There are more favourable mortgage packages associated with primary sales. The Mortgage Insurance Programme launched by the Hong Kong Mortgage Corporation Ltd in 1999 provides insurance coverage to Approved Sellers (i.e. the banks) for an amount of up to 25 per cent of the property value, enabling the banks to advance mortgage loans of up to 95 per cent of the property valuation.
An older property generally has a lower valuation than the actual sales price, the buyer will only get a percentage of the valuation, not the actual price. Therefore, the buyer will have to put down a larger down payment. You can find out the valuation of a property at http://www.hsbc.com.hk/1/2/hk/mortgages
As Hong Kong-based banks also take a building's age into consideration when approving mortgages, check with your bank before considering buying an older property. Some banks won't give you a mortgage for more than 30 years and the age of the building must not exceed 70 years at the end of the mortgage period.
Preferential loan and repayment terms are also often made available by developers as part of their marketing efforts. Loans for new properties are often topped up by the developers, who themselves are borrowing from the bank.
2. Visual appeal
New properties have the advantage of immediate visual appeal. In addition to modern lobbies and common areas, new developments often come with excellent lifestyle facilities such as gyms, pools and clubhouses. Interiors can also be more attractive. In new developments, the buyer will benefit from the most up-to-date designs and layouts as well as the latest fixtures and fittings.
Upfront cash is not needed for renovations for a new property, although modern facilities generally come at a premium and may have a significant impact on the overall price of the property. You need to weigh these costs against buying an old property and paying for renovations. It does make a difference to the overall investment if you buy an older property and then upgrade.
3. Renovations
Buyers of older properties should bear in mind the additional cash needed for any necessary renovations. Previous owners may leave behind serious problems, particularly with pipes, drains and other fixtures and fittings. It is not common to have a survey done in Hong Kong prior to purchase and this may make people more wary of older units. Some or all of the electrics and plumbing may need to be upgraded or changed, and redecoration and upgrade of the kitchen and bathrooms may be required. As this can be a very costly exercise, check carefully before signing any contracts to buy.
Work that includes structural changes may also require permission from the Buildings Department, a process that could delay the entire renovation schedule. Owners intending to construct new buildings or make alterations and additions to existing buildings are required by the Buildings Ordinance to appoint an authorised person to coordinate and supervise the works and also if so required, a registered structural engineer.
If your property needs renovation before you move in, consider the cost and how long it will take. You will be paying the mortgage and your living expenses in another location while the renovation work is going on.
4. Value for money
Older units may offer more value for money. The Hong Kong market is heavily biased towards new builds and, at certain times in the property cycle, a large discount is available on the price of older properties.
Older developments use space more effectively compared to their newer counterparts. Rooms are generally larger, with higher ceilings and more comfortable layouts.
Older units have a higher percentage of usable floor area. Gross floor area (GFA) is generally understood to mean the total floor area. However, it is important to realise that this does not only relate to the space within the unit itself, but also to a share of the common facilities in the development as a whole, usually known as the "common areas." This additional space often includes corridors, lobbies, sky gardens, mail rooms and communal club facilities, but it can be problematic, as there is no specific definition for GFA, which is defined in different ways under different ordinances.
To determine how much space you are actually going to have, it is more practical to look at the flat's "saleable area," a properly defined term for the internal floor area, including the internal and external walls. This is the measurement the Rating and Valuation Department will use and your agent has to provide such details before you buy a residential property in the secondary market.
But even the term saleable area can be somewhat misleading if you are trying to work out whether your furniture will fit into the flat you like. Bay windows and walls are often included, even though you can hardly place that comfortable sofa on the window seat. This can lead to a utilisation rate of only 60 to 65 per cent of the saleable area.
5. Location
Older buildings are typically also closer to the centre of established residential districts and therefore more easily accessible to public transport and other essential infrastructure. One example is the Mei Foo Sun Chuen development in Lai Chi Kok, where some buildings are over 30 years old.
As one of the first and still one of the largest mass housing developments, Mei Foo Sun Chuen has good access to transportation and an established reputation. But the impact of age on mortgage rates has driven its price per square foot down to around HK$2,000, significantly lower than the HK$3,300 payable for comparable, newer developments. Interestingly, however, the monthly rental income for Mei Foo flats remains almost equivalent to its newer counterparts, making it an excellent proposition for investors.
