How to buy a flat / apartment in Hong Kong
Thu, 2006-11-02 09:00 — mrb
If you are planning to buy your first flat (aka apartment or
condominium) in Hong Kong, you’re probably wondering how to
get the best deal, while avoiding any expensive mistakes. Read on for Batgung's recommendations on trouble-free house-hunting.
Where should I live?
If you’re still unsure about which area of Hong Kong to live in, you might want to read this first.
Should I buy or rent?
Hmm, no easy answer to that one. I find this graph is always a sobering sight. It shows relative property prices from 1994 up to the current date. How would you interpret it? If you like a bargain, you might see that property today is cheaper than a year ago, and in fact cheaper than 12 years ago. As a pessimist you'll see that people who bought property at the highest prices in 1997 have seen almost 50% of the value disappear. Finally the optimists will note that the price has nearly doubled since 2003.
As an example, we bought our first flat in 1998 (prices had dropped, but it turned out they had a lot further to go) for $2.35M (all prices in HK$). Today it is worth around $1.7M (up from $1.2M at its worst). On the other hand, we bought our current flat in 2002 for $2.85M which is now worth about $4M. So they haven’t made us rich, but I don't like the idea of paying money to a landlord forever, and we’re happy to not have to move at the end of a lease.
If you are thinking of buying vs renting, also keep the effects of commissions, legal fees and stamp duties in mind. Let's say you buy a $4M flat, and pay the typical 30% downpayment of $1.2M. You can also expect to pay over $200,000 in extra fees associated with buying and selling it, before even thinking of decorating costs. If you just plan to keep the flat for a couple of years while you are here on a contract, the price of the flat will have to rise around 5% just to cover your costs.
Where will you find potential properties?
Once you have an idea of where you want to live, the size of flat and number of rooms you need, you can either start on the internet or head straight to an estate agent (aka property agent, or real-estate agent). I use GoHome most often. I used to like Centanet, but they seem to have given up on developing the English-language version of their website.
The GoHome site also offers property listings, but I’ve not been that impressed with them. The couple of times we contacted advertisers, the properties we were interested in were mysteriously not available. I guess that some property agents post non-existent sales just to catch attention in the hope they can show customers other flats?
In any case, your next step is to visit an estate agent.
How can I find a good estate agent?
Certainly ask friends and colleagues for any recommendations, as word-of-mouth is the best bet. Failing that, visit the area you are interested in, and take a look at the windows of a few agents. Do they list buildings that you are interested in? Do most of the properties they advertise cover your price range? (Some specialise in the high- or low-end of the market, so if that's not what you are looking for, move elsewhere.)
Once you've chosen an agent, try visiting a few flats to see if you are comfortable with them. Note that for each flat you visit you’ll have to sign a sheet agreeing you can’t buy that flat through any other agent for a specified number of months. So if you don’t like the agent, move on quickly.
Some points to watch for when choosing an agent include:
Are small, local agencies best, or the big Hong Kong-wide chains?
We've used the local agencies, and they seem more flexible on commission rates, but we also have friends that prefer the big chains. I think they just feel more comfortable dealing with a larger company.
How much commission should I pay the agent?
The official rate is 1% of the final purchase price, and the agent will probably tell you that they aren't allowed to change it. In practice, few things in Hong Kong sell without a discount, and you shouldn't have trouble getting them to agree 0.8% or 0.9% commission rates. I recommend the time to discuss this is when you first meet your agent, not right at the end when you're trying to sign the contract.
You can even get lower rates, but if you drive too hard a bargain, you may end up hurting yourself as then the agent has little incentive to help you. One approach we've used is to agree on a lower rate for a 'bad' price, a normal rate (say 0.8%) for a fair price, and the full 1% for a good price. Which leads us on to...
What is a fair price for a flat?
There are two easy ways to get an idea of the price you should be paying. First look up transaction records of recent sales in the development you are looking at, to see the range of prices people have paid. Then to get a more specific idea, check the bank's valuation of the flat you are looking at. This used to need a call to the bank, but several banks now offer online valuations. The HSBC property valuation page covers a very comprehensive list of properties in Hong Kong.
What affects the price of a Hong Kong flat?
