A Guide to Buying Residential Property in Hong Kong

Do you feel at ‘home’ in Hong Kong? Do you find the city’s vibe so exhilarating so much so you can’t imagine living elsewhere now? Would you like your children to experience a multicultural and multilingual upbringing? Then perhaps you may want to consider laying down roots in Hong Kong by buying a property and building an asset rather than paying rent. 

SevernRoad-03-lrThe process of buying property in Hong Kong is fairly simple and straightforward and until recently there were no curbs on acquiring residential and commercial property in Hong Kong. It is no wonder then that the property market in Hong Kong has been especially buoyant. Property is a prized asset class in Hong Kong. Both local Hong Kongers, as well as long-term expatriates in Hong Kong, participate in the real estate market, as they believe that Hong Kong is home to a stable economy capable of withstanding most global storms. 

Salient features of the Hong Kong Property Market 

Hong Kong is home to one of the priciest real estate markets in the world. In spite of this, levels of home ownership in SAR are quite high though the concept of buying property for investment, gross annual rental yields in Hong Kong currently hover around 3%, with some unique opportunities at E&V at up to 6% yield. t is also popular. According to estimates of the Ratings and Valuation department. Residential properties in Hong Kong are varied and include apartments, stand-alone houses and villas and village houses. The gamut of apartments in Hong Kong includes full-service condominiums as well as 1950’s and 60’s developments, which are typically more spacious but devoid of facilities save for perhaps and outdoor swimming pool.

Property is measured in terms of square feet in Hong Kong. 

Terms like Gross Floor Area (the sum of the total area of the property including a proportion of the development’s common areas) and Saleable Area (actual living space contained within the property) are commonly used to describe a property under consideration. The Estate Agents Authority (EAA), the governing body that regulates the practice of estate agency in Hong Kong, stipulates that real estate agents need to provide information about the saleable area of a second-hand property under consideration to their prospective clients. They also have to provide this information in advertisements as well as in the provision of the information of the floor area of the property. Real estate agents can obtain the relevant information from the Ratings and Value Department or then from the agreement for the purchase and sale from the first assignment of the property registered with the Land Registry (First Agreement). This stipulation came into effect on January 1st 2013, and agents who do not comply are subject to disciplinary action by the EAA. The stipulation, however, does not require agents to quote a price per square foot in their provision of area information. If such a figure is quoted then they have to inform their prospective clients whether it has been calculated on the basis of the gross floor area or the saleable area. In the case of properties such as village houses, if information about the saleable area is unavailable from the RVD or the first agreement, real estate agents are permitted to provide gross floor area quotes.  This quote then needs to be substantiated by a surveyor’s report or the sales brochure provided by the developer. 

Luxury properties 

If a property measures more than 1000 square feet in terms of Gross Floor Area, it is deemed a  ‘luxury property.’ Currently, 10% of the Hong Kong real estate market consists of luxury properties. However, smaller apartments measuring less than 500 square feet also have much appeal in Hong Kong, as do facility-laden, newer developments. Our real estate portfolio for Hong Kong features a wide array of luxury properties as we aim to cater to every taste and preference. Do have a look and peruse our offerings or visit our flagship at Caine Road to meet with our agents.

Buyer’s eligibility and costs involved 

All foreigners excepting those hailing from Afghanistan, Cuba, Albania and North Korea are allowed to buy property in Hong Kong. However, in 2012, the Hong Kong government as part of its property cooling measures plan has introduced a Buyers Stamp Duty, which is levied at the rate of 15% in addition to the AVD (Ad valorem Stamp Duty) and the Special Stamp Duty introduced in November 2010. This tax is applicable on the acquisition of residential properties by non-permanent residents of Hong Kong, including companies regardless of where they are incorporated. Buying land is another matter for all land in Hong Kong belongs to the government. Land tenure is awarded on a leasehold basis.  While leases were previously given for longer periods of up to 999 years, nowadays they are granted for a maximum of fifty years. 

Mortgages

Most licensed banks in Hong Kong are engaged in the mortgage lending business. The Hong Kong Monetary Authority (HKMA) controls the mortgage lending policies of banks in Hong Kong. The HKMA since 2009 has introduced various measures to strengthen the risk management of banks engaged in the property mortgage lending business. These measures have included limiting the maximum loan to value ratios for higher risk property mortgages. Higher risk property mortgages include mortgages for high-value properties, non-owner occupied properties, mortgages for borrowers whose income is derived from sources outside Hong Kong and mortgages issued on the basis of net-worth considerations. These measures further distinguish between buyers availing of property mortgage. Thus, the maximum loan to value ratios are different for applicants who have no current outstanding property mortgage at the time of making a mortgage loan application and for those who have one or more outstanding property mortgage at the time of making a mortgage loan application. The Hong Kong Mortgage Corporation administers the Mortgage Insurance Program in Hong Kong under the aegis of the HKMA.  A list of approved lenders is readily available on the website of the Hong Kong Mortgage Corporation that also has tools to enable borrowers to calculate mortgage obligations. Typically, buyers in Hong Kong putdown 5% when signing a preliminary sales and purchase agreement, another 5% when signing the formal agreement and the rest at the closing of the deal six weeks later.

