Hong Kong is known all over the world for its stratospheric real estate prices. Prices for apartments in Hong Kong are some of the highest in the world. In fact, the HKSAR in 2009 made headlines throughout the world when it was announced that the world’s most expensive apartment had been sold there in a luxury development on 39, Conduit Road for a whopping US$57 million. However, Hong Kong’s property market, like other property markets around the globe, is notoriously volatile and experiences many peaks and troughs.
Hong Kong’s property market is open to all buyers who have the means. Foreigners can easily invest in Hong Kong’s property; although the government has recently introduced a range of cooling measures to subdue the overheated property market in Hong Kong which in recent years has been fueled by the demand for property by wealthy Mainland Chinese buyers.. These include a 15 per cent levy on non-permanent resident and corporate property buyers, an expansion of stamp duties on quick resales of property and a doubling of duties on all properties costing more than HK$2 million, with exemptions for permanent residents who are first-time buyers or sell their only home to buy another. There are also strict rules in place that govern the Capital Investment Scheme:
The majority of expatriates who buy a property do so either as an investment or with the intention of migrating to Hong Kong permanently. If you decide to buy property as an investment, you should be aware that the Hong Kong property market’s history has been one of large fluctuations in value. Where you may be used to the underlying income from property being stable, here the rental incomes fluctuate along with the property prices.
Purchasing Property as a Foreigner
There are no rules that restrict the foreign ownership of property or land in Hong Kong though Afghans, Albanians, Cubans, and North Koreans are not allowed to buy property in Hong Kong. Expats have the same rights as residents when it comes to buying property, and no additional prerequisites or formalities are required. However, this does not mean that it is easy to buy property in Hong Kong, and it’s a time-consuming task which requires much knowledge of local market conditions. If you do consider buying property in Hong Kong you should be willing to spend time acquainting yourself with important factors such as mortgage plans, interest rates, and the purchasing process.
It also worth making note of the fact that all land in Hong Kong is built on government lease which can be for a short period or for a lifetime i.e. 999 years. Usually the older leases are simpler than the newer leases. All land in Hong Kong is required to be government registered through the land registry.
Mortgages are available from most banks and there are many different types of mortgage plans available. The first step in getting a mortgage is working out how much you are going to try to borrow. Many websites of property agents have calculators that work out the amounts that you will have to pay each month to fulfill your mortgage requirements. The main factor that dictates the amount of money that you will be able to borrow is your income. You will usually have to provide evidence of your salary in the form of pay slips, or at least a reference from your employer, that confirms your salary details. Commission, overtime and bonuses are not normally considered as part of your income by the lender, unless you receive them at a fixed level.
Also, be aware that many local banks are hesitant to lend against properties older than 10 years or to people without a long-term track record of income in Hong Kong.
Most banks and financial institutions will lend up to 70% of the value of the property though there have been cases where banks in Hong Kong have lent up to 95% of the mortgage amount but then this loan has to be approved by the Hong Kong Mortgage Corporation.
This amount will attract a mortgage insurance premium which is to be paid by the buyers and which is meant to protect the banks.
From 23 February 2013, revisions were made to the eligibility criteria for the MIP.
After revisions, the maximum LTV ratio was as follows:
|Property Value||Maximum LTV Ratio|
|Below HK$4.5 million||90% or capped at HK$3.6 million
(whichever is lower)
|At or above HK$4.5 million and up to HK$6 million||80% or capped at HK$4.8 million
(whichever is lower)
There are various types of mortgages available in the Hong Kong market, namely the Hong Kong Interbank Offered Rate (HIBOR), which uses the Hong Kong Interbank Offered Rate (HIBOR), as the basis of mortgage interest rate; and the Prime Mortgage that uses the Hong Kong Dollar Prime Lending Rate as the basis of the mortgages; and, the deposit linked mortgage that links a savings account to the mortgage interest rate. The HIBOR mortgages, which are subjected to a cap, are linked to the market movement of interest rate and are thought to protect buyers from fluctuations in the rates of interest. The prime lending rate in Hong Kong currently is 5% as of May 2014.
For a mortgage loan application you usually need to bring along your Hong Kong Identity Card/ passport, income proof and information of the property (including valuation) to the property loan department of the bank you have chosen. Pre-approvals are often quite difficult to get at banks in Hong Kong and most of the time, you only approach a bank for a mortgage once you’ve found a property you are interested in buying.
