Buying a village house - by Alex Frew McMillan (SF issue 20)
1. High appeal but low supply
Village houses are as long in appeal as they are short in supply in Hong Kong. For the lucky few who get their hands on one, a village home offers a very different style of living than a typical shoebox apartment in a multi-storey, multi-tower development. There are around 30,000 village houses in Hong Kong, with the greatest concentration in Yuen Long and Tai Po.
Most of them are the same size - three stories, each of 700 square feet, for an overall size of 2,100 square feet. Some of the older houses may be smaller, but no village house can have a floor plan for a roofed-over area larger than 700 square feet. The buildings also can't be over 27 feet high. There are also restrictions on the size of any balcony and various other stipulations on how thick the walls must be, how big the water tank can be and so on.
The standardized size is a product of the origin of the village house. Village houses are technically known as Small Houses, and were brought into being by the New Territories Small House Policy, which was introduced in 1972.
The law gave any male heir over the age of 18 who could prove he was descended from one of Hong Kong's original villages in 1898 the right to build a small house on a plot of land, either owned by the village itself or on leased government land.
The Lands Department oversees the applications process, and any of the land must be in areas zoned as villages by the Planning Department.
There are now tens of thousands of "villagers" eligible to build small houses, many of them living far from their ancestral homes. The increased numbers have resulted in a backlog of applications for village plots at the Lands Department. The government says it has 11,900 applications that are pending, with some of the applications taking years to process.
What's more the queue to buy a village house is much longer than the line to develop one. Once an indigenous villager gets permission to build his house, he is normally free to sell or rent it to anyone. Many villagers prefer to rent and keep the property in their possession. But others sell it on, often at great profit.
2. Surging prices
The slow supply of new village houses make them hard to find for buyers and renters. Real estate agents say the popularity of village houses has surged recently, particularly with expatriates, who may want more outdoor space than they would find with a typical Hong Kong apartment.
"The price of these village houses went up sharply last year because the demand is bigger than the supply, and people also want to buy big gardens with sea views," said Kenny Tsui, the Branch Manager of Midland Realty in Sai Kung.
Although the internal area of a village house is strictly limited, there is no limit to the size of the land surrounding it. Some village homes have extensive gardens, even private swimming pools, boosting their price considerably.
Tsui says he saw around 20 sales transactions on village houses in 2006. He says prices rose 10 to 15 per cent at a time when the overall market moved sideways. The extra space that sometimes comes with a village house can boost its price by as much as 50 per cent, Tsui said.
"People who go to Sai Kung to buy or to rent also like the environment," Tsui said. "So they like the village houses more than regular apartments because they also the countryside style of living."
Village houses sometimes get divided up, floor by floor. That obviously reduces the asking price considerably, and real estate agents say you can pick up a middle-floor, 700-square-foot unit with no special features for as little as HK$1.5 million.
Those who aren't able to find or afford a village house to buy may prefer to rent. Even then, a village house with a large garden and its own pool can command rents of up to HK$120,000 per month, though more typical houses without any special features will rent for HK$30,000 to HK$45,000 per month, agents say. A full sea view and good decoration boosts the rental to around HK$70,000 per month.
The villages in Sai Kung tend to have been built with property sales in mind, meaning they may be better planned than their counterparts in the Yuen Long area, which may have developed more organically and, critics say, chaotically. The Yuen Long houses tend to stay in the hands of the villagers, too, whereas most of the villagers in Sai Kung have sold their lots and moved away.
3. Financial and legal issues
One of the biggest obstacles to buying a village house is arranging bank financing. The secondary market in village houses is a relatively new phenomenon, and banks have proved reluctant to lend money on them.
"The biggest problem is the bank valuation," one real-estate agent said. "If people are asking HK$20 million, normally the bank valuation is only HK$10 million or HK$12 million."
The bank will only lend up to 70 per cent of its valuation. So a low valuation leaves prospective buyers with hefty down payments, having to make up the difference in cash. Banks may also require faster repayment schedules on village homes than for rank and file apartments, making the monthly payments burdensome.
Some village homes do get built illegally or without proper clearance. So prospective buyers would do well to work with both a knowledgeable agent and a lawyer who can help them navigate away from potential pitfalls.
Homes that have been developed properly should have a Certificate of Compliance stating that the house complies with regulations on the use of the land and the structure of the house. In certain special cases, no certificate is issued, but the government should still issue a letter saying it has no objection to the building being occupied.
The Lands Department has put out a pamphlet, "The Purchase of a Village House in the New Territories," that walks prospective buyers through the process. The pamphlet, originally produced in 1998, is available online at http://www.landsd.gov.hk/en/legco/purchas.htm#1
Assuming you're able to track down the right property and sort out the paperwork, a village house can offer peace, space and tranquillity, qualities prized in Hong Kong.
