The different ways of owning a property in Hong Kong are sole ownership and joint ownership. Ask your solicitor for more information about joint ownership if you plan to buy a flat with other persons.
a. Sole ownership
Sole ownership refers to a property owned by one person only and that person is the sole owner of the property.
b. Joint ownership
If a couple who are either married or living together purchase a property in which they intend to live, they usually intend to share the ownership of the property. The most common types of joint ownership are “joint tenancy” and “tenancy-in-common”.
i. Joint tenancy
For a joint tenancy, all the joint tenants are treated as one sole owner. When one of the joint tenants dies, his/her interest in the property will automatically pass to the surviving joint tenant(s) who will own the whole property.
ii. Tenancy-in-common
For tenancy-in-common, the interests of all the tenants-in-common are normally proportional to their respective contributions to the purchase price of the property. In a tenancy-in-common with 2 owners, for example, the owner who contributed 25% of the purchase price would hold 1/4 share of ownership. The other owner, who contributed 75% of the purchase price, would hold 3/4 share of ownership. When one of the tenants-in-common dies, his/her interest will form part of his/her estate (i.e. property left after a person’s death), and will be passed on according to the terms of his/her will or the law of intestacy if there is no will.
Yes, you can. Before signing the formal agreement, your solicitor will ask you and your spouse (or your parents) to sign an additional document, called Nomination, confirming that you were being nominated to sign the previous provisional agreement on behalf of the “new purchaser”. The “new purchaser” includes you and your spouse (or your parents). This document, will not be subject to ad valorem stamp duty if the “new purchaser” is not a beneficial owner of any residential property in Hong Kong. (See section 29AB of the Stamp Duty Ordinance (Cap. 117)). The Nomination must be presented to the vendor’s solicitor for preparing the formal agreement.
Although you are not the “registered owner”, if whole or part of the purchase money comes from you, you may be the “beneficial owner” of the property. That is to say, the property may be held by the registered owner in trust either wholly or partly on your behalf. If you and the registered owner have respectively contributed half of the purchase money, your half share may be held by the registered owner on your behalf. You should immediately notify any intending purchaser and his solicitor of your beneficial interest. This could effectively stop the sale. Alternatively, you could claim against the registered owner for your share of the proceeds if the property is sold.
However, if you intended to buy the property and give it to the registered owner as a gift (in which you had clearly expressed that when you paid the money), your beneficial interest in relation to that property is arguable. That means you may not be able to stop the sale or claim for your share.
The above matters involve complex legal arguments in which legal advice must be sought.
A deed of gift may create a potential defect in title. Under section 49 of the Bankruptcy Ordinance (Cap. 6), the Court make an order to set aside a transaction made by a bankrupt within a period of 5 years before he was adjudicated bankrupt if the transaction is regarded as an undervalue transaction. A deed of gift is regarded as an undervalue transaction under section 49(3) of the Bankruptcy Ordinance (Cap. 6). Hence if a person transfers his/her property to his/her spouse by way of a deed of gift and then the transferee wants to sell the property to a purchaser within the 5 years period of the deed of gift, the purchaser can challenge that the title is defective as the deed of gift may be set aside by the Court under section 49(2) of the Bankruptcy Ordinance (Cap. 6).
Since the introduction of the latest mortgage insurance measures, the proportion of first-home buyers using high-performing mortgages to buy property has increased significantly. A high percentage mortgage can reduce the burden of the first installment, but the contribution income ratio and stress test requirements also increase. If the contribution ability is insufficient, it needs to be shared by the borrower or guarantor to increase borrowing capacity. Generally, when applying for a mortgage loan from a bank or financial institution, the applicant is usually divided into a mortgagor, a borrower, and a guarantor. This time, I will explain the differences between them.
The mortgagor, or mortgagee, is the property owner (that is, the owner) and is the only person who has the right to buy and sell the property. It must be filled in the mortgage application. The mortgagor usually becomes the borrower at the same time. Mortgages need to be reviewed for financial and credit status. However, if the mortgagor is not the borrower, the borrower will be responsible for repaying the loan. For example, the husband wants to send a floor to his wife and the husband is responsible for making contributions. The borrower will be responsible for repaying the loan. The mortgagor may also have more than one person at the same time, but if the property is to be mortgaged or sold, it must be agreed by all the mortgagors before proceeding. Because the mortgage loan is a property mortgage, if the mortgagor, borrower and guarantor fails to repay, the bank or financial institution has the right to take over and sell the property.
