Your guide to buying a property in the city.
Hong Kong property prices have consistently been the most expensive in the world for a long time. However, if you can get on the property ladder in this expensive city, it can give you great satisfaction in paying your own mortgage rather than that of your landlord.
COVID has meant that there has been a rise in unemployment and experts are predicting a fall in property values by as much as 20%. For those of us who have heard tell of the fabled “SARS property fall” and the golden opportunity it provided, is now a good time to buy somewhere to live and how do you do it? Let me attempt to answer that and some of the questions you might have about buying property in Hong Kong.
Narrowing Down On Location
The old adage when buying a property is “Location, location location”. So how do we apply that here? These are the three questions to ask before you narrow down on a property in Hong Kong that you will also eventually live in.
Which Area Do You Like?
If you are someone who lives, works, and socialises purely in Mid-Levels then moving to Yuen Long might be a little too extreme. What realistically works for your lifestyle and where do you like to hang out? How much are you willing to change to suit buying a flat?
Where Are You Happy Commuting From?
I have recently taken the plunge and moved to the suburbs after years of saying I would never be caught dead on a ferry. Spending 40 minutes to an hour each day both ways has been a shock to me after years of being a 20-minute cab ride away from Central. My advice is that you think carefully about how you would structure your day in this future place.
Where Are You In Your Life?
A single person out five nights a week in SoHo and K-town has a very different approach to someone with a baby and different again to someone with a family with older kids. Schools, environment, space, facilities and family location are all important factors. We sat down and worked out where was a definite no and narrowed it down from there.
Costs Involved In Buying A Property In Hong Kong
Once you have found your dream home and are preparing to make an offer, there are factors that you need to consider and know regarding the costs involved in buying a house in Hong Kong.
How Much Can You Borrow?
If you are a Permanent Resident buying your first and only Hong Kong property, you are potentially able to borrow up to 90% of the purchase price. This is made up of 60% guaranteed by the bank and 30% backed up by insurance from the Hong Kong Mortgage Corporation (HKMC). The HKMC will charge you for this additional security (do look at the fee table). Both the bank and the HKMC will look at your earnings, net worth and expenses and have transparent but strict eligibility criteria.
Most banks have a mortgage calculator and property valuation tool and it is worth checking with a couple of banks to see what they think the apartment is worth as it does vary. Please note that banks will lend based on their own valuation and not the final price. So you may be willing to buy a property for 10m because it has been beautifully renovated. However, if the bank has valued it at 5m, you will be able to borrow 90% of 5m and not 90% of what you have paid. Eventually, though, this should level out because you probably will not have to spend on interior work and renovations.
When Do You Pay?
When your offer is accepted and you sign the sale and purchase agreement, you will pay 5% of the purchase price. Another 5% will be due when you sign the full sales contract (usually around a week later) which is also when you will pay the stamp duty. If you are a Permanent Resident, you will pay 3.75% of the total price as Stamp Duty; if you are not, you will pay an astonishing 30%. The deposits and stamp duty are paid to your solicitor. These don’t go to the current owner until the property sale is fully completed and the keys are in your hand (which usually takes around two months).
How Do You Get A Mortgage?
Most banks offer mortgages and the rates are fairly similar. You can compare the different offers available on websites like MoneySmart. Banks will usually offer incentives to entice you, these can include “Cashback” where you get a cash payment on completion, free home insurance and supermarket vouchers.
The important comparison is the interest rate you pay on the loan and how that can vary. Hong Kong banks generally offer variable mortgages with a capped rate. When budgeting for your monthly payment, always assume you will need to pay the maximum capped rate. You will be delighted if the mortgage payment is less!
The bank will need various documents including at least three months of payslips and bank statements. They usually want to look at your previous tax statement as well to confirm how much you earn, the includes both your regular salary and your bonuses. If you work on commission or are self-employed this can be much harder to prove and you may only be eligible for a mortgage of 80%.
What Is Mortgage Insurance?
Banks lend up to 60% themselves. The Hong Kong Mortgage Corporation determines if the additional 30% is possible and you will pay insurance on this. The HKMC website is very user-friendly and will help you to understand the whole process of getting a mortgage and also how much it will be possible for you to borrow. There is also an obligation to live in the apartment if you have used the HKMC to get a higher mortgage amount. Check your eligibility for this Mortage Insurance Programme (MIP) and what you need to commit to carefully. This extra insurance fee can be added to the mortgage by the bank so there are no upfront costs involved but you will be paying interest on that extra amount.
What Other Fees Are There?
You will need a solicitor to represent you. Usually, the agent knows a good one but it’s a good idea to shop around. The agent will generally take 1% from you and 1% from the seller which is due on completion.
If you are used to renting in Hong Kong, you could be in for a surprise when you get the first bill for the Government rates and the building maintenance. Make sure you add these in when you are calculating how much you will be paying for the property per month. Be careful when buying older buildings, as you might not be allowed a longer-term mortgage. Also, if there are renovations planned by the building owners committee you might be on the hook for your share. Your agent should be able to help you navigate all of this; they are getting a commission, make them earn it!
To help you understand the costs, take a look at the example below. You can download it and use it as a ready reference.
This is just an example. From my experience, there are always additional costs involved when buying a property. This doesn’t take into consideration moving costs, renovation, buying white goods, replacing the aircons and everything else.
Property is a big commitment – to the bank to pay the mortgage, to another person if you are buying it in joint names and to Hong Kong. However, it is also a hell of a feeling to own your own place, to be paying your own mortgage and building equity instead of paying rent. And, oh the freedom of being able to decorate and hang photos wherever you want! If you are in the market for your own house, all the best and happy house hunting!