Posted by
Crofty
16 yrs ago
I am considering buying a flat for about 3 million dollars. It's a one bedroom flat in a 28-year-old building. It has been newly renovated and the location is pretty close to Soho. However, I am hesitating a bit because I am completely new to the property game in Hong Kong and fear I may be making a financial mistake. I am currently renting a flat that I am happy with and at a very reasonable rent. To buy the flat I am looking at would involve me getting a 90% mortgage. That would basically increase my monthly outgoings by an extra $8000. On top of that I would have management fees to consider and other expenses that come with owning a flat. So basically I am wondering whether I would be better off in the long run renting, seeing that for the time-being, at least, my rent is well below the mortgage payments I would have to make. Any advice or comments would be greatly appreciated.
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1. 3 million dollars
2. one bedroom flat
3. 28 years old building
In my opinion, a 3 million dollar flat for a one bedroom flat is not worth it. You are paying a high price because of the location. Better to get at least a 2 bedroom flat, I would think it would be easier to sale.
A 28 years old building is quite old. Even though the flat itself has been renovated, there will be external maintenance cost eg. water pipe replacement, which the tenants will have to share the cost. Better to buy a flat under 10 years old.
Because of the recession property prices are quite low, so good time to buy as long you can afford it. I would only buy a property now to live in not as an investment, since property prices could drop even further.
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tpol
16 yrs ago
A few q's
1. Do you believe you will have a stable/steady income in the next 3 years?
2. If you lose your job and the market tanks, will you have a contingency? Family assistance, assets in other asset classes, etc
3. Calculate if you rent it out, will it cover the mortgage?
This investment could make or break you?
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'property prices are rebounding and the market has bottomed out - don't wait and say "its a recession" prices are low now but wont be forever -- analysts expect property prices to be up by 12% by year end'
some do...others predict a correction in the 3rd quarter leading to a 10% drop by year end (source is SCMP Property 17/06/09)...believe who you want to believe...the bottom line is NOBODY knows what's going to happen...speculation in the property market here is as much a gamble as the tables in Macau...at this point MOST analysts are saying buy if your in for the long term/for residential use...but expect some drop...as alwaya, wise to plan for the worst, hope for the best
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And you must really check with the bank whether or not they will lend 90% for a 28 year old building and how long they are willing to stretch the repayment periods.
I think this is a good time to buy though. Prices may fall but at present, property prices aren't high.
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"A few q's
1. Do you believe you will have a stable/steady income in the next 3 years?
2. If you lose your job and the market tanks, will you have a contingency? Family assistance, assets in other asset classes, etc
3. Calculate if you rent it out, will it cover the mortgage?
This investment could make or break you?"
Keep in mind IF you are buying on a 90% or higher mortgage, my understanding is that you CAN'T use it for investment, the bank and more importantly HKMC wants to see you living there...
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F100
16 yrs ago
You should also consider how easy would it be to sell the apartment just in case your job situation changes.
Most "locals" prefer a newer building (ie..less than 15 years old).
It is easier to get a mortgage and also they don't need as much of down payment.
Banks usually will only finance up to 70% the value of a property if it is over 30 years old.
You should also consider the additional expenses that may occur with an older building such as:
replacement of water pipes, water tanks, leakage of roofs, replacement of elevators....etc.
You might find that most locals prefer a newer apartment, hence, it is more difficult to sell your apartment in the future unless you are willing to discount your price for a quick sell.
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With respect walkup2 I disagree, while there is a distinct and at times active market for walkups, it depends often on the good graces of banks (as do almost all property purchases). Chinese buildings are tougher to get reasonable valuations on, unless some new bank has entered the market (thought the gap is huge now, unlike for a period in 2007-2008, as some banks have left this market). Have you sold any such properties, love to know details.
Whether a property is 10 years or 30 years old, maintenance is needed and will cost some (but not much compared to $3m, but something as will insurance and all the other lovelies of ownership).
The issue is you don't have much cash, so if you lose your job you are, let me think here as there is a technical finance word I am looking for, yes, "stuffed". If your job is secure, maybe borrow like crazy and pay back as much as possible as soon as possible as well.
Only buy if the price you are paying is low - this is the only time you have control when you buy, selling could be forced (who knows what tomorrow brings). If you don't know if the price is low, you really shouldn't be buying till you do know what you are doing (said in a very kind gentle voice, until you say "but" then a Sue Orman screech of "denied" is the only approp response, "you can't afford it").
And your numbers don't seem right - you should compare "interest" and expenses to rent, then you know if you are doing okay. Principal is like a savings plan (so long as you don't need to sell if price is below what you paid). Still it must be paid each and every month so must be factored in to cash flow analysis (and if doing a real plan the opportunity cost as well).
My view: you are happy where you are, so why change that. Spending the most money you presumably ever have when you are already content seems a recipe for disaster. Who cares if you make a bundle, the risk appears to be too high.
Make sure you report back what you do ... don't leave us hanging here.
