Property

5 Hidden Costs to Watch out for when Buying a Home



It’s certainly exciting news when you are about to buy a new home, especially for first time buyers and in Hong Kong. Renowned for its skyrocket property prices, it’s a milestone in life that you finally have saved up enough for your own place. However, aside from the cost of the actual unit, registration of assignment, provisional sale and purchase agreement, renovation, legal fee, agent commission, stamp duty, home insurance and furniture, there are a few hidden costs that you need to be aware of, or else, you will end up going over your intended budget and paying more than you can afford.

>> Related Article: Should You Buy or Rent in Hong Kong?



Utility Deposits

If you are buying from a new development, remember there are deposits for utilities like water, electricity and gas, and installation fees for phone line and internet service. Typically, there isn’t much to worry about utility deposits as the amount can range from as low as $400 for water and $600 for gas at a private housing development to the highest 60-day charge for electricity. As for setting up a landline and internet service, the fees are relatively low but will vary depending on which provider and package you choose.

However, the management fee is another story. As a first-hand property owner, you are required to pay a security deposit, which is the equivalent of 3 months’ management fee and the management fee per square foot (based on saleable area) for new developments starts at HK$4 and can go as high as HK$14, so for a 700 sq.ft. apartment, the monthly management fee is already HK$2800! Take note that some management companies might also require an advance on the management fee, so make sure you have set aside enough money.

Other miscellaneous fees include Charges for Disposal of Construction Waste and security deposit for rates and government rent.



Mortgage Interest

For home owners who decide to take out a mortgage, you have surely considered the amount of repayment you can afford each month and the repayment period. However, many people made mistake of not doing a comparison of different packages from different financial institutions and failed to recognise the cost of mortgage interest. Though the numbers behind the decimal point might seem minor or even insignificant but if you do the maths, you will realise what a huge difference they can be, so don’t be lazy and shop around for the best deal.



Maintenance Reserve Fund

Generally speaking, the property management company will have a maintenance reserve fund in place for settling the bill for maintenance and repairs, which can range from replacing the lifts and plumbing to repairing the exterior walls. The costs for these works will only partially come out of the reserve fund, property owners still have to pitch in at a certain degree. Depending on whether you are living in a housing estate or a single residential building, the total number of apartment units and the amount of work needed, the cost can be in the range of HK$20,000 to 30,000 for a housing estate with over 1,000 units but perhaps 10 times more for a single residential building. So before buying a property, you better ask about the maintenance and repair works that have been done and scheduled.



Insurance

Before you start renovating your property, it is wise to purchase home insurance that covers the property against water and fire damage and workers against third party liability for physical injuries such as electrocution when operating electrical tools or fell when working at height for the replacement of windows and piping etc. Some management companies actually make it mandatory that home owners have these insurance coverages in place before any work can start.

According to the Mortgage Insurance Programme, home owners who are residing in the purchased property and borrowing more than 60% of the property value are eligible for coverage. Depending on the value of the property, the maximum loan-to-value (LTV) ratio can be as high as 90%.



Rates and Government Rent

All property owners are required to pay Rates and Government Rent – Rates refer to the indirect taxes levied on properties and are charged at a percentage of the rateable value. For the Financial Year 2016-2017, the rates percentage charge is 5%. As for Government Rent, it is the rent the property owner pays the government base on the land grant known as the Government lease. The Government rent is 3% of the rateable value of the property.

If you instead intend to rent out your property, then you have to bear in mind that rental income will be taxable and remember to keep documents such as lease agreements, rental receipts, receipts for payment of rates and any related correspondences for at least 7 years.