Hong Kong people work hard they can one day buy a home. Property prices are high so so even if you have saved enough for the down payment, you still have to face a series of expenses for buying a home. After signing the Agreement for Sale and Purchase, the miscellaneous expenses can be equal to another down payment! Plan early so your first home purchase will be hassle-free.
Q: What are the additional expenses for first-time homebuyers on top of the down payment?
A: Many first time home buyers have the misconception that preparing the down payment is enough when this is far from true. The down payment and the additional expenses for the purchase of a property are just a fraction of the total. If the kitchen and the toilet need to be renovated after buying the property, the purchase cost will be doubled, and the buyer may have to pay about 20% of the price of the property before moving into the new house.
Stamp Duty
Anyone buying a new property in Hong Kong has to pay an ad valorem stamp duty (stamp duty) of 15% of the property price, but first-time buyers are exempted from this duty. However, first-time buyers are still required to pay the First Home Buyer’s Stamp Duty (also known as Residential Ad Valorem Stamp Duty/Secondary Standard), which is calculated on the basis of the price of the property. The higher the price of the property, the higher the stamp duty payable.
For example, the stamp duty is $90,000 for a 4 million flat, but for a 5 million flat, the stamp duty rises to 3% of the property price, i.e. $150,000. The stamp duty is payable within 30 days after the signing of the Provisional Agreement for Sale and Purchase.
| Property price or value (whichever is higher) | Standard rate 2 | |
| Minimum | Not Exceeding | |
| $2,000,000 | $100 | |
| $2,000,000 | $2,351,760 | $100＋ 10% of over $2,000,000 |
| $2,351,760 | $3,000,000 | 1.5% |
| $3,000,000 | $3,290,320 | $45,000＋10% of over $3,000,000 |
| $3,290,320 | $4,000,000 | 2.25% |
| $4,000,000 | $4,428,570 | $90,000＋10% of over $4,000,000 |
| $4,428,570 | $6,000,000 | 3% |
| $6,000,000 | $6,720,000 | $180,000＋10% of over $6,000,000 |
| $6,720,000 | $20,000,000 | 3.75% |
| $20,000,000 | $21,739,120 | $750,000＋10% of over $20,000,000 |
| $21,739,120 | 4.25% |
Source: GOVHK
Attorney’s fees
To buy a property, you need to hire a lawyer to handle the sale and purchase documents, such as bank mortgage deeds, sale and purchase agreements, property deeds, assignments, etc. Lawyers’ fees are also another expense for first-time buyers.
For older properties that involve land rights of village houses, lawyers have to spend more time to look up the information, which will naturally lead to higher fees. The lawyer will also go to the Land Registry to process the deeds and assignments of the property. This fee is also included in the lawyer’s fee, which usually ranges from $3,000 to $10,000.
Brokerage Commission
Agent commission, also known as broker commission, is usually charged to first-time homebuyers when they buy or sell a property through an estate agent, which involves commission fees. As there is no legal requirement for the commission, agents may “talk big”, or they may offer a discount to buyers in order to facilitate the transaction.
However, if you are buying a first-hand new property, the commission is usually paid by the developer and you can avoid this cost.
Mortgage Insurance
After paying the down payment, homeowners usually choose to apply for a mortgage with a high loan-to-value ratio from banks to reduce their burden. The longer the repayment period and the higher the loan-to-value ratio, the higher the premium will be.
The premium can actually be included in the mortgage loan amount with the same repayment rate or repaid together with the monthly repayment.
Q： What is the approximate amount of the additional expenses for the purchase of property other than the down payment?
First-time homebuyers who buy a $5 million flat will have to budget for the following purchase expenses in addition to the down payment –
| Stamp Duty | 150,000 |
| Brokerage Commission | 50,000 |
| Attorney’s fees | 10,000 |
| Solicitors’ decoration and furniture | 200,000 |
| Total Expenditure | 410,000 |
Q: How much do I need to earn in order to buy a car and meet a series of property purchase expenses?
Mortgages are pressure tested to ensure that the homeowner can afford to pay the mortgage after the interest rate hike. If the mortgage payment accounts for 30% of your monthly income, you will pass the stress test. Based on the current interest rate of 2.5% in Hong Kong, a monthly mortgage payment of about $14,800 would mean a monthly income of $40,000 for one person or $20,000 for each of a couple.
Q： Buying a home for the first time = scrimping and saving?
A: For those of you who have always washed your expenses, even though you passed the stress test, it is still very difficult to make regular monthly payments. When you start to think about buying a home, you have to learn how to manage your finances and develop the habit of not spending money indiscriminately, otherwise it is not easy to cut down your daily expenses all of a sudden.
Things to consider when buying your first home
- Apart from the down payment, there are some issues that need to be carefully considered when buying a property for the first time. The first is the difference between first-hand and second-hand properties. The new buildings have clear ownership and better facilities, while the second-hand buildings have a more practical layout.
- Choose a district, Hong Kong Island and Kowloon are saturated with land, and property prices are high. The more remote areas, such as Tuen Mun and Yuen Long, have more space, better environment, lower prices but inconvenient transportation, so it is important to strike a balance between space and transportation. If you don’t mind living in a smaller and older area, you may also want to look for a flat in an old district such as North Point or Kowloon City.
- In the second-hand market, the buyer and the owner should agree on the price of the flat and sign a provisional sale and purchase agreement. Besides, it is safer to entrust the purchase order to a solicitor in order to prevent the seller from disappearing after signing the sale and purchase agreement.
- Final inspection before signing the deed to ensure that everything in the unit is in compliance with the requirements of the handover. Change the door locks immediately after taking over the keys from the seller to reduce security risk.
