A Guide to Property Purchase Expenses
Buying a property is a wish for many Hongkongers. Last time, the editor explained First-time Home Buyer 101 and a mortgage guide to everyone. However, after successfully saving up for the down payment and successfully "getting on the property ladder," you also need to be aware that there are various other fees to pay, such as stamp duty, legal fees, and mortgage interest expenses. If you "missed calculating" these and exceed your budget, buyers may have to tighten their belts for a period to "make up" the difference, or in severe cases, the transaction may not be completed. This time, the editor has compiled several property-buying expenses beyond the down payment, so that everyone can calculate clearly before purchasing a property.
Stamp Duty
Stamp duty can be said to be the biggest expense for buyers besides the down payment. Excluding properties priced at HKD 2.3517 million or below, the basic stamp duty rate that all buyers currently need to pay ranges from 1.5% to 4.25%, depending on the property price. The higher the property price, the higher the tax rate. For example, if the property price is HKD 5 million, the tax rate is 3%, which is about HKD 150,000; for HKD 21.739 million or more, the tax rate is the highest at 4.25%.
If the buyer already owns at least one property, they will need to pay Buyer's Ad Valorem Stamp Duty (AVD), which is a flat rate of 15% of the property's sale price or value. If the buyer is not a Hong Kong resident, they will also need to pay an additional Buyer Stamp Duty (BSD), which is a flat rate of 15% of the property's sale price or value.
Agency Commission
When dealing with a property transaction through a real estate agent, both the buyer and the seller need to pay a commission. The "going rate" in the market is approximately 1% of the property price. However, since there is no rigid regulation, the actual amount depends on what you negotiate with the agent. In most cases, it is paid upon completion of the transaction.
When buying or selling second-hand properties, both the buyer and seller can negotiate with the real estate agent to increase or decrease the commission, depending on the situation. Especially for higher-value properties, there can usually be some adjustment in the commission.
If you are buying a new property, buyers usually do not need to pay any commission. If both parties agree, buyers can also ask the agent for a "commission rebate," but the rebate must be negotiated before making the initial payment to avoid disputes later on.
Legal Fees
In Hong Kong, whether buying a new property or a second-hand property, multiple legal procedures are involved, including the processing of documents such as title deeds and assignments. For second-hand properties, the buying and selling process may also involve title searches, registration with the Land Registry, or even bankruptcy searches. Therefore, it is essentially mandatory to hire a lawyer to handle these matters, with the total cost ranging from several thousand to tens of thousands of dollars.
Mortgage Insurance Premium
Many people with insufficient down payments apply for mortgage insurance from the HKMC. Currently, the premium ranges from 1.15% to 5.05% of the loan amount, depending on the loan amount, loan-to-value ratio, and loan term. If the borrower has a good repayment history, they may receive a premium discount. Before deciding to buy a property, it is advisable to consult with banks for more information in this regard to avoid exceeding your budget.
Renovation Costs
The amount depends on the scope of work. If it involves extensive renovations including dismantling kitchens, bathrooms, or all flooring, a unit of over 400 square feet would require a renovation budget of at least HKD 300,000 or more. New properties, having basic renovations already, would entail a relatively smaller amount if no "major transformation" is undertaken.
FAQS:
1. What can I do if my property purchase expenses exceed my budget?
One common scenario is that the bank's valuation of the property is lower than the transaction price, resulting in a mortgage loan amount that is less than expected. The buyer then has to pay a larger down payment to complete the transaction. If there isn't enough down payment, it's easy to forfeit the deposit. Besides relying on parental support, one can also choose to remortgage for cash to obtain additional funds, but this depends on whether the buyer's income can pass the stress test. If the buyer already owns more than one property, the stress test requirements also increase. If there are any personal loans, it will affect the TU rating, and the mortgage application threshold will be adjusted accordingly.
2. What should I pay attention to before paying the real estate agent's commission?
Regardless of whether you are buying or selling, when signing an agreement with an agent, you should specify the validity period of the agreement and the payment time for the commission. You should also pay attention to whether the form of your engagement is an exclusive agency. If it is an exclusive agency, even if you sell the property through another real estate agent during the process, the exclusive agent may still charge a commission. Additionally, note whether the agent you appoint represents only the seller or both the buyer and seller. In the latter case, the real estate agent must honestly inform both parties and disclose the amount or percentage of commission received from the other party.
3. Regarding selling expenses, if the property ownership documents are incomplete or if I want to stop the transaction after signing a preliminary agreement, what are the associated costs?
The seller can ask a lawyer to apply for a replacement deed at the Land Registry; the general cost is only a few hundred dollars. Finally, sellers should be reminded that if they sign a preliminary agreement, receive the deposit, and then wish to stop the transaction, the buyer can sue for compensation. Therefore, if you have not signed a formal sale and purchase agreement, the seller must compensate double the deposit, the buyer's real estate agent commission, and legal fees.
4. Is it possible to buy or sell without a real estate agent?
Theoretically, yes, but for protection, and considering the need to constantly contact the seller, verify if the unit has any issues, and negotiate a better price, it is best to entrust it to a professional real estate agent.
