Since the government relaxed the loan-to-value (LTV) ratio, many Hongkongers have rushed to buy quality flats under $10 million. As more and more people are eager to snap up flats, certain ‘blue chip’ properties have seen a significant rise in prices, prompting many to shift towards older properties in the city. Despite the lower price per square foot for units over 50 years old , prospective buyers should still pay attention to the common problems in old buildings, including high maintenance, difficulty to secure high percentage of LTV mortgage, and full title to property etc. If you are interested in buying units aged 50 years or above, you should consider the following 3 problems!
1. Hard To Secure Mortgage up To 90% of Property Value
Whether you are buying a new or old flat, you should be prepared for issues regarding a mortgage to prevent the risk of not being able to borrow funds. If you are buying a 50+ year-old unit, the repayment tenors would often be shorter than the maximum period of 30 years. You’ll end up forfeiting the contract if you have insufficient funds.
Take a 50-year-old flat as an example: if you apply for an 80-90% mortgage through mortgage insurance, most mortgage companies and insurance plans require “deducting the age of building by 75 years” to calculate the repayment period. A property aged 50 years can only be mortgaged for a maximum of 25 years. This implies that the higher the age of the property, the shorter the repayment tenor. In other words, buyers will have to bear a higher monthly repayment amount, which creates greater financial pressure and a higher probability of failing the stress test. If you have already signed the provisional agreement, you will be left with no choice but to forfeit the contract.
This is why many prospective buyers who can afford a larger down payment will choose to apply for a 60% mortgage from the bank rather than going through mortgage insurance. While some banks use the “deducting the age of building by 80 years” calculation to extend the repayment period by 5 years, some with more lenient approval measures can even grant a 30-year repayment period for 50-year-old properties, greatly reducing the monthly financial burden for buyers.
2. Extra Renovation Expense
Renovation is definitely one of the main problems of old buildings. Many owners of flats aged 50 years discover that they have to chip in money for renovation only after purchase. Under the Mandatory Building Inspection Scheme, owners of buildings aged 30 years or above are required to carry out building inspection and repair works upon statutory notices from the Buildings Department. It is best practice for buyers to inquire whether and when major repairs are needed before buying a 50 year-old unit to avoid paying a costly renovation fee.
3. Full Title to Property
In view of the attractive prices of old flats, many prospective buyers hurry to seal the deal. However, you might end up losing more because many units aged 50 years or above encounter the problem of title to property. It is important to visit the Land Registry to check who owns the property, whether it is a full title, the property has unauthorised building works, if it has received a repair order, etc. If uncertain, it is best to check with the estate agent and solicitor to understand the content of the property records to prevent falling into the trap of property title.
Don’t rush into buying a flat, especially those that are 50 years and above. Be prepared for various aspects and make sure to buy home insurance to protect your home!