You’ll find that blocks of flats you consider similar can have very different prices. Sometimes you’ll even find a large variation between prices of flats in the same block. Here are some explanations I’ve heard. (Even if you don’t agree with them, think if they’ll affect the resale value of the flat when you want to move and need to resell)
If we haven't answered your question, if you see any mistakes above, or you have other ideas on how to make buying a flat as painless as possible, we’d love to hear from you.
Regards, MrB
Where should I live?
If you’re still unsure about which area of Hong Kong to live in, you might want to read this first.
Should I buy or rent?
Hmm, no easy answer to that one. I find this graph is always a sobering sight. It shows relative property prices from 1994 up to the current date. How would you interpret it? If you like a bargain, you might see that property today is cheaper than a year ago, and in fact cheaper than 12 years ago. As a pessimist you'll see that people who bought property at the highest prices in 1997 have seen almost 50% of the value disappear. Finally the optimists will note that the price has nearly doubled since 2003.
As an example, we bought our first flat in 1998 (prices had dropped, but it turned out they had a lot further to go) for $2.35M (all prices in HK$). Today it is worth around $1.7M (up from $1.2M at its worst). On the other hand, we bought our current flat in 2002 for $2.85M which is now worth about $4M. So they haven’t made us rich, but I don't like the idea of paying money to a landlord forever, and we’re happy to not have to move at the end of a lease.
If you are thinking of buying vs renting, also keep the effects of commissions, legal fees and stamp duties in mind. Let's say you buy a $4M flat, and pay the typical 30% downpayment of $1.2M. You can also expect to pay over $200,000 in extra fees associated with buying and selling it, before even thinking of decorating costs. If you just plan to keep the flat for a couple of years while you are here on a contract, the price of the flat will have to rise around 5% just to cover your costs.
Where will you find potential properties?
Once you have an idea of where you want to live, the size of flat and number of rooms you need, you can either start on the internet or head straight to an estate agent (aka property agent, or real-estate agent). I use GoHome most often. I used to like Centanet, but they seem to have given up on developing the English-language version of their website.
The GoHome site also offers property listings, but I’ve not been that impressed with them. The couple of times we contacted advertisers, the properties we were interested in were mysteriously not available. I guess that some property agents post non-existent sales just to catch attention in the hope they can show customers other flats?
In any case, your next step is to visit an estate agent.
How can I find a good estate agent?
Certainly ask friends and colleagues for any recommendations, as word-of-mouth is the best bet. Failing that, visit the area you are interested in, and take a look at the windows of a few agents. Do they list buildings that you are interested in? Do most of the properties they advertise cover your price range? (Some specialise in the high- or low-end of the market, so if that's not what you are looking for, move elsewhere.)
Once you've chosen an agent, try visiting a few flats to see if you are comfortable with them. Note that for each flat you visit you’ll have to sign a sheet agreeing you can’t buy that flat through any other agent for a specified number of months. So if you don’t like the agent, move on quickly.
Some points to watch for when choosing an agent include:
Can they speak reasonable
English?
It doesn't have to be
fluent, as the vocabulary of property transactions is quite limited
– just enough to make sure your needs are understood. In fact
you might even want to carefully avoid fluency. When buying our first
flat we went to the extreme of pretending that we didn't speak
Cantonese (MrsB is Hong Kong Chinese, so that's a stretch!). If you
visit a flat at the same time as a group of Chinese-speaking buyers and
their agent, you'll understand why - 'hard sell' seems to be the only
way many local agents work, and I think many buyers just sign something
to shut the agent up.
Our ploy worked well
initially, as the only complimentary English word our agent seemed to
know was 'fine'. After a flat full of fines - 'the bathroom is fine,
the kitchen is fine, the view is fine, etc', she shut up and left us to
our own devices. There was karmic payback when we found that the
seller's agent lived in the same building as our new flat. The first
time she met us in the lift with MrsB's relatives, we had to come up
with some creative explanations about how we'd learned Cantonese so
quickly!
Will they follow your price
range?
Agents make money from commissions, so it's natural they want you to buy as expensive a flat as you can afford. Also, on the first one or two visits they'll probably show you a wide range of prices, for you to get an idea of what's on the market. But after that if they offer to show you flats that are out of your budget, just say no. If they keep doing it, find another agent.