Below is a list of banks and financial institutions providing mortgage loans:
Tel: 2748 8030
Hang Seng Bank
Tel: 2822 0228
Bank of East Asia
Tel: 3608 8686
Tel: 2886 8868
Pan Asian Mortgage
Tel: 2167 1300
Tel: 2860 0333
Lloyds TSB International Banking
Tel: 2810 0356
Tel: 3115 7602
The Purchasing Process
Property sales are normally managed by a property agent who will be responsible for assisting your search, the negotiation process and ensuring that the price you pay is appropriate to the market conditions. Usually an agent will represent the seller while a separate agent will represent the buyer.
You will also need a solicitor throughout the purchase process, between the price offer and transfer of property. Your solicitor will help you with some necessary steps, such as researching the property titles and drafting the actual purchase deed. Buyers and sellers will generally have their own solicitors.
1. Making an offer
Once you find a suitable property, your agent will make an offer to the property’s owner. Both parties will then have to agree on principal terms of the sale such as purchase price; date to sign the formal agreement for sale and purchase; date of completion; any special features or furniture to remain in the premises and to be included in the purchase price; and any other conditions which either party wishes to include as part of the sale and purchase. It is also advisable that once you have identified the property that you wish you purchase, that you obtain a valuation of the said property so you can compare it with the prevailing market conditions. Banks like HSBC and HangSeng offer an online property valuation tool on most properties in Hong Kong their websites.
2. Provisional agreement
The seller and buyer will sign a provisional agreement for sale and purchase stating the agreed terms. This agreement is not a formal contract and has no standard forms, but it is binding and should be reviewed by a solicitor that you have engaged prior to signing. At this point, you will have to pay the seller an initial deposit of 3% to 5% of the purchase price. Note that if you change your mind, you lose the deposit and will still have to pay the agent’s fee of 1% of the purchase price. If you require a mortgage loan to finance the purchase, you should obtain in-principle approval from a bank for the loan prior to signing the provisional agreement. If you are buying your property directly from a developer you are expected to put down 5% immediately with a further 5% that has to be paid at the time of signing the agreement. It is smart to ask for a guarantee from the developer’s solicitor or the seller so that you will receive a monetary consolation if the seller backs out or a construction case is not completed.
3. Formal agreement
Within 14 days, a formal sales and purchase agreement will be drawn up, and then signed. A further deposit of 5-10% makes the agreement legally binding. By this time, any mortgage should be confirmed and a mortgage deed signed as well. The buyer’s solicitor will then conduct a due diligence investigation to check if there are any obligations attached to the premises which are not disclosed in the title deeds (for example, unpaid management fees, government rates, etc). It is advisable for both the buyer and seller to visit and inspect the property jointly before the final agreement of sale is signed and it is at this time that the date of handover of the property is determined.
4. Take possession
Once the buyer’s solicitor is satisfied that the seller has good title to the premises, he will draft and arrange for the title transfer. The solicitor will then arrange with the bank for the draw down of the loan to complete the transaction, after which the seller will release the keys to the premises to the buyer. After the property transaction is completed the buyer has to (usually within thirty days of the agreement) pay the relevant stamp duty according to the terms of Hong Kong’s stamp duty ordinance.
Hong Kong Mortgage Corporation
Tel: 2536 0136
Estate Agents Authority
Tel: 2111 2777
Fees and Costs Associated with the Purchase of a Property in Hong Kong
The costs included with a purchase transaction usually include:
- The agents/agency’s fees (these are typically one percent of the sale price, but negotiable).
- The solicitor’s fees (negotiable).
- Stamp duty (roughly 0.75 percent to 3.75 percent of the property’s value), usually payable by the buyer. It must be paid within 30 days of purchase. The website of he Inland Revenue Department provides comprehensive instructions on how to calculate stamp duty.
- Search costs. The Land Registry provides a table detailing search of land cost.
- Deed registration costs; the solicitor should arrange for deed registration under the Land Registry so that the property is filed in the lodgement list.
- Quarterly Government Rates.
- Mortgage arrangement fees.
- Property management fees which are paid to the building management company.
- Property tax if the property is to be rented out.