Hong Kong is a one-of-a-kind place. Being formerly part of the Qing dynasty, the British Empire, the Japanese Empire, and now a financial leader, its rich history makes it one of the most unique regions in the world. if you’re thinking of buying a property in the area, then make sure you check out this post for some advice.
Here are just a few facts: Hong Kong is the 4th most densely populated region in the world, has the most skyscrapers of any region in the world (take that, New York!), and one of the longest life expectancies. Most interesting to us is the fact that the Hong Kong dollar is the 13th most traded currency in the world.
With its great weather, excellent job prospects, and very low crime rate, Hong Kong is a huge draw for expats, especially those looking to buy property. While it’s a very international city, there are some differences between buying as a local resident and buying as an expat. Here are some things to bear in mind.
First and foremost, it’s worth noting that all the land in Hong Kong is owned by the Chinese government. When you buy a property, you’re actually leasing it from the government for a duration of time (which may be over 50 years). It’s a slight technicality but it’s worth knowing the circumstances surrounding property ownership (the lay of the land, if you will).
The most obvious thing you need to do when looking to buy property in Hong Kong, even if you’re not a new expat (or even an expat at all), is to do your research. Research the location, the local community, the quality/size of the property, the access to services and transport links, and, most importantly, the price. You can also check whether a property is haunted (yes, really) using this database; if a death, whether intentional or accidental, occurred on the property it may be considered haunted.
Buyer Stamp Duty
From the supernatural to the super expensive, one of the largest costs you’ll face is the Buyer Stamp Duty (BSD). The BSD is an extra stamp duty of 15% applied to foreign buyers in order to control foreign ownership of property in Hong Kong. This was mainly aimed at buyers from mainland China who seek shelter for their excess money, a commonplace practice before the duty was introduced; however, it applies to all foreign buyers. This is a hefty cost, as we’ve said, but it can be reduced if you decide to become a full-time Hong Kong resident and attain a permanent resident’s card, in which case the duty will no longer apply to you.
If, however, you do not wish to be a permanent resident (or make it official, at least), you may take solace in the fact that the large BSD will be partly offset by the lower tax rates of Hong Kong when compared to the UK. The basic rate in the UK is 20% across the board, whereas it’s 15% in Hong Kong. Further, depending on your particular circumstances and a number of factors, expats could realistically pay between 2% (we can hardly believe it either) and 17% tax.
Hong Kong offers a Mortgage Insurance Program (MIP) which is open to both locals and expats. This program allows up to 90% of the house to be covered by the mortgage, meaning only 10% is required as a down payment. The ratio of how much of the property price is covered by the mortgage is called the loan-to-value (LTV) ratio. A rough breakdown of the maximum LTV ratio eligibility can be found in the table below.
These numbers depend on a number of factors. More information on mortgages in Hong Kong and the MIP can be found on The Hong Kong Mortgage Corporation website.
It it worth bearing in mind that the MIP is only available for buyers whose primary income comes from Hong Kong, therefore, it is only really worthwhile for those looking to live in Hong Kong for the long run.
Buying property privately is an option, but the majority of buyers use estate agents. Agents must be licensed in Hong Kong in order to be able to operate and you can check their status on the Estate Agents Authority website.
Upon hiring an agent, you will sign an estate agency agreement which includes details on the period of the agreement, commission, how it will be paid, and whether the agent if working just for you or for the seller as well. If the agent is working for both the buyer (you) and the seller, this becomes a dual agency and the agent must disclose the commission they are charging each party.
Once a price has been agreed, a provisional agreement is prepared by the agent and signed by the buyer and seller. This provisional agreement will include details on the price, which party is due to pay which legal expenses, the completion date, and the contact details of the buying and selling parties.
At this point, the buyer must pay a deposit of up to 5% of the property price. The agreement is a legally binding contract, and will detail how much each party will lose if they back out from the deal at this stage – for the seller, this is often twice the deposit paid by the buyer.
At this point, the buyer and seller will each appoint a solicitor who will negotiate a draft formal agreement which replaces the aforementioned provisional agreement.
This document is first signed by the seller, before being sent to the buyer for their signature. At this stage, the buyer will pay an additional deposit, bringing the total deposit up to 10% of the purchase price. Additional opt-out penalties are put in place, too.
The buyer is usually advised to take out insurance as, if they’ve come this far in the process, they are committed to the purchase.
Title deeds for the property are now sent to the buyer’s solicitor. Once everything is approved, a date is set for the property to be made vacant (supposing the buyer intends to reside in the property, and not just take ownership while the currency tenants remain), for payment of the balance, and for payment of the stamp duty.
Estate agent fees are usually 0.5-1% of the property price, and solicitors’ fees usually add a further 0.075-0.125% to the purchase price.
Of course, this article is just meant as a rough guide to give you an idea of the things to consider. We recommend that you do much more thorough research on the relevant websites referenced above. If you are moving to Hong Kong, give Currency UK a call on 020 7738 0777 to find out how they can help you with the international money transfers involved in the process.