We have properties here in Hong Kong. Which we rent out. That's us owning property direct. It's been pretty good for the best part of two decades. But recently, I calculated that it would be better, for us, to own property INdirect. That is, via a fund of properties, like the REITS, which are Real Estate Investment Trusts. These invest in a portfolio of properties and divide up the net rental returns, after taking a management fee, between all the share owners.
I calculated that it would be better to own property INdirect:
(1) Easier. Less hassle
(2) More money. About $HK 1 million more per year.
This is not accepted by my partner in all this.
I asked Grok.
Look at hong kong property. Compare owning of apartments direct, leasing them out to ordinary people. Compare that with putting the same amount of money into a REIT, like the LINK Reit. Compare for the period 2008 to 2025. Compare CAGR and ROI (Net rent divided by value of the property).Tell me if you think it would have been better to invest in property direct, or in property indirect, like in a REIT.
Here's the answer.
Direct Ownership of Residential Apartments (Buy and Lease Out) vs. Investing in Link REIT (2008–2025)To compare these two approaches over the period from the start of 2008 to the end of 2025 (approximately 18 years), we focus on key metrics: CAGR (Compound Annual Growth Rate of total return, including capital appreciation and income) and net rental yield (net rent as a percentage of property value, averaged or representative over the period).Note: Direct residential ownership involves buying apartments and renting them to ordinary tenants. Link REIT (0823.HK) is primarily a retail-focused REIT (shopping malls, car parks, some office/logistics), not residential, so it's an indirect property investment but in a different sector. This is an apples-to-oranges comparison in asset type, but as requested.1. Direct Residential Property Ownership (Buy-to-Let)
- Price Appreciation:
- Hong Kong residential prices rose dramatically from 2008–2013 (~+134%).
- Peaked around 2021 (BIS index ~263 vs. base periods).
- Then declined sharply due to high interest rates, economic pressures, and policy changes: ~25–30% drop from 2021 peak by mid-2025, with ongoing year-on-year declines (e.g., -7.76% y-o-y in Q1 2025).
- Overall from 2008 to 2025: Strong gains early, but recent corrections mean net appreciation is positive but moderated. Estimated total capital growth: ~150–200% (rough, based on index from low post-GFC to current levels around 190–200 on various bases like BIS 2010=100 or RVD 1999=100 equivalents).
- CAGR (Capital Only): ~5–7% annually.
- Rental Income:
- Rents followed prices upward but with less volatility and lagged during downturns.
- Gross rental yields have been consistently low in Hong Kong: Averaged ~3–4% over the period, recently ~3.9% (Q2 2025), with ranges 2.4–4.99% depending on size/location.
- Net yield (after management fees, maintenance, vacancy, rates/taxes, but before financing costs): Typically ~2–3% (gross minus ~1% costs).
- Total Return CAGR (capital + reinvested net rent): Estimated 7–9% annually, driven mostly by early appreciation. Recent years have lower/negative capital returns, dragging overall performance.
- ROI as Net Rent / Property Value: Average ~2.5% annually (varying from ~2% in high-price periods to ~4% recently as prices fell faster than rents).
Challenges: High transaction costs (stamp duties), leverage risks (many use mortgages, amplified losses in downturns), management hassle, vacancy risks, and illiquidity.2. Investing in Link REIT (Indirect via Retail-Focused REIT)
- Price Appreciation:
- IPO in 2005; from 2008 lows (post-GFC dip to HK$0.65 adjusted) to 2025 prices (HK$35–42 range in recent data).
- Peak 2019 (HK$89–90).
- Recent declines due to retail challenges (post-COVID, mainland competition, negative reversions).
- Overall capital growth from 2008–2025: Positive but lower than residential peak-to-trough swings.
- CAGR (Capital Only): ~4–6% annually.
- Distribution Income (DPU):
- Consistent growth historically (e.g., from ~HK$1.8 in mid-2010s to peaks ~HK$2.7–3).
- Yield typically 5–7% (higher than residential due to commercial efficiencies and mandatory 90%+ payout).
- Recent: Some declines (e.g., -5.9% in H1 FY2026), but resilient with diversification (China, Australia, etc.).
- Total Return CAGR (price appreciation + reinvested distributions): Estimated 8–10% annually over long periods (since IPO ~10–12% in some analyses, adjusted down post-2019). Link has delivered stable income even during property downturns, outperforming direct in volatile periods due to professional management and diversification.
Advantages: Liquidity, diversification (portfolio of 150+ assets), no management hassle, higher yields.Comparison Summary
Metric | Direct Residential (Buy-to-Let) | Link REIT (Indirect Retail) |
|---|---|---|
Total CAGR (2008–2025) | ~7–9% (strong early gains, recent drag) | ~8–10% (steadier, income-driven) |
Net Rental/Distribution Yield (Avg.) | ~2–3% (low due to high prices) | ~5–7% (higher efficiency) |
Volatility | High (price swings, leverage risks) | Medium (stock-like, but income buffer) |
Key Driver | Capital appreciation (boom-bust) | Consistent distributions + moderate growth |
Conclusion: Which Was Better?Over 2008–2025, investing in Link REIT (indirect via REIT) would likely have been better overall for most investors.
- It provided higher and more consistent income yields.
- Total returns were comparable or slightly superior, with lower hassle and risk (no single-property exposure, professional management).
- Direct residential benefited hugely from the 2009–2021 bull run but suffered sharp corrections recently, compressing yields and eroding gains for late entrants or leveraged buyers.
If you were unleveraged and held through the full period, direct might edge on capital gains—but factoring in costs, time, and recent performance, Link REIT offered a superior risk-adjusted return. For pure residential exposure, direct ownership captured the boom better early on, but REITs like Link provided smoother, more passive returns.This is based on aggregated historical data; individual results vary by timing, location, and leverage. If you'd like more precise calculations with specific indices or assumptions, let me know!
