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Beware of investment traps when buying properties (Part I)

eric lee investment traps

As property prices soar, first-time home buyers are desperately seeking affordable real estate so they can own homes with the least amount of investment and time involved. However, investment traps do exist in the property market, and buyers have to stay alert and try to avoid them. 

Firstly, most of the properties being auctioned off are owned by banks, who use auctions as a way to sell off foreclosed homes. However, you will also find some properties which have been confiscated by the courts or held by landlords. In any case, the one thing they have in common is that the starting price for these homes are much lower than their market value. That doesn’t mean that the bank or the owner will accept such offers; instead, they are waiting for the bids to reach their reserve prices to sell. In the past, the auction house was a place where investors can pick their goods, however, thanks to the dire lack of second-hand offerings today, you will find many seeking personal homes at auctions as well. As a result, whether or not you can actually snap up a property of good value seems to depend largely on luck, as you compete with legions of bidders. Inexperienced, first-time home buyers are at risk of being easily influenced by the heated competition, so there’s a chance that they will get riled up and end up overpaying for a home. My suggestion to bidders is to have an estimate for each property you are interested in, and constantly remind yourself to stick to your budget.

On the other hand, a lot of properties offered at auctions may have dubious land titles and prospective buyers must appoint a law firm to examine the land deeds before the auction. This is because once the gavel falls, the deal is sealed and has to be honoured, which means that the buyer will have to accept the current conditions of the land deeds. If there are any issues that later lead to mortgage problems or failure of the sale, you could be hit with huge losses.

In addition, since the government has introduced cooling measures, small units favoured by first-time home buyers have seen the biggest increase in price. This has inspired some industry building owners to revamp such properties, turning them into fancy residential blocks with swimming pools and patios. However, do remember that legally speaking, these buildings are not for residential uses, and the sale of such properties are not regulated by the Sales of First-hand Residential Properties Authority. Additionally, the unit area of these flats are based on construction area instead of saleable area, which often only measure at 60-70% of the total construction area.

Finally, let’s talk about a home buyer’s worst fear: haunted houses. There are no official definitions as to which homes are deemed “haunted”, and there has yet to be a comprehensive database of such properties. You should first seek information from real estate agents, most of whom will keep records of some kind. You can also check the Land Registry’s records or enquire with the property’s administrator. We cannot guarantee a 100% foolproof way to avoid haunted homes, but the more you navigate such properties, the less likely you will end up in one.

There are still plenty of traps to be aware of when signing contracts; stay tuned for my next column.