Published on 17 January 2006 at 12:49 pm
Filed under: Asia:- Hong Kong Property Guides » Hong Kong Buying Investment Property
The property buying process in Hong Kong is governed by the Conveyancing and Property Ordinance which was first introduced in 1984; this ordinance is based on English law and is therefore relatively standard and straightforward for British and even American real estate investors.
This article explains how to buy investment property in Hong Kong in general terms; for a more specific and personal assessment of an investor’s legal and financial liabilities, advice can be obtained from a lawyer and estate agent in Hong Kong when the hunt begins for real estate suitable for an investor’s objectives.
Hong Kong is unique in that all land belongs to the government; those who buy property in Hong Kong actually buy an agreement or a lease with the longest leases available being for 999 years. According to the laws governing the real estate sector theoretically anyone is entitled to own property in Hong Kong whether as an individual or through a company structure. If a company wishes to purchase a lease on property and conduct business in Hong Kong they have to be registered at Hong Kong’s Companies Registry.
According to the Land Registration Ordinance all leases should be listed at Hong Kong’s Land Registry office and searches can be conducted there for a small fee; however it is still important for a property buyer to have their lawyer conduct detailed title deed searches to ensure all is in order with the property being offered for sale.
The first stage in the property buying process in Hong Kong is to find a lawyer and an estate agent to assist. Estate agents generally charge a fee of 1% of a property’s value to both the vendor and the purchaser if a sale proceeds to closure and a solicitor’s fees are regulated by the Solicitors’ Costs Rules, however it is still possible to negotiate a complete fee for the work they will do on your behalf and this is the normal way of doing business.
Once the property investor has found an estate agent to assist them they should detail their specific criteria and then view real estate that matches their brief. If a mortgage will be required to make the purchase this should be agreed in principal - there are a number of banks in Hong Kong willing and able to lend money to overseas property buyers although there is a general reluctance to lend money on older properties. Mortgages are also listed at the Land Registry office therefore it’s possible for the purchaser’s solicitor to find out whether the property being sold already has a mortgage against it and if it does, under the terms of the contract a specification will be made that the mortgage will be paid off by the vendor as a condition to the conclusion of the sale.
Once a suitable investment property has been found and the asking price agreed upon it’s usual to sign a binding pre-contract and pay a non-refundable deposit therefore before doing so the investor should speak to their solicitor and take advice to avoid the loss of any money. Once the pre-contract has been signed the buyer’s solicitor will begin his searches and the vendor’s solicitor will draw up the Sale and Purchase Agreement which has to be approved by the buyer’s solicitor. Once this document has been approved and the searches of the Land and Companies Registries have been concluded satisfactorily the Agreement will be signed and the purchase deed will be drawn up by the investor’s solicitor. This has to be approved by the vendor’s solicitor before it is signed by all parties and the money is released by the bank.
As soon as this agreement is signed the buyer becomes responsible for the property in Hong Kojng in terms of needing to insure it and it is often a stipulation of any mortgage to purchase that insurances are in place before the money is actually released to the vendor.
Finally, there are quite a few taxes, fees and charges that may be payable during a property transaction in Hong Kong and as a number of these change annually it’s wise to ask for a detailed breakdown of likely costs from an estate agent before committing to buy property in Hong Kong. The list of fees payable will likely include all or some of the following: -
Estate agency fees - 1% of the property’s value
Solicitor’s fees - fixed by the Law Society of Hong Kong‘s Solicitors’ Costs Rules but usually negotiable
Stamp duty - around 3% of the property’s value
Search costs
Land registration costs
Insurance
Quarterly rates
Property tax or profits tax
Mortgage arrangement fees
Property management fees
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