily levered sector.

    Anyways ... the Asian in me tends to view property a bit differently from my excel spreadsheet.

    jrkob, bdw and tura like this.

  9. #19
    Original Post Deleted
    They're two separate lines on the Tax Return for Individuals. Item 7.1 is for claiming interest expense on investment properties and item 7.3 is for claiming home loan interest.

    In both cases, if you have no income subject to personal assessment the deduction doesn't help reduce your tax bill.
    shri and Sage like this.

  10. #20
    Quote Originally Posted by shri:

    Also, while I agree with the whole REIT thing in general, I don't think it should dissuade you from purchasing a property if you can afford it. With REITs / stocks you're not getting the easy and relatively safe and cheap leverage you'll get from property - and you're putting a bunch of cash into a very heavily levered sector.
    Technical point from the site's resident pedant: not all property companies are "very heavily levered" – I can think of a few that have no debt at all!