The borrower is the person who assumes the mortgage loan, it must be filled in the mortgage application, and it must bear the repayment responsibility. When applying for a mortgage, the borrower’s information must be reviewed by the bank or financial institution to ensure sufficient repayment ability to apply successfully. The borrower’s contribution to income ratio and stress test must be 50% and 60%. In addition, When the bank or financial institution approves the borrower’s mortgage application, it will also check its financial and credit status. If the borrower has insufficient repayment ability, more than one borrower or guarantor may be added. If the borrower already owns or guarantees another property, the mortgage percentage, contribution to income ratio and stress test will be reduced by 10%.
The guarantor is the person who guarantees the mortgage of the property, most of whom are close relatives of the borrower. Generally, the guarantor is unlimited (depending on the bank / financial institution). If the mortgage borrower’s monthly contribution to income ratio fails to pass the HKMA’s regulations, it can increase the guarantor’s ability to repay, but if the guarantor has other debts, it will affect the borrower’s ability to repay. Unlike a borrower, a guarantor cannot be a mortgagor at the same time. It is also important to note that mortgage loans will be recorded on the guarantor’s credit report, which will affect the guarantor’s application for other loans. Moreover, if the borrower loses the ability to make contributions and fails to repay the debt, it will be transferred to the guarantor. If the borrower delays the mortgage, it will affect the credit rating of the guarantor, so you need to consider carefully before becoming a guarantor .
For the first time buyer looking to enter the Hong Kong Property Market, finding a suitable mortgage plan may seem like a daunting task. Yet in truth, the practical steps behind securing a mortgage via application to your respective mortgage provider can prove quite straightforward. The details are paramount and a number of key considerations should inform your decision making process.
Interest Rate
Broadly speaking, mortgages that are available in Hong Kong can be classified into 3 categories with the key determinant being their varying interest rates: (1) fixed-rate, (2) flexible-rate or (3) deposit-linked. Depending on current market conditions and the state of your personal finances, each option presents their distinct set of pros and cons.
Fixed-rate Mortgage
If you are adverse to interest rate fluctuations and looking to take out a long-term mortgage, the set rate of interest provided in a fixed-rate mortgage could present a stable if not predictable option. Typically available in 15, 20 or 30 years terms, as a borrower you must be mindful of current interest rates since high levels could make qualifying for a mortgage loan more difficult.
Flexible-rate Mortgage
Determined either by the Hong Kong Interbank Offered Rate (HIBOR) or Hong Kong Dollar Prime Rate (Prime) flexible-rate mortgages typically enables the borrower to qualify for a larger loan with low initial payments. Beneficial in the near term or when interest rates are predicted to fall, rising interest rates could prove punitive to the long-term borrower unless a monthly cap on mortgage expenses are part and parcel to your plan.
Deposit-linked Mortgage
Touted as offering a preferential annual interest rate, this mortgage plan either links to your deposit account and provides an interest rate equivalent to your mortgage’s interest or leverages the current deposit amount to reduce your mortgage interest payment for each period. HIBOR or Prime based, it is important for first time buyers to properly consult their banking representatives.
Loan-To-Value Ratio and Stamp Duty
In deciding upon your mortgage plan, it is crucial to be aware of the maximum Loan-To-Value Ratio as well as stamp duty rates. Whilst a conventional mortgage will allow up to 60-70% of the property’s value depending on price, for properties worth under HKD 10 million, borrowers have the option to apply for the Mortgage Insurance Program which allows for 80%-90% of the property’s value to be covered by the mortgage plan. In terms of stamp duty, this is subject to different price bands and can range anywhere between 1.5% to 4.25% upon the sale or transfer of property. Ultimately, the issue of affordability comes into play. As a borrower, you have the option to use a variety of online tools including mortgage calculators to make informed budgeting decisions. You also have to be conscious of the fact that you will incur other costs such as the solicitor’s fee and agent commission.
Applying for a Mortgage
Having selected a property through a realtor, decided on an appropriate mortgage plan and resolved questions of affordability, you can now submit your application to a mortgage provider which by default in Hong Kong, is the bank.
