Here’s all you need to know about property mortgage & sales and purchase agreements in Hong Kong. Read on & get your next mortgage loan in Hong Kong at ease!
PART 2
In Part 1 of our Buyer’s Guide, we looked into the initial steps toward buying a property in Hong Kong, including setting a budget and deciding where you want to live. In the final Part 2, we outline the crucial steps involved in applying for a property mortgage for those financing their purchase and detail some of what to expect when finalising a sale and purchase agreement. This is a guide, and as always, you should consult a reputable agent when making an actual purchase.
Step 6: Apply for a property mortgage in Hong Kong (Updated Oct 2024)
Opinions vary as to when the right time to apply for a property mortgage is in the event that you’re financing your purchase. You can consult with a mortgage broker in Hong Kong, who will do the work of shopping around for the best rate from the major lenders in the HKSAR, most of which are banks regulated by the Hong Kong Monetary Authority. You can apply for a mortgage once you have a Preliminary Sale and Purchase Agreement (S&P), or you can seek pre-approval (“indicative approval”). Non-binding (for the lender) pre-approvals will give you a basic idea of what kind of mortgage loan you can expect to be working within Hong Kong, and answer questions like “How much deposit do I need for a mortgage in Hong Kong?”. Formal and binding pre-approvals are also available and expire after a fixed amount of time.
No matter when you apply, the property mortgage process afterwards remains the same. Currently, the standard down payment requirement for residential property-buying in Hong Kong is 50-60% for properties over HK$12 million, meaning a lender will finance up to 40-50% of the cost of the property. Further to that, lenders in Hong Kong often restrict mortgage loans based on the age of the property, its address (the numeral ‘4’ can affect potential resale) and whether you own other properties. The most common mortgages in Hong Kong are based on HIBOR (Hong Kong Interbank Offered Rate) – the rate at which banks lend to each other.
On October 16, 2024, the Hong Kong Monetary Authority (HKMA) issued new guidelines adjusting countercyclical macroprudential measures for property mortgage loans in response to changing market conditions. Following the government's removal of demand-side management measures, the residential property market experienced fluctuations, with average monthly transaction volumes initially rising but later declining. The HKMA's adjustments include setting a maximum loan-to-value (LTV) ratio of 70% for all residential properties and aligning the debt servicing ratio (DSR) limits at 50% for both residential and non-residential properties. Additionally, the requirement to lower LTV and DSR limits for applicants with existing mortgages has been lifted. These changes aim to support effective risk management while minimizing impacts on property transactions, effective immediately for new agreements signed today or afterward.
Step 7: Signing the Provisional Agreement for Sale and Purchase
So you’ve found the perfect flat in Hong Kong. Generally, the next step is to make an offer and hope a Sale & Purchase agreement comes of it after negotiation. Once you and the vendor agreed on a price, and your property agent has completed their due diligence on the property – such as confirming legal ownership history, outstanding order status, etc – you sign a provisional S&P (PASP) and then pay the vendor or their solicitor 5% of the agreed upon price as a deposit.
In the case of our HK$30 million flat, the 5% deposit would be HK$1.5 million.
Step 8: Cancelling the Provisional Agreement for Sale and Purchase
In the event you cancel the sale after the provisional S&P has been signed but before the formal S&P is finalised, you will forfeit your 5% deposit of HK$1.5 million, pay an additional penalty of 5%, and you must pay all agents’ commissions.
The same holds for the vendor, who pays a penalty of double the deposit amount (i.e. refund the deposit plus a 5% penalty) and also covers both sides of the agency fee or 2%.
Once a formal Sale & Purchase agreement is signed, it is very difficult to cancel the transaction unless there is a fault in the property title.
Step 9: Formal Sale and Purchase Agreement
After the PASP has been signed, it is followed by a formal Sale & Purchase agreement, usually 14 days later, drawn up by the vendor’s solicitor. On the signing of the formal Sale and Purchase agreement, you transfer a second deposit to bring the total to 10% of the purchase price (a total of HK$3 million in our example) and pay the applicable stamp duties. This notifies the Land Registry of the sale.
Step 10: Finalise the sale
Closing generally happens 8-12 weeks after the signing of the Provisional Sales and Purchase agreement. With every other step completed and to everyone’s satisfaction – a pre-closing inspection is generally done on the day before closing or the morning of to confirm the condition of the property.
Any financing will be coordinated between the bank and your lawyer. Legal fees and agent's commission are payable at closing.
You then take possession of your property and will receive all the keys.
Congratulations, you are now a Hong Kong property owner! Though the purchasing process is efficient and relatively simple in Hong Kong, it’s still always best to consult your Habitat agent for any advice on purchasing a property in Hong Kong.
