HONG KONG

Buying property in Hong Kong

An Overview of Buying Property in Hong Kong:

What You Need to Know

In Hong Kong, the land is owned by the government, and property buyers essentially lease the land. When you purchase a property, whether a home or an apartment, you're acquiring the leasehold rights to the land beneath it.

Foreign Ownership and Stamp Duties

Foreigners are generally permitted to buy property in Hong Kong, but to discourage excessive speculation by overseas buyers, the government has implemented certain measures. One of these is the Buyers' Stamp Duty (BSD), which imposes an additional 15% tax on foreign buyers. This is in addition to standard stamp duties.

Moreover, second-home buyers and those who resell properties within three years are subject to additional stamp duties. The government hopes these regulations will cool the overheated housing market, but property prices in Hong Kong remain among the highest in the world.

Mortgage and Loan Regulations

The government has also introduced stringent loan-to-value mortgage requirements to manage property prices. Buyers need to place a minimum deposit of 40% for properties valued under HK$7 million. This large upfront payment reflects efforts to keep speculative purchases in check and maintain some stability in the market.

Real Estate Agents in Hong Kong

While private property transactions are possible, most buyers in Hong Kong use the services of licensed estate agents. These agents must be registered with the Estate Agents Authority (EAA), a body that regulates real estate agents in Hong Kong. You can verify their credentials on the EAA website, available in both English and Chinese.

When working with an agent, you'll sign an estate agency agreement outlining the terms of the relationship, such as the commission, payment details, and whether the agent is working solely for you or representing both buyer and seller (known as dual agency). In dual agency situations, the agent must disclose their commission rates for both parties.

The Purchase Process

The buying process begins once a price is agreed upon between the buyer and seller. The estate agent then prepares a provisional agreement, which both parties sign. This document includes key details like the agreed price, who covers legal expenses, the completion date, and the names and addresses of both parties. At this stage, the buyer pays an initial deposit of up to 5% of the purchase price.

This provisional agreement is legally binding, though it may include escape clauses that outline penalties if either party backs out. For instance, if the seller withdraws, they typically must pay double the buyer’s deposit as compensation.

After signing the provisional agreement, both parties engage solicitors to draft a formal agreement of sale, which adds more detailed terms. The vendor's solicitor drafts the document, and the buyer's solicitor reviews it. Once both parties sign the agreement, the buyer pays an additional deposit, bringing the total deposit to 10% of the purchase price.

At this point, the buyer is fully committed to the transaction. If either party withdraws now, there are serious penalties, including the loss of deposits and compensation payments. Buyers are also advised to consider purchasing insurance at this stage.

Finalizing the Purchase

The vendor’s solicitor sends the title deeds to the buyer’s solicitor, who reviews the documentation and may request additional clarifications (requisitions). Once everything is settled, a date is set for the buyer to take possession of the property and pay the remaining balance, including stamp duties and other costs.

Taxes and Fees

Stamp duty represents the largest financial obligation when buying property in Hong Kong. For residents purchasing a first home, the stamp duty starts at HK$100 for properties valued up to HK$2 million and increases in bands, reaching as high as 4.25% for properties over HK$20 million. For second-home purchases, stamp duty rates are roughly double those of primary residences.

Foreign buyers or non-permanent residents must also pay the Buyers' Stamp Duty (BSD), which adds another 15% to the purchase price. Additionally, if the property is resold within 36 months of purchase, a Special Stamp Duty (SSD) applies, ranging from 5% to 20%, depending on how quickly the property is resold.

While these stamp duties and taxes are significant, other transaction costs in Hong Kong are relatively low. Agent fees typically range from 0.5% to 1% of the purchase price, while solicitors' fees are usually between 0.075% and 0.125%. The Land Registry fee is a flat rate of HK$210.

Conclusion

Buying property in Hong Kong can be a complex process, especially for foreign buyers, due to the various taxes, stamp duties, and regulatory measures. However, with proper guidance from licensed estate agents and legal professionals, navigating the property market becomes manageable. The high costs are offset by the potential rewards of owning property in one of the world’s most dynamic and sought-after cities.