Upon receiving your application the bank will arrange for a valuation of the property you intend to purchase, prepare mortgage terms and assess your repayment ability. In approving your mortgage application, the bank will then arrange for you to sign a confirmation letter as well as various necessary contracts which include the Formal Sale and Purchase Agreement as well as the Assignment Deed. You will then be required to pay the full deposit and the Government stamp duty via your solicitor before receiving the repayment schedule from your bank.
Once your bank has disbursed the mortgage loan amount to the seller, your property buying process will be complete.
Updated:28Feb2024
The size of Hong Kong properties is a commonly derided topic, yet there are gems in the rough that boast practical layouts which optimize a property’s saleable area in addition to featuring high ceilings, large windows and an abundance of wall space to let your creativity shine: loft spaces. In Hong Kong, landlords who own commercially zoned properties, have followed the worldwide trend to convert these spacious units into attractive, value for money living spaces that include structural elements like open ceilings, polished concrete floors, crossbeams and steel, creative lighting and space for expressive art. The functionality and design of these bare and unadorned “apartments” are hard to resist and real estate agents in Hong Kong often get asked for assistance by prospective tenants, who are interested in these commercial properties for residential use.
In Hong Kong, this does not correspond with the “Zoning Law” which dictates how real estate property and land can or cannot be used and which does not permit the use of commercial or industrial space in warehouses to be rented for residential purposes.
Many of these former commercially used units can be found in Aberdeen, Ap Lei Chau, Chai Wan and other industrial areas, albeit not without significant risk for both sides, landlord and tenant. If the government steps in and issues an eviction note, the tenant has to move out without legal recourse. Real estate agents in Hong Kong are able to assist in renting such a property provided both parties sign a disclaimer and declare in writing that they have been informed about the risks of entering into such an agreement but wish to proceed nevertheless.
In case of any dispute between tenant and landlord, such a tenancy agreement would not hold out in court and may not be enforceable. The tenant carries the risk of potential loss of the security deposit or any other advance rents paid to the landlord.
This lifestyle can be quite lonely during weekends, when restaurants and shops in the area are closed and offices and other premises are empty. During the week it may be quite busy and noisy or even smelly, depending on the nature of businesses occupying neighboring units. Your neighbor could be running a printing machine or other loud equipment and it is worth evaluating this ahead of signing any agreements.
On the other hand, you can turn up the volume of your TV or music and nobody will notice. Your neighbor could also end up being one of Hong Kong’s famous private kitchens, an art gallery or trendy fashion designer! It is definitely a unique way of living and may be worth a try as long as everyone knows the risks involved!
Property investors often use companies to hold real estate because personal property ownership could get expensive: when treating property as an investment, a small percentage difference in taxes between company and personal ownership can translate into a difference of millions of dollars. Using holding companies to transfer the ownership of properties is therefore a sought-after tactic to reduce taxes. But—is it for you? We look at the pros and cons of using companies to buy and transfer property.
Pros
Save on Stamp Duty
Avoid the extra taxes imposed on personal home buyers by buying property through the transfer of company shares. If you’re buying property as an individual for the first time, you will have to pay ad valorem stamp duty (AVD) of up to 4.25% —compared to the 0.2% stamp duty for purchasing or selling a company.
Cons
Risks of acquiring the liabilities of a company
Property investors who acquire the shares of companies face investment risks including hidden debts. Thorough due diligence by your lawyer should be conducted before any company acquisitions to ensure the company being acquired doesn’t own other assets or have other liabilities.
Cost of acquiring and maintaining a company
When acquiring a company-owned property, your lawyers will not only need to conduct due diligence on the property (to check for encumbrances), but also on the company being purchased (to ensure it doesn’t have other assets/liabilities as described above). Thus the legal costs for acquiring a company-owned property are higher than when purchasing a property directly. In terms of ongoing maintenance costs for the holding company, Hong Kong shelf companies typically face annual costs of around HK$10,000 to HK$40,000 (including audited financial statements). The actual costs depend on the service provider and the number of properties the company holds (though generally a company being sold will only own one property).
