Private car parking spaces in Hong Kong have become a target for investors, especially since demand outstrips supply.
- Pay attention to the mortgage ratio
Under mortgage guidelines laid down by the Hong Kong Monetary Authority, if the applicant’s income is earned in Hong Kong, car parking lots can only receive a mortgage loan of up to 40 per cent of the transaction value. If the applicant’s income comes from outside Hong Kong, the loan-to-value ratio of the mortgage must be reduced by 10 per cent.
If calculated at the level of net assets, the mortgage ratio can only be 30 per cent. In addition, the loan-to-value ratio for a car parking space will also be reduced by 10 percent if the buyer already has a home mortgage.
If the applicant already has a mortgage for a parking space, he/she will face a 10 per cent reduction in the loan-to-value home mortgage in the future.
- Cash rebates are available for car parking mortgages
The interest rate on car parking mortgages is generally slightly higher than that on home mortgages. The current interest rate on car parking mortgages is often based on prime (a bank’s best interest rate). The effective mortgage rate is 2.75 percent for a maximum repayment period of 15 years. If a parking space costs more than HK$1 million, the mortgage loan applicant can avail of a 0.5 per cent cash rebate. If the price of a parking space is HK$1.2 million and if the mortgage loan applicant chooses to repay the loan over 15 years, the first installment amounts to HK$720,000 if a mortgage loan that carries a 2.75 percent interest rate is selected.
If the mortgage loan amounts to HK$480,000, the monthly repayment is HK$3,257, while the full interest expense will amount to about HK$106,329. In this case, the cash rebate is HK$2,400.
- Apply for a bigger mortgage loan when buying a residential unit together with a parking space
Mortgage policies of banks relating to parking spaces are often more conservative than those for residential properties. If a loan applicant wants to enjoy preferential terms for a parking space loan just like easier terms often available when buying flats, it is best to select a flat that comes with parking space when buying a residential unit. If such package is chosen by a homebuyer, the loan for the parking space can then piggyback or enjoy the same terms as those for the home mortgage loan.
Buyers can choose loans based on prime rate, or a P-plan loan or a plan linked to the Hong Kong Interbank Offered Rate (Hibor), or H-plan. The maximum repayment period is 30 years.
However, a homebuyer should be note that if he/she wants to sell the parking space independently of the flat in the future, the person should go for a strata contract.
- Certain parking spaces can be tax deductible
Owners can apply to the Inland Revenue Department for a deduction of the home loan interest if the purchased parking space is for his/her own use and if it is located in the same property as the residential unit,
At present, the maximum tax deductible for home loan interest is HK$100,000 every year. If the parking space is intended for self use, the buyer can consider maximising mortgage tax deductions.