Are they honest?
The favourite words I like to hear an agent say are 'I don't know'. Of course you expect they'll check and get back to you with the information, but I take that as a basic sign of honesty. If they always have an answer to every question, and you catch them out a few times, they're likely making up answers. Are they being lazy, dishonest, or have they been selling so long they believe their own guesses? In any case, call them on the mistake and if it continues then look for a new agent.
Agents make money from commissions, so it's natural they want you to buy as expensive a flat as you can afford. Also, on the first one or two visits they'll probably show you a wide range of prices, for you to get an idea of what's on the market. But after that if they offer to show you flats that are out of your budget, just say no. If they keep doing it, find another agent.
Are they honest?
The favourite words I like to hear an agent say are 'I don't know'. Of course you expect they'll check and get back to you with the information, but I take that as a basic sign of honesty. If they always have an answer to every question, and you catch them out a few times, they're likely making up answers. Are they being lazy, dishonest, or have they been selling so long they believe their own guesses? In any case, call them on the mistake and if it continues then look for a new agent.
Are small, local agencies best, or the big Hong Kong-wide chains?
We've used the local agencies, and they seem more flexible on commission rates, but we also have friends that prefer the big chains. I think they just feel more comfortable dealing with a larger company.
How much commission should I pay the agent?
The official rate is 1% of the final purchase price, and the agent will probably tell you that they aren't allowed to change it. In practice, few things in Hong Kong sell without a discount, and you shouldn't have trouble getting them to agree 0.8% or 0.9% commission rates. I recommend the time to discuss this is when you first meet your agent, not right at the end when you're trying to sign the contract.
You can even get lower rates, but if you drive too hard a bargain, you may end up hurting yourself as then the agent has little incentive to help you. One approach we've used is to agree on a lower rate for a 'bad' price, a normal rate (say 0.8%) for a fair price, and the full 1% for a good price. Which leads us on to...
What is a fair price for a flat?
There are two easy ways to get an idea of the price you should be paying. First look up transaction records of recent sales in the development you are looking at, to see the range of prices people have paid. Then to get a more specific idea, check the bank's valuation of the flat you are looking at. This used to need a call to the bank, but several banks now offer online valuations. The HSBC property valuation page covers a very comprehensive list of properties in Hong Kong.
What affects the price of a Hong Kong flat?
You’ll find that blocks of flats you consider similar can have very different prices. Sometimes you’ll even find a large variation between prices of flats in the same block. Here are some explanations I’ve heard. (Even if you don’t agree with them, think if they’ll affect the resale value of the flat when you want to move and need to resell)
- Location. Seems obvious, but where you might see a flat in a crowded built-up area with no view, others may see a flat conveniently near to shops and the local MTR station. See South Horizons as an example of somewhere that is cheaper because it is considered to be an inconvenient place.
- Orientation. Will it get a lot of sunshine in summertime, and be very hot? Or catch the cold northerly winds in winter?
- School networks. The Central and Western areas of Hong Kong (including Mid-levels) lie in the catchment areas of many top-name schools. That is a big deal to many parents.
- Age of the building. You’re probably used to houses that are 100+ years old, and if you’re from Europe then even 200+ years old is not unusual. Here people get twitchy about buying buildings that are more than around twenty years old.
- Top floor. This often commands a premium because you’ll have access to the roof - think outdoor plants and barbecues. Be careful though as in older buildings it can also mean leaking ceilings and an unbearably hot flat in the summer.
- The efficiency of the flat. If Hong Kong flats weren’t small enough already, you’ll soon realize that the quoted figure is the gross – in all senses of the word - area. Multiply that by the efficiency (anything over 80% is considered good) to find the usable value. Flat prices are quoted based on the gross area, so you can have two flats with the same gross area, but different efficiencies and so very different actual usable areas.
- The monthly management fee. How much will you pay, and what does it include? In older, smaller developments it just gets you several interchangeable grumpy old men that sit by the main entrance, and snooze. In larger modern developments it may give you access to swimming pools, sports facilities, childrens’ playrooms, and other goodies.
