Do Your Homework Before Buying an Off-plan Property
According to the latest data from mreferral Mortgage Brokerage Services and the Land Registry, there were 103,644 approved mortgages for completed properties in 2019, a 1.8% year-on-year decline; in contrast, 13,343 off-plan properties secured mortgages—not only is that a whopping 48.5% increase compared to 2018, but in fact the highest recorded number in history. Off-plan properties—meaning first-hand homes that are not yet completed—are hot commodities these days, and with good reason; developers are eager to offload their new units to avoid paying the hefty vacancy tax, resulting in reasonable prices; meanwhile, the government’s new relaxed mortgage measures and low interest rates offered by banks have incentivised homeseekers to enter the market. This year, 39 new developments will be launched, offering a combined total of some 18,300 units. With the popularity of off-plan properties likely to continue, I’m here to offer some insight and tips to prospective off-plan buyers.
First of all, do your due diligence before making a purchase decision. There are many things interested buyers can do ahead of the launch of the new development, which includes learning about details of the project on the developer’s website; checking for news related to the development; going to see the development yourself and getting a sense of its surroundings and nearby infrastructure, and since off-plan properties are uncomplete, make sure to check out the show flats. Developers usually provide two types of show flats—unmodified (with the same conditions of the actual flat to be handed over to buyers upon completion) and modified (partly furnished and decorated)—for the public and prospective buyers to see. Ask for a copy of the sales brochure before taking the tour, so you can have a better reference at hand as you examine the show flat.
Once you’re satisfied with what you’ve seen and decide to purchase the unit, the next step is to evaluate your financial capability against the income and asset requirements of the mortgage application. Mortgage brokerage companies or bank websites are a good place to start if you need to apply for a mortgage. These sites usually come with a mortgage calculator function: all you need to do is put in the home price, LTV ratio of the mortgage and mortgage term, and it will be able to provide you with the essential information regarding your mortgage payment, your debt-to-income ratio and the stress test. Ask the brokerage company or bank for a free consultation if you want more information.
When you have completed the aforementioned steps, it’s time to register your subscription with your real estate agency. Developers are required to announce sales arrangements and details at least three days before the launch of the sales—this includes the date, time and location of the launch as well as the number of available units. While every developer may have their own methods and procedures, typically, the pick order of buyers is determined through a draw, and prospective buyers are required to prepare a designated amount of deposit (usually HK$100,000, payable by cashier’s check, check or credit card) when they register their subscription intention. When it comes time to sign the preliminary agreement for sale and purchase, the amount already paid through the registration deposit will be deducted from the preliminary deposit; at the same time, the buyer will need to pay the remaining balance of