Property

Tips for first-time home buyers

Tips for first-time home buyers

So you’ve done it. You’ve scrimped and saved 40% of your budget and you’re ready to do some serious house hunting. But Hong Kong is more a commodities market than a property one, and those coming into it for the first time should be aware of some of its peculiarities. Aside from the standard concepts of budget, ideal location, a new-build or an older building, and your position on stamp duties, there are oddities to watch for.

Atmosphere

Difficult as it may be, given the speed of the market, at the top of any to-do list is seeing a flat more than once under more than one set of circumstances. It could save time, money and headaches down the road. “It's always a good idea to inspect the building at different times of the day and night and on weekends and weekdays, to see what kind of people live there, whether the security guards are paying attention and whether the common areas — like swimming pools, lobbies and elevators — are clean and well-maintained,” explains Landed Hong Kong writer Christopher Dillon. “Problems in any of these areas can be a source of annoyance or large bills if the management company is cutting corners.”

Mortgages

Mortgage lending in the SAR is unique to say the least. Many of the major banks will not supply financing on buildings in excess of 30 years or thereabouts, and despite it being 2017, won’t lend on flats with ‘4’ somewhere in the address among other seemingly random rules. Mortgage approval has as much to do with the property’s resale potential as your ability to make monthly payments. It belongs to the bank if you default, and things like the number ‘4’ are still tricky business in Hong Kong. In the way superstitions surrounding “unlucky 13” are slowly giving way to logic in the West, the same thing is happening in Hong Kong with the double entendre’d digit, but until the day comes when HSBC, Standard Chartered or the Bank of East Asia can guarantee a resale at 4/C, 414 Queen’s Road, be aware you may be stuck with a truly immovable property.

You might be interested in:
>> Sai Kung's cost-effective homes
>> Shau Kei Wan - for the first-time home buyer
>> What to look out for when financing your home

Developer incentives

Two flats, $9 million each. When it comes down to the fantastic old walk-up on a swanky west end side street and the $3.6 million down payment needed for it, or a scant $450,000 required for a new building a little farther out — with a pool! — basic economics have driven buyers to new projects. Developers offering fat incentives like 95% financing and stamp duty relief in an increasingly unaffordable market are having no trouble selling their properties when they’re offering to offset extra stamp duties and waive the HKMA-mandated 40% down payment; second mortgages now require 50% down and a 15% stamp duty regardless of residency status. As with many incentives: caveat emptor.

“The second-hand market can’t provide innovative lending or financing packages, it can’t provide stamp duty rebates and so many other things,” argues Joseph Tsang, managing director at JLL. “As a developer, if you ask them to provide financing, it won’t be free. They have to put it all back into the sale price. If you ask for a rebate on the stamp duty… it will go into the price. But no one realises that and they think it sounds great.”

That may sound like an unsustainable business model, but JLL’s head of research, Denis Ma, adds, “There’s the question of whether developers are creating a sub-prime problem with their mortgaging. But if you look at the numbers… where they’re doing the financing outright, worst-case scenario is they take all your deposit and your payments and get the flat back,” in the event of default. “If they’re short on cash it’s a problem but these guys have more money than they know what to do with.” Buyers in a position to have mortgages approved anyway may be able to pay higher monthly premiums and divest themselves of the mortgage quickly, making the incentives (possibly) worth the ultimately higher price. Everyone else should get a calculator, see their accountant and do some serious math before diving in too quickly. Read the fine print.


Tips for first-time home buyers

Titles and responsibilities

Titling in Hong Kong can be a quagmire unto itself, particularly in the New Territories north of Boundary Street, on the islands, and with regards to village houses, thanks to old and now notoriously inaccurate Block Crown Lease documents. The back and forth between Chinese and English can make names on official documents invalid, and Hong Kong’s land lease is inherently complex. And the SAR doesn’t use the Torrens system (which Australia, the US, Canada, Malaysia, Singapore and Thailand do), keeping unchallengeable titling and ownership in the realm of fantasy.

And no matter where you are, take a good look at where you are. “For new or used apartments, find out if there are dangerous slopes nearby that the owners’ corporation is responsible for maintaining and repairing,” warns Dillon. “If major repairs are required, the owners’ corporation can pass a special resolution requiring each owner to contribute tens of thousands of dollars.”

Renovation costs

Finally, renovation costs are almost always factored into any home purchase budget. An extra 10% is a good rule of thumb but almost never covers it in the end. Construction labour costs and shortages have stretched contractors thin, and stretched the reputable ones even thinner (yes, there are still shady contractors vanishing with deposits). Unless you’ve done it before and know the contractor intimately, consider hiring a designer to make the process easier; it could be worth the cost in time, stress and communication snafus in the long run. And always expect delays and cost overruns. Unforeseeable events like a typhoon can delay those Italian tiles you just had to have.

Worse still, illegal structures in second-hand homes can be a nightmare — things like enclosed balconies and second floors. “These alterations can damage the building's structural integrity and cost hundreds of thousands of dollars to fix,” points out Dillon. Additionally, “If you ignore a Government repair order, you can end up in jail.”

>> Previous issue: A whole new world

>> Next issue: Turning silver to gold