- What large-scale maintenance work has been done lately? In a new (< 5-years) building, this can give you an indication of any problems with the building, or on the plus side how aggressive the management are to fix problems. In older (> 10 years) buildings, has there been any repair or replacement of the exterior wall coverings? Have the outside water and sewage pipes been replaced? If not, are there any existing plans for this work to be done? Is the cost of the work shared among the owners, or covered by the management fees? Somewhere before a building’s 20th birthday this work will typically need to be done, and can cost tens or even hundreds of thousands of dollars per flat.
- Have any alterations been made to the original structure of the flat? This is more common on old (20+ years) flats, where people have changed shapes of windows, closed in balconies, built extra rooms on the roof, etc. In recent years the government has been cracking down on this, and forcing landlords to pay to remove additions and/or check that changes are structurally sound.
- Slopes. If there are slopes around the building, who is responsible for their upkeep? If it is the responsibility of the owners of the flats, and it is a small property, your share of the bill could be expensive.
If we haven't answered your question, if you see any mistakes above, or you have other ideas on how to make buying a flat as painless as possible, we’d love to hear from you.
Regards, MrB
Comments
Mortgages
Something I probably should have included above is what to expect with mortgages. First the good news is that for several years banks have been offering interest rates below their current prime rates. eg Today the prime rate is 8% or 8.25%, depending on which bank you talk to. However banks are quoting around 'P-2.5%' for their mortgages, so if your bank's prime rate is 8%, you'll only pay 5.5% interest on your mortgage loan. It hasn't always been like this though - our first mortgage back in 1998 was 'P+1%'.
The weak point for local mortgages is their length. eg the Hang Seng website shows that the maximum length of a mortgage is 30 years, but there are other limitations that can override that. First they look at '70 minus your age' as a maximum, so if you are 45 years old the longest mortgage you'll get is 25 years.
Then they also consider the age of the building you are buying, using '50 minus building age' to calculate the maximum length. So if the building was completed in 1976, it is now 30 years old, meaning the bank will only give you a 20-year mortgage. This is one of the reasons older buildings are less popular, as the shorter mortgage makes it harder to find buyers that can afford the higher monthly payments.
MrB
Property
I don’t even want to talk about the money Mrs Tall and I lost on our first flat purchase in Hong Kong. Suffice it to say that we bought in late 1995, which was not too bad, but then sold in 2001, which was very bad indeed. We could have hung on to the flat and maybe done a little better overall by squeezing out some rental income and eventually a higher sale price, but we faced several of the problems you outlined so adroitly (gosh, bitter experience is a real mind-clarifying force, isn’t it?): older building, ‘inconvenient’ location, threat of major building renovations looming. So, se la vie!
I was thinking about the crash the other morning, when I was watching the ABC evening news. There was a story about the property market slowdown in the USA, and the reporter was almost hyperventilating as he stated that some market subsectors might experience – hold your hats – a 10-15% drop in property values.
And oh no, I’m not at all bitter about this . . . .
Actually, I'm not, since we also bought our current flat in 2001, so it's still inhabiting the mostly-happy sector on that graph you linked.
ideas -if one can read Chinese
If you or your partner can read Chinese, looking through the local Chinese language newspapers for ads for owners trying to sell their own property can be useful. We were able to get our flat at a reasonable price and did not have to pay an agents fee.
But, that was not the only thing we did. We looked for over 18 months. Saw show flats, had real estate agents take us around, that really helped us to find what we wanted in the right place for the right price. It pays to do your homework!
Cracked walls
Dear Mr B,
I am considering buying an apt which has been newly renovated 4 months ago. Overall, the work and finish is top notch.
However, I have recently noticed some hair line cracks appearing in the walls.
How can I check if this is structural or paint or other reason?
Many thanks.
Regards,
David
Get tapping
We're on the 20th floor of a building that's around 15 years old, and we have cracks in the plaster all over the ceilings, and on the walls in several rooms. In a couple of places plaster has fallen off. It's very annoying but I think (hope!) it's very unlikely to find structural problems in a large, modern appartment block. If you're looking at an older, lower building, and especially if it's built on a slope, structural problems could be an issue.
If the cracks you see are the same as ours, they are just cracks in the plaster. If you tap along the wall with your finger nails, you'll get a dull sound as you cross solid plaster, then a higher pitch as you tap across an area where the plaster has lifted away from the underlying concrete. If I do that on our walls I can hear the high pitch around the cracks, and around the areas that will soon become cracks.
