We want to rent the current flat and buy a second flat.
Are the conditions different to purchasing a first flat? For example, more down payment needed, more restrictions, etc. to buy the second flat?
Just FYI, we put 10% down payment on the first flat which is now 20 years old.
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Mortgage rates are typically higher for investment properties. Additionally, you cannot apply to HKMA top up for investment homes, thus you must put at least 30% downpayment, subject to any current restrictions on LTV lending (50% down for flats 12 million and above etc.)
Second, you will not be able to deduct home loan interest from taxes for any investment properties.
Thirdly, you will need to pay tax on any rental income received (at around 15% of total income). Keep in mind you are taxed on INCOME, not PROFIT, so at 10% down payment, it may be difficult to rent it out profitably when taxes are taken into account.
example property at prevailing rates:
mortgage for 3 million
monthly mortgage repayment: 15,000 (180k yearly)
rent out for 18,000 per month (216k yearly)
taxes owed on rental income = 216k X .15 = 32,400
not counting management fees, repairs, government rates/rent, and any deductions you can claim, the simple math works out to be:
costs: 212,400
income: 216,000
profit: 3,600
if you take additional costs into consideration, its almost certain this deal will have negative cash flow. In my experience, it is very very hard in Hong Kong to have a cashflow positive rental on a 90% LTV.
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Thank you for your reply in detail.
We will think about selling the current flat (profit of $1 mil through market research) and buy a bigger flat then.
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For rental properties held in the name of an individual, you can usually only deduct government rates. When calculating tax due, the IRD will reduce the net sum by 20 per cent as a "broad brush" deduction for depreciation etc (you do not claim actual depreciation, repairs etc).
Interest can only be claimed on loans used to acquire the property IF you are eligible and have elected personal assessment.
If you acquired your home using mortgage finance and subsequently move out and keep your former home as a rental property, you can claim for the interest component of mortgage payments once it becomes available to rent (in this respect, HK is different from some overseas countries which would not allow the deduction of interest in this situation). You have an obligation to notify the IRD of the change.
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So most people are making money out of properties by buying at a cheaper price and selling it for more? I thought they were making money out of rental income. Guess I better follow them too.
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walkup2 -
Not speaking for oly88, but capital appreciation (or depreciation) isnt the issue in oly88's example. Both CLP shares and a flat can appreciate or depreciate. The direct comparison was made to the dividends, which is the only relatively reasonable factor to predict.
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Don't you now have to put down 50% for all rental properties? Can't keep up with all the new government measures.
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Hi All, I'm a similar position where I want to buy a 2nd property for investment. Does anyone know would I be taxed allot more higher than a first time buyer and would it be better i put the property title under my partners name who doesn't own any property?
Both properties will be under mortgage , one for rent and other to live in.
Thanks!!
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Sorry to add to the above query I had, does the tax department consider the wages of the owner eg would someone earning a lower wage be in a better tax position with a 2nd property to myself as I have a significant higher wage than her ?
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