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Topping up walkup and spaceren, I think the fundamental issues is that you seem not clear yourself whether you want this place primarily to live in yourself or as an investment (where you might happen to live in for some period of time).
most hk people buy apartments as investments (even if they live in them), so they think about demand/supply and the effect of it on the price which is hopefully towards the upside. also you look for the yield to gauge the profitability. and as spaceren said you compare mortgage interest+expenses to rental paid as the remainder of what you pay to the bank is paying down the principal.
if however you think about a place for living in (especially long-term >10 years) then it's a different ballgame. then indeed you look at the personal value of the place to you and how much money you pay for it on a monthly basis. you might be a bit less concerned about the demand/supply story because you will not check every month how much value your place has and whether you should sell again.
in both cases however you need to think about cash flow. if you look at the prime rate or HIBOR over the last 20 years, you can see that we are at a historical low and even the last few months was just a quick peak from a previous historical low. this is what was labeled 'The great moderation' by some people. Not that long ago, 8% of 10% prime rate was considered normal. Maybe you should run your cash flow model once more by inputting prime rate 10%.
just some thoughts...
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First up, a very big thank you to everyone who has replied to my initial post. I am truly grateful to those of you who have taken the time and effort to offer suggestions and advice. The overall sentiment appears to be that the flat may be over-priced at 3 million. It is in a good area - near the top of the escalator - but it's not that big. It's probably about 400 sq ft and the kitchen really is not that user-friendly, being narrow and cramped. Kitchen aside, it is, however, a very nice flat and one that I would be happy to live in. However, the main stumbling blocks seem to be the age of the building and my inability to pay much more than a ten percent deposit. Certainly my intention is to live in it for at least 5 to 6 years, but Hong Kong being Hong Kong, there is never any guarantee that my contract will be renewed every two years. So, as many of you have suggested, I could end up with a fairly tight financial noose around my neck if my income stream dries up. Also, I am probably entering into this with very little knowledge or understanding of the property market and all the ins and outs of finances associated with property. Even the range and choice of mortgages leave me somewhat confused. I suppose with all that in mind it would be best if I didn't commit to buying and continue renting. It may be a decision I might regret in a few years time but unless I really know for sure what I am doing and can afford to carry any losses, I guess I should opt out.
Are there any independent financial/property advisors in Hong Kong who offer a service to customers that doesn't involve pushing you into buying a property or an investment but basically can sit down with you, go through your financial situation, and then advise whether your plans are sound or foolhardy?
Once again - thanks for all your help.
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bing2
16 yrs ago
if i were you i would first check if i could get 90% mortgage. dont believe your agent because they just want to have you sign the s&p. getting a 90% mortgage is not as easy as you thought. hkmc will look at your finances under a microscope. alternatively you can go with standard chartered. people always think oh i can get 90% mortgage, not always the case and you will be screwed if you have already signed the s&p and dont get the loan.
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The building is Kam Lei Building No. 80/82 Peel Street.
I suppose I can now be considered a conservative/cautious investor having made considerable losses before, both on property and in the share market. This probably explains my current hestitancy and also the difficulty I have with paying more than a 10% deposit. According to the agent, the flat has been valued at 2.7 million so I guess I would need to find the additional 300,000 plus as well as the 10% deposit.
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I personally would be very wary of buying a property right now with the expectation of renting it out. My own experience is that the rental market seems pretty dead right now. We've been trying to rent out our previously-lived-in flat for a few weeks now, with very few bites. Agents tell me we priced it reasonably so I can only assume the lack of interest is due to few tenants and not from high price point.
Anyway, we have just reduced our asking price by 10% so hoping to get an offer soon.
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hi housed,
what is the size of your apartment..and where is it?
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Jon_99, it's a 808-sq ft apartment on Robinson Road (bldg name is Peaksvile). We were asking $22K for it including carpark and all fees, but have just reduced it to $20K on the ad we placed in this forum (it's in Asiaxpat Properties under Midlevels West.) Have received a few phone calls to view since then, and will have to see how it goes.
I'm just not sure if it's b/c of the flat layout (it's 3 bedrooms with one ensuite bathroom) b/c some agents tell me that tenants often prefer two larger rooms whereas buyers tend to like the flexibility of 3 smaller rooms. Also the flat's in an older bldg (15 years) so there's high efficiency (again more popular for buying) and no facilities (which tenants seem to care more about).
Sigh... we really loved living in the flat and wanted to keep it - but given the market uncertainty ahead and the curernt strong price rebound, we are now wondering if we should just give in and sell instead. Any thoughts?
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hi housed,
it does seem strange...cos HK20K/ mnth for 808 sq ft is quite reasonable and cheap in this market. Can i ask if its renovated? cos that usually helps as well. Not that I know much, but in this market I think punters (ie potential tenants) are looking for some value and something different to differentiate from the other apartments (ie renovation, roof, terrace, good decorations, furnishings..etc). Are you offering it furnished?
Other factors from what you've said here are:-
- depends on how big your bedrooms are
- i presume the flat's building has a lift
- facilities probably doesnt matter for some potentials/ expats as they can get it somewhere else (ie gym, pool..etc)
- i am not sure why it should matter for buyers vis a vis renters re the number of bedrooms (did you agent explain this?). I think in both c'stances, someone has to live in the place. Or maybe the buyer wants to knock down a wall? i dont know. Just seems like a weird excuse.
btw, 15 yrs is not old.
so, I wld recommend that you try to as much as possible differentiate this apartment from others. Offer better quality furnishings? maybe paint job? renovate it a little more? (I dont know enough abt the property). But basically, you gotta get into the mind of a potential renter in this market..they are not only looking for cheap rent, but also looking for value, and for possibly being able to move in with a suitcase, or bring 1-2 items with them. Essentially, make it as easy for a potential tenant to rent from you as possible. Think what you would like if you were looking for a place to rent.
cheers and good luck,
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