Now, that's not a very scientific approach if you're trying to decide whether to buy or not. I'm not sure what the best approach is to get a thorough structural survey. In the UK, that type of survey is required to get a mortgage, but they don't seem to be required here. When we were looking at an old (40 years) building, I wanted to get a structural survey done because a couple of the flats we looked at had spalling (where the iron rods in the reinforced concrete walls rust and split the concrete). We ended up asking around through friends & family, and a friend's husband agreed to come and take a look and give his opinion. He wasn't a structural engineer, but did a lot building work on old buildings. If you find any more information about how to get a structural survey done, it would be great if you can share the information here.
If you are just facing cracks in the plaster, it could be that the plastering work was done on the cheap if the owner just wanted to pay the minimum to pretty it up for sale. Or it could be the same problem we have, and which I'd also love to find the answer to. We moved in around four years ago, and had the flat completely redone - walls stripped back to concrete and re-plastered. After around six months we started noticing cracks in the ceilings and walls, that got worse and worse. Around 18 months later we bit the bullet and had the flat replastered by a different contractor. We moved out for a couple of weeks, so it was a real pain, but we felt confident that the problem would be fixed at last. MrsB knew the contractor's work, and they had decorated (including plastering) her old flat. That plaster was still in good condition after seven years. Finally, when they visited our flat they tut-tutted about the poor quality of the work, and said they'd definitely be able to stop that from happening again.
But... after around 6 months the new plaster began lifting and the cracks reappeared. The plasterer came back, patched up the few problem areas, and said to call him again if it happened again. So we did, twice. Since then we can't be bothered to get them back again. If someone could give me a good reason why it happens, and how they will stop it from happening again, I'd happily pay them to fix it. But I'm rather sceptical of the 'advice' we've received in the past, so we'll probably just live with it.
Good luck, MrB
Mortgage tips
When you're asking around banks for a mortgage, it's worth checking how they will calulate interest when you make your final payment. Some will calculate it based on the number of days unpaid interest, while some will round it up to a full month's payment.
When we sold our flat recently, we had to pay a full month's interest, which cost us a couple of thousand dollars extra. When we checked the bank's original offer letter, we saw they had crossed out the text 'and payable on the daily balance of the loan from time to time outstanding'. At the time we were applying for that mortgage, the banks were keen to compete with each other, and I think we could have got that text reinstated without any problem.
The offer letter for our current mortgage uses the text "... interest shall be calculated on the basis of the actual number of days elapsed...", so no problem there.
MrB
Buying a flat for use only 3 weeks out of the year, crazy?
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My family (5 of us total now) visits HK every year for around 3 weeks. It is for family visits but my wife’s family in HK is poor and their place is too small for us. I’ve done the hotel thing for the past 7 years but as my family grows, this is becoming less possible and expensive. I’m considering just buying a flat in HK that we can stay in each year and then attempt to rent it out via vacation/short term rentals when we are not there. Eventually, years later, I would sell it.
The ideal location for us is near an MTR stop, anywhere from Wan Chai to Chai Wan on the blue line. My wife’s family is in Chai Wan. I’m not going to go in serious debt over such a play and hence my budget is not a lot, less than 1.2M HK$. I would want a 2BR, high floor preferred. I’m finding some places available, including many government buildings.
Do you think visitors/tourists; etc would rent a place in Chai Wan or Sha Kei Wan? Or do you think I better make sure to purchase a place in at least North Point? Some of these flats that meet my budget are very old buildings or government buildings in very Chinese areas. I’m not finding much at all in Causeway Bay or Wan Chai that I can afford.
Any comments/suggestions/opinions regarding my plan here?
Thanks,
Bill, Ohio-USA
More info on buying an apartment in Hong Kong
I also have been searching for information on buying a flat in Hong Kong.
EAA guide to purchasing properties - From the EA Authority.
Hong Kong Apartment buying guide - A kind of step by step guide.
Been doin a lot of research lately, the above should be sufficient reading for anyone wanting to get familiar with the buying process. Oh yeah, centamap is a better online map to use online, hope this extra info helps.