Key personnel- Real Estate agents and solicitors

Aside from the prospective buyer, the other key personnel who feature prominently in a real estate transaction in Hong Kong are a real estate agent and a solicitor.

Real Estate Agents

The Estate Agents Ordinance (EAO) stipulates that anyone involved in the business of real estate in Hong Kong must have a valid estate agent or salesperson’s license.  It is, in fact, an offence to employ an unlicensed person for conducting any real estate transactions. 

Buyers and sellers of real estate in Hong Kong can verify whether an agent is licensed by checking the license list available on the website of the Estate Agents Authority or then by checking the license register at the EAA Resource Centre. 

According to the stipulations of the EAO, a real estate agent must sign an estate agency agreement with a prospective client if he/she is being appointed to buy, sell or even lease a particular property.  Such an estate agency agreement usually states the validity period of the agreement, the agency relationship and the amount of commission to be paid. The law doesn’t regulate the rate or amount of commission to be paid to a real estate agent, and the figure is usually determined via negotiations between the agent and his/her client. The listing of conditions within the appropriate agreement enhances the transparency of the process and helps to avoid misunderstandings. 

The EAO further stipulates that real estate agents in Hong Kong use the prescribed forms in order to format agency agreements with clients for the purchase or sale of property in Hong Kong. These forms can be downloaded from the website of the EAA. 

There are a few mandatory forms required for either the sale or purchase of properties in Hong Kong. The said forms include Form 1–Property Information Form, Form 3-Estate Agency Agreement for Sale of Residential Properties in Hong Kong (for use by the seller of the property and his/her real estate agent) and Form 4–Estate Agency Agreement for Purchase of Residential Properties in Hong Kong(for use by the buyer of the property and his/her real estate agent). 

The licensed, experienced and knowledgeable agents of our team at Engel and Voelkers Hong Kong regularly help buyers not only conduct a search for a suitable property but they also aid negotiations with the seller as they guide buyers through every step of the buying process.  Need a reputed and trustworthy real estate agent in Hong Kong? Look no further we fit the bill in every which way.

Estate Agency agreements

Estate Agency agreements are legally binding documents. The EAO does not stipulate the validity period and duration of such an agreement. These terms are usually determined by way of negotiations between the client and his/her chosen real estate agency. We, at Engel and Voelkers Hong Kongare very conscious of our client’s needs and preferences, and hence, we urge you to consult us first if you wish to amend or shorten the validity period of any agency agreement that you have signed with us.

Solicitors

Both the buyer, as well as the seller of a particular property, is required to engage the services of a solicitor before a real estate transaction can proceed. The buyer and the seller have to engage their respective solicitors and cannot use the same person for the process. Unlike solicitors, a sole real estate agent can transact for both the buyer and the seller. This practice is known as dual agency, and the agent needs to inform both buyer and seller about the commissions charged.

download (1)The Buying Process

Step 1

Once a buyer has identified a property, he/she wants to buy, he/she needs to evaluate if he/she has the finances to buy it.  Guidance and advice for buyers is readily available at various websites belonging to the Hong Kong government.

Step 2

The buyer’s real estate agent helps negotiate price with the seller of the property under consideration. In case the property is a new build, a buyer or his/her real estate agent can approach the developer directly to ask about available rebates. Once the buyer and seller concur on the price of the property, the seller’s solicitor drafts a provisional purchase and sale agreement. At this point, the buyer’s solicitor has to approve the agreement and he/she also need to verify if the title of the property is clear with the Land Registry department. This procedure is only applicable in the case of secondary market sales.  Further, the buyer’s solicitor needs to check for any illegal structures within the property and also check if there exist no building or slope orders against the property under consideration.

Step 3

Once the two parties involved sign the provisional sale and purchase agreement, the buyer has to buy the said property. At the signing, the buyer needs to hand over a 5% initial deposit to the seller or his/her solicitor.At the point of signing the provisional agreement, the buyer should be clear about the holding pattern of the property. Property bought under a company name is tax advantageous. If the buyer decides to change the holding pattern halfway through the process, it registers as a separate transaction and attracts additional stamp duty. Costly errors, considering the recent punitive stamp duty measures that have been introduced by the Hong Kong government. If the buyer decides not to go through with the transaction at this juncture, he/she stands to forfeit his/her initial deposit.  Further, the buyer will also need to pay fees for both agents involved in the deal.

Step 4

Once provisional sale and purchase agreement has been signed, the buyer and seller then need to sign the formal sale and to sign the formal sale and purchase agreement within 14 days. The buyer now has to put forth an additional 5% of the purchase amount.purchase agreement within 14 days. The buyer’s solicitor usually draws up the actual purchase deed. The seller’s solicitor then approves of the deed and takes care of any outstanding mortgages.

Step 5 

A real estate purchase transaction has to be completed within six weeks of the signing of the provisional agreement. At the closing, the buyer needs to submit the balance amount of the purchase price to the seller. The solicitors for both the buyer and the seller further work out other costs involved like mortgages, management fees and government rates.

Step 6

Once the deal is done, the buyer is liable to pay the relevant stamp duty and arrange for the registration of the purchase document with the land registry.


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