Difficulty in obtaining a mortgage
Banks tend to be reluctant to offer mortgages for property purchases involving the transfer of company shares due to legal complexity and risks, which means investors who purchase company-owned properties may have higher upfront cash costs. In respect of a mortgage, some banks offer packaged bridging loans for company purchases (at a higher interest rate). After completion (usually 2-4 weeks), this loan is converted into a mortgage. The % mortgage may vary but people buying company-owned properties are recommended to speak with banks directly about potential solutions.
Conclusion
Purchasing companies through the transfer of company shares can be a great way to reduce property taxes— if you have enough cash to fund the purchase initially, and if the costs of managing the company are small relative to the stamp duty that would otherwise be payable. As a first-time home buyer or property investor you may be better off simply accepting the applicable stamp duties (while being aware of them and structuring your purchase to minimize them).
Updated:28Feb2024
Lease renewal may seem like a straightforward process—talk to your landlord about your rent, sign an addendum, get it stamped—and you’re done. But, take a good look at your rental home: have the walls begun to peel? Is the air-conditioner radiating hot air? Does your sink leak? These may be issues you would like your landlord to address—but you’re also concerned that raising them would merit your landlord to increase your rent. Here is what you can do to make tenancy renewal a breeze:
Do your research
Two to four months before your lease agreement expires, let your landlord know that you are interested in renewing the lease. Even if you are happy with your existing rental, it would be a good idea to learn about current home prices since rent will be the focus of your lease renewal. Talk to your real estate agent for more comprehensive market information. Staying informed could improve your bargaining power if your landlord increases your rent without good reason—although it is worth noting that when the property market is booming, chances are, your landlord will not budge.
Ask for more
The new lease would very likely reflect prevailing market rents, so get the most out of it by discussing with your landlord opportunities for improving the flat, such as deep cleaning the air-conditioner, or replacing the worn-out washing machine. Alternatively, forgo requests for improvement and negotiate for a lower-than-market rent.
Let your real estate agent do the work for you
When it comes to property prices and the property market, your real estate agent knows best—it’s what he/she does for a living! That makes him or her the ideal negotiator to persuade your landlord to agree to better rental terms for you. Your landlord would, too, benefit from your agent’s knowledge of the latest property market situation. Your agent may even advise your landlord about the benefits of settling for a mutually agreeable rent, such as saving potential costs incurred from renovating the property for a new tenant, or, worse, an untenanted home.
Negotiations aside, your real estate agent will also help you (and your landlord) save time by preparing and amending the necessary paperwork, verifying the status of the property, carrying out the stamping of the lease agreement, and preparing and submitting other relevant documents to the government. These factors may even encourage your landlord to share the agent’s fee, if not pay for the cost him/herself.
While achieving a reduction in rent may not always be possible, your real estate agent will almost certainly help you achieve better terms and greater savings than what you’d be able to achieve on your own—not to mention ensuring that your rights are fully protected in the renewal agreement with his/her expertise.
It does not stop here: throughout the term of the new lease, you can always count on your agent to provide support and advice, especially when you experience difficulties when communicating with your landlord, such as a language barrier, or unresponsiveness. If, ultimately, you decide not to renew your tenancy, you would at least have a real estate agent on hand for fast and up-to-date information on other flat to rent.
Contact your AI ONLINE PROPERTY agent today for assistance with lease renewal.
A tenancy has the legal effect of passing an “interest” in land from the landlord to the tenant. It means that the tenant is given the right to possess the land during the terms of the tenancy (subject to other restrictive covenants on use). During the fixed term of the tenancy(and without any breaches or any ‘break clauses’ exercisable), a tenant may generally occupy the property as of right without the fear of being evicted by the landlord.
In contrast, a licence creates no interest in land. The licensor only allows the licensee to use the land, not to exclusively occupy it. Subject to its terms, a license may also be terminated contractually at will or even by way of repudiation by the licensor. The licensee’s remedy against the licensor’s breach of the licence may lie only in claiming damages, but not in occupation of the property.
Therefore, a licence is typically used for short-term occupation (e.g. for several weeks or months) or where the licensee does not have exclusive occupation of the property, e.g. a car parking space, a hotel room, a newsstand or a “kiosk” in a shopping mall.
