Your invitation to invest
While the property market may not be at its hottest right now, why adopt a wait-and-see attitude to making a home purchase? Buying power is bound to bounce back, interest from overseas is on the up, and mortgage repayments are currently half what you would pay in rent
At the start of this year, forecasts were rosy about the Hong Kong property market, and many of these predictions have come true. Low interest rates, the weak Hong Kong dollar and instability of markets around the world are attracting buyers from overseas. And while property transactions are slowing in line with the economy, there are still plenty of bargains to be had – for locals too.
Due to the current stock market volatility, those who cannot afford to adopt a wait-and-see attitude to a home sale are beginning to list at attractive prices.
“In the last quarter of 2007, people were sticking on asking price quite squarely. Nowadays I think the attitude has changed - it is quite a good time to negotiate,” says Ricky Poon, the executive director of residential sales at Colliers International.
Brokers typically don’t recommend property purchases for people who aren’t planning to stay in the city for long. “If you are expecting to do a quick in and out in two years, then don’t buy,” says Caroline Ergetie, who runs the brokerage House Hunters. The risks are too great, and the market may drop. But if you are here for the long term, you can wait five years, and if the market does come down, it will eventually come back.”
What’s more, with mortgage rates at an all-time low, you are literally paying less to own a property than to lease one.
The basic premise is simple. The housing problems in the United States have caused the US Federal Reserve to slash interest rates, with the central bank trimming rates five times in the last six months.
Hong Kong banks have more or less matched those cuts. So as the federal funds rate fell from 5.25 percent to just 3 percent this year, including a huge 75 basis point emergency cut in January, the mortgage rate in Hong Kong has dropped too.
Most banks base their mortgages on a calculation that takes prime and then deducts 2.75 percent to 3 percent. So the interest on a home loan could run to around 3 percent - or even less if you get on well with your bank.
According to Midland Realty, the drop in the rate you’ll pay on a mortgage means average monthly repayments are now below current monthly rents in around 40 percent of the housing estates that it tracks.
Hong Kong is also seeing negative mortgage rates, a situation where the interest on a mortgage is lower than the rate of inflation, currently at 2 percent but forecast to rise to around 4.5 percent during the year.
The interest rate declines also mean anyone with money in the bank is effectively losing it. The bank rate on deposits is below the rate of inflation, what’s called a negative real interest rate. It’s therefore better to have money in a building than in a bank.
“If people have a million dollars spare cash then I would definitely still advise them to buy a property for HK$3 million,” says Ergetie. “They can do it up themselves, and they are paying the mortgage as if it was a rental.”
What’s more raising the down payment on a property should pose no problem. Most borrowers can qualify for a 70 percent loan on a property, meaning they must put down 30 percent of the purchase price in cash. It’s also possible to get a second mortgage via the government that boosts the loan to 90 percent or even 95 percent of the price, meaning the down payment is only 10 percent or 5 percent.
So who will you be up against in your bid to buy a home at the right price, right now? According to Ergetie, “A lot of the HK$2 million properties are being bought by bachelors or young professional couples coming to Hong Kong. We have had an influx of that category, and they get filled up very quickly.”
Due to the slowing of property markets from the UK to the US, the luxury end of the Hong Kong market remains attractive to overseas investors particularly from the mainland. Brokers say that super-rich mainlanders, who are buying HK$100-million-plus-properties, in cash, do so because of the prestige value of owning homes on the Peak, Island South and increasingly West Kowloon. Interest is high in new builds that are ready to rent or move into and that require little renovation.
An influx of buyer interest from mainlanders with around HK$10 million to spend is also being noted by market watchers. Here the draw is obtaining residency, something which foreigners investing HK$6.5 million in Hong Kong are automatically entitled to under the Capital Investment Entrance Scheme. These home seekers are looking to live permanently in Hong Kong, and are attracted by the high standard of living, transparent taxation and quality education system.
While short-term predictions about the Hong Kong property market are far from bullish, few doubt its proven potential to bounce back. Die-hard renters should bear in mind that the longer they remain on the sidelines, the more expensive taking that first step on the property ladders becomes. You may eventually find yourself looking to buy at much steeper prices than you’re seeing now.