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4 tips for property buyers

15 Jan 2021

Many Hongkongers thinks purchasing property, not only to provide shelter but also to tap the potential for property value appreciation. If you’re planning to buy property in Hong Kong, keep the following four things in mind:

1. Types of property to buy

Many buyers target the secondary market because it allows them to move in the apartment instantly. When choosing an existing property, other than location, orientation, transportation and other basic factors, buyers should also pay attention to other factors. 

For example, buyers need to check for water leaks in the bathroom and the ceiling, how far from your apartment to the floor’s refuse/storage room, if anyone has passed away in the flat, etc. Also, buildings aged 30 years or above are required to undergo mandatory inspections, which can potentially lead to additional expenses.

2. Knowing the purchasing process

After the buyer negotiates a price with the seller, both parties sign a provisional sale and purchase agreement, which requires the buyer to pay an initial deposit equivalent to 3-5% of the purchase price upfront. A formal agreement needs to be signed under supervision of a law firm within 14 days, and a further deposit of 10% (inclusive of initial amount) is required.

The purchase process is usually completed within a period of 45 days from the provisional agreement and buyers who need mortgage finance should obtain the consent of their bank within this period. Buyers usually arrange a thorough apartment check one or two days before the property is sold. If an agent has facilitated the transaction, a commission equivalent to 1% of the property price is payable to the agent.

3. Tax consideration: residential property

Besides the down payment, stamp duty constitutes the biggest expense when purchasing property. If a property costs less than HK$2 million, the buyer needs to pay an ad valorem stamp duty (AVD) of HK$100 dollars only. 

However, stamp duty escalates as the property price rises. For example, for a flat worth HK$21.73 million, the AVD would be 4.25% of its value, which means close to HK$ 1 million. If a buyer holds more than one property, AVD is charged at a flat rate of 15% of the property value. Foreign and corporate buyers need to pay an extra 15% of stamp duty. These taxes are payable within 30 days of signing the sale and purchase agreement.

While profits from selling property in Hong Kong are not taxable, if property held is resold within three years, the seller has to pay a Special Stamp Duty which varies according to the holding period.

4. Mortgage application

Banks determine the amount of a mortgage loan based on the property’s value. According to the Hong Kong Monetary Authority, banks can offer a 60% mortgage loan at the most. When the price of a property is over HK$10 million, this is limited to 50% of the value. Buyers with insufficient down payment can also apply for mortgage insurance to make up for the shortfall.

Availability of a mortgage loan is largely dependent upon the applicant’s income. Generally, mortgage payments should not exceed half of the applicant’s income. If the mortgage payment is expected to be in excess of 60% of the borrower’s income, interest rate is raised by 3%. If the applicant is holding more than one property, the mortgage amount is reduced by 10% regardless of the loan-to-value ratio and stress test results.

Banks offer HIBOR (Hong Kong Interbank Offered Rate) -based, prime-based and fixed-rate mortgage plans. HIBOR-based mortgage plans are based on the Hong Kong Interbank Offered Rate and are considered more attractive than prime-based mortgages now as HIBOR has gone down. 

HIBOR-based mortgages also offer the protection of an interest rate cap, and property owners can switch to prime-based plans when HIBOR is high. Besides evaluating the attractiveness of rates, applicants should also consider cash rebates, applicable penalties and whether banks offer deposit-linked mortgage repayment plans.


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