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Are you prepared to commit?
Are you a commitment phobic or are you looking for a long-term commitment? Is Hong Kong the right place for you? Do you think you might get transferred on short notice due to work obligations? Do you foresee a sudden desire to be in the midst of nature away from city life and creature comforts?
Not everyone is born a real-estate mogul, for many buying an apartment is a serious decision - it can be even more taxing than getting married.
If you are the settling-down type, then buying a home is a great way to secure the amount that goes towards paying for your accommodation each month. It may you’re your maintenance fees up, although there is more security to be had from owning your own home.
Renting should undoubtedly remain a short-term plan. With renting, a lease is finite: it begins and ends. If you do decide to get up and leave any time soon, renting allows you the freedom to do so, standing to losing one to two months’ rent at worst.
Additionally, tenants are not responsible for the maintenance of the apartment, and if the boiler breaks down, the landlord will foot the repair bill. A tenant is also not required to manage and maintain the building unlike the owners’ committee. |
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How long do you expect to stay?
Renting is ideal for short-term periods. If you are coming to work in Hong Kong on a short-term contract, renting makes sense, as there will always be a leasing market in an international finance centre such as Hong Kong. Many multinational corporations have been expanding their workforce since business began improving in 2004. With continued growth in rental prices, these corporations have been forced to adjust their housing budgets upwards to secure properties of reasonable quality for their employees. On the other hand, rents will go up as the economy improves.
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What are the cost benefits and risks associated with buying?
Everyone in Hong Kong is on the lookout for a bargain. Ask yourself, does it make financial sense to rent or buy?
Buyers should be wary of getting caught out by rising interest rates. If the market sinks and buyers find themselves in negative equity, they may have to make a top-up payment to the bank. Under such circumstances, banks in Hong Kong will usually extend mortgage terms to ensure minimum defaults. With the current upward movement in interest rates buyers, particularly those with variable rate mortgages, must budget accordingly.
Another risk is the employment market. The loss of a job makes repaying a mortgage difficult, and if prices decline and the house is repossessed, the resultant negative equity will mean that the bank cannot repay the loan amount.
Fixed-term mortgages are a way to mitigate these risks. Read more on financing your property. |
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What is your debt-ratio situation?
Debt ratio is the total amount of your monthly debt payments divided by your gross monthly income. If your monthly payments total HK$20,000, and your gross monthly income is HK$50,000, your debt ratio is 40 per cent.
Lenders take into account front-end and back-end ratios to make sure you qualify for the desired loan:
- The front-end ratio is your mortgage payment, plus taxes and insurance divided by your monthly salary.
- In the back-end ratio, you add your monthly debt payments to your PITI payment (Principal, Interest, Property Tax and Insurance), then you divide the figure by your monthly salary.
If you have a high debt ratio (i.e. more than 50 per cent), you may not qualify for the loan you were hoping for. |
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Are you familiar with the current climate of the real estate market?
Hong Kong will always be an investor’s market, especially in boom times. At present there is confidence amongst prospective buyers about the long-term market performance, particularly since the next three years will bring a supply gap in the market. Experts estimate that the future supply of new developments in the three traditional luxury districts – The Peak, South Side and Mid-Levels – will be 60 per cent below the historic average.
If you’re going to invest, the sooner you get in, the quicker you’ll benefit from that upward trend in sale prices. In a three to four-year cycle, a period of 10 to 20 years will yield the top of three cycles.
Keep up-to-date with buying trends and make sure you read up on planning permissions and Government proposals. Sometimes an apartment seems like a steal, but if it seems too good to be true, it probably is. They could be building a taller block of flats right in front of those lovely bay windows that you always wanted! Many factors can affect the market, for example SARS caused an unexpected depression in the market, and sometimes buying trends and new government policies can distort the market. |
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