【Tips for Beginners】Costs of Buying a Property besides Down Payment

Buying a property costs much more than just the down payment. It involves legal fee, mortgage insurance premium, management fee, etc. We will go over every item with you in this article!

Legal Fee
Property buying mainly involves 3 main documents, namely Agreement for Sale and Purchase, Lease and Mortgage deed. The legal fee varies from a few thousand to several tens of thousand dollars. The fee depends on various factors including the property price, property size, property age, land lease, etc. If the property is too old or involves land title disputes, the legal procedure would be more complex and the legal fee could be higher. As for the legal fee of the mortgage deed, it depends on the loan amount.

Mortgage Insurance Premium
Under the new Mortgage Insurance Programme, the maximum property value eligible for mortgage loans up to 80% loan-to-value (LTV) ratio is HK$10 million;
For mortgage loans up to 90% LTV ratio, the maximum property value is HK$8 million. But the new arrangement is only applicable to applicants who are first-time home buyers. They are also required to have a stable income and pass the stress test. Even if the applicant could not pass stress test, as long as the debt-to-income (DTI) ratio is below 50% and the applicant pays an extra 15% of the mortgage insurance premium, a high LTV mortgage might still be approved. There are 3 mortgage premium payment methods: 1. single payment, 2. annual payment and 3. single payment through applying top-up loan from a bank. Usually single payment would be a better deal if the mortgage loan lasts for over 4 years.

Management Fee and Miscellaneous
Buyers have to pay water bill and gas bill deposit after purchasing a property, be it a first-hand or second-hand property. The management office would also require a deposit equals to 2 to 3 months of the management fee. At the moment the management fee of a private property ranges from HK$1 to $5 depending on the services and facilities. Some first-hand properties require various fees including special fund, clubhouse management fee deposit, extra prepaid management fee and waste disposal fee upon property intake. The fee amount ranges from 1 month to a few months of the management fee. As demonstrated in the above, more miscellaneous fees are involved when buying a first-hand property compared to a second-hand property.

Rates and Government Rent
Annual Rates and government rent are payable quarterly in advance. The charging of annual rates and government rent is set at a rate of 5% and 3% of the rateable value of the property respectively. After purchasing a property, one has to pay rates and government rent by the “Last Day for Payment” and the amount would be calculated according to the ratio of the remaining dates to the quarter. If the quarterly rates are $1800, and there is 1 month remaining in the quarter, the payable amount would be $1800/3=$600.

Commission for Real Estate Agents
Property transactions is usually completed through an estate agent which involves commission fee. Currently the law does not stipulate the amount nor the ratio of the commission, but the ratio is usually 1% of the property price. If one purchases first-hand property, the commission is usually paid by the developer only.

Stamp Duty
The Hong Kong Government charges home buyers stamp duty. For a first-time home buyer who is a Hong Kong permanent resident, stamp duty is calculated based on the property price, the higher the property price, the higher the stamp duty. For example, if the property price is HK$5 million, the stamp duty is 3% of the property price, which is HK$150,000. The stamp duty has to be paid within 30 days after signing a provisional agreement for sale and purchase. In other words, it has to be paid before the property is formally transferred. The buyer has to prepare the fee before purchasing a property.

There are various fees involved in property purchasing, potential home buyers are advised to plan ahead to ensure they have sufficient capital to pay the fees related to property purchasing.

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