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    Home > News > London property Service Charges / Caveat Emptor

    London property Service Charges / Caveat Emptor

    Tuesday, March 16, 2021

    Remember the famous Latin expression “Caveat Emptor” buyer beware.

    There is a lot of good London product coming to Hong Kong at the moment. Some very high-quality projects.

    As buyers we tend to look at the obvious, which is price/location/build/quality. Are we properly looking at the “after sale” cash flow? Mortgage – yes. Today that looks amazing with interest around 2% on mortgages but what about other hidden charges?

    We buy mostly for investment and we need to look at what attracts people to our property in the rental and then re-sale market.

    Many developers have glitzy offerings of gymnasiums with the latest high tech. machines, vast swimming pools and amazing community gardens. These look fantastic on the buyer brochure but do people use these facilities? Do people renting these properties want all this? The profile of a typical London rental is Central City / Canary location 400/600 sq. ft. The person renting will most likely already have gym facilities offered by their company. Are they prepared, in this tight market, to pay a premium rent to have communal gardens and swimming pools. The answer is a firm “No”. People are looking at the bottom line. They do not want to pay any “premium” in today’s market.

    So as a property investor do we buy into these glitzy offerings?

    Let’s take three easy samples being offered in Hong Kong today.

    Wardian annual service charge £6.15
    Aspen annual service charge £6.50
    DockEast annual service charge £3.04

    Average one beds sizes in Wardian and Aspen are roughly 570 sq. ft. and in DockEast, roughly 380 sq. ft.

    Let’s compare like with like first on a fictional 560 sq. ft. flat in all three projects.
    Aspen £3,700 p.a.
    Wardian £3,500 p.a.
    DockEast £1,732 p.a.

    Now let’s compare the reality of a purchase in each.
    The smallest one bed in Wardian is 534 sq. ft. (Aspen average just over 580 sq. ft. for 1 beds)
    Many DockEast one beds are readily available at circa 370 sq. ft.

    Annual Service Charge
    Warden 534 sq. ft. 1 bed £3,284 p.a.
    Aspen 580 sq. ft. 1 bed £3,770 p.a.
    DockEast 370 sq. ft. 1 bed £1,124 p.a.

    What person renting a one bedroom flat in Canary Wharf is prepared to pay close to £300 per month extra to recover their service charges and give their tenants heated swimming pools?

    The answer is very unlikely we will find people willing to pay.

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