To demonstrate the concept of “interest in land”, it is worth noting that there is no interest in land in the external walls of a building because a wall, being a vertical surface, is not land. Therefore, the owner who retains the rights and interests in the external walls of a building (typically in a multi-storey building) generally cannot let the walls to another party, but can only license the rights to use the walls.
It should also be noted that as a licence does not transfer any interest in land, it is not liable to stamp duty. However, it would be futile to label a document as a licence just to avoid stamp duty. Whether a document creates a tenancy or a licence does not depend on the name of the document or other labels given by the parties, but on the true nature of the rights and obligations as evidenced by the agreement. A major factor in differentiating between a tenancy and a licence is to see whether the user has exclusive occupation or possession of the property. Subject to facts that will vary from case to case, the law generally accepts that a grant of exclusive occupation (the user can occupy the property solely and privately) for a term at periodic payments creates a tenancy.
The above matter involves complex legal arguments. You must consult a lawyer if you have further queries.
An obvious consequence is that the landlord and the tenant will be liable to civil proceedings by the Collector of Stamp Duty of the Inland Revenue Department. Moreover, a tenancy document must be stamped before it can be lodged with the Land Registry for registration.
A more important consequence is that the Court may not accept an unstamped tenancy document as evidence in civil proceedings. In other words, a party will have difficulties in enforcing the tenancy document against the other party (who has breached the Tenancy Agreement or Lease) in Court.
The landlord may be liable for nuisance committed by the tenant if he has expressly or impliedly authorised the tenant to commit nuisance, or has adopted or continued such nuisance.
Tenancy agreements commonly contain a covenant by the tenant not to cause or permit nuisance, annoyance, inconvenience or disturbance to the occupants of neighbouring premises.
For tenancies of domestic premises entered on or after 27th December 2002, section 117(3) of the Landlord and Tenant (Consolidation) Ordinance (Cap. 7) implies in the tenancy a covenant that the tenant not cause unnecessary annoyance, inconvenience or disturbance to the landlord or to any other person, if the tenancy does not already contain a covenant substantially to the same effect. The legislation also implies in the tenancy a condition for forfeiture if such implied covenant is broken.
Before the landlord can enforce the right of re-entry or forfeiture to terminate the tenancy early, section 58 of the Conveyancing and Property Ordinance (Cap. 219) requires that a prior written notice be served on the tenant, specifying the breach complained of and requesting the tenant to remedy the breach or the compensation payable.
So if it can be proved that the tenant has been causing nuisance or annoyance to the occupiers of adjacent premises and where the tenant has refused to remedy the breach, the landlord may exercise the right to forfeit the tenancy and may claim against the tenant any damages caused by such early termination of the tenancy.
Unless there is express agreement to the contrary, the apportionment mechanism under the Apportionment Ordinance (Cap. 18) does not apply to rent payable in advance, as in this example. The tenant is still obliged to pay the monthly rent in full on 1st January and it is not a legal requirement for the landlord need to refund the rent for the period 16th and 31st January.
For a tenancy agreement with a break clause which allows for early termination, the entitlement to early terminate the tenancy does not in principle affect the obligation to pay rent of the tenant. In such a case, it would be more desirable to serve notice to quit on the pay day of the monthly rent.
Property Tax is computed at the standard rate of 15% (from 2008/2009 assessment year onwards) on the “net assessable value” of the property. A “Net Assessable Value” is computed as follows:-
| [A]= | Rental Income |
|---|---|
| [B]= | Less: Irrecoverable Rent |
| [C]= | (A-B) |
| [D]= | Less: Rates paid by owner(s) |
| [E]= | (C-D) |
| [F]= | Less: Statutory allowance for repairs and outgoings (E x 20%) |
Net Assessable Value= [E]-[F]
It is notable that “Rental Income” covers the following:-
As explained, the law imposes a flat rate of 20% as statutory allowance for repairs regardless of the actual amount(s) being spent or incurred in repairing/refurbishment of a property by the landlord.
Further deductions may be made through election on “Personal Assessment” (for properties wholly owned by individuals)
Based on the foregoing, it is commonplace for tenants to become responsible for and pay management fees directly under a tenancy agreement, while it is usually the landlord who shall be responsible for payment of government rent/rates by themselves.
For details regarding the exact computation of Property Tax, please visit the Inland Revenue Department’s website.
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