In the wake of the recent geopolitical landscape, more and more citizens have started considering migrating overseas, as indicated by the surging number of relevant inquiries. In fact, immigration is an intricate issue that may require property owners to put in tremendous time and effort to handle. In view of this, we have summed up a few key points below for property owners planning to migrate overseas to consider!
Is it true that property owners planning to migrate overseas tend to sell their flat at a lower price?
From time to time we may come across listed properties with remarks like “Cutting price as the owner is moving abroad”. This is perhaps because some owners are in urgent need of cash for immigration while others wish to avoid all the troubles that may arise from remotely selling the property in Hong Kong after they have moved abroad. In addition, if owners sell their flats after migrating overseas, the cost may be higher than doing so in Hong Kong as some countries, such as the U.K., require the citizens to pay capital gains tax for the sale of all their properties around the globe (including those in Hong Kong) except for their self-occupied property.
Leasing out the property in Hong Kong to make up for the living costs abroad
However, migrating to other countries does not necessarily mean one has to sell all his properties in Hong Kong. In fact, given that hunting jobs overseas could be a difficult task, and that the living standards in countries favoured by Hong Kong people, such as the U.S., Europe and Australia, are generally quite high, it may not be a good idea to sell the property and live on the one-off income generated thereafter.
Contrarily, taking into consideration that the ROI of leasing out a property in Hong Kong is generally higher than doing so in other countries, renting out the flat in Hong Kong and using the rental income to compensate for the expenses overseas could be an option for property owners. More importantly, there were cases where local citizens who had migrated to other countries decided to return to Hong Kong as they found it difficult to adapt to a foreign environment. In this case, with the amount of capital remaining unchanged, they may not be able to purchase another flat similar to the one they have sold as the property prices in Hong Kong are always on the rise.
Paying attention to the tax arising from rental income
Yet, it is worth noting that for some particular countries like the U.S., residents’ all global income, including those obtained from leasing properties in Hong Kong, is subject to income tax. On the other hand, the owner may also need to pay the tax in Hong Kong even though they are living abroad as the city collects tax based on the geographical location of the income (the rent is settled in Hong Kong). Since immigrants are living overseas most of the time, they are no longer regarded as permanent or temporary residents of Hong Kong. As such, they will not be able to obtain the tax allowances provided by personal assessment, making their rental income subject to property tax.
Take a flat of which the mortgage is fully repaid as an example, with a monthly rental income of HK$30,000, the tax payable each year will be HK$21,000 as personal assessment allows tax payers to obtain a tax allowance of at least HK$132,000. On the contrary, if the rental income falls under the category of property tax, the tax payable each year will become HK$41,000 ((HK$30,000 x 12 – rates) x 0.8 x 15%).
How to manage the leased property?
Apart from taxation, the management of the leased property is also something one should consider. Of course it would be ideal if the tenant is nice enough to pay the rent on time. However, what if the case is the other way round? How to arrange the lease of the property after its existing contract has expired? All these could be a pain in the neck for property owners living overseas. One of the solutions is to seek help from friends or relatives. However, if you possess multiple properties, you may have to re-think whether your friends or relatives have the capacity to take care of all your properties and whether it is a good idea to ask for their free help.
Under such circumstances, property owners can consider engaging a rental management service company. A couple of banks in Hong Kong provide rental management services, ranging from property leasing to rent collection, property repair and maintenance, and even the sale of the property, so that property owners can spend less time and effort on taking care of their properties in Hong Kong. In general, rental management services are charged based on a certain percentage of the rent, meaning that the higher the rent is, the higher the service charge will be. Moreover, it is also advised that you should pay attention to the details of the service agreement, such as the calibration of extra costs arising from property repairs and the validity period of the agreement as you may have to renew it once it has expired. Of course, property owners can also compare the charges and scope of services of different companies before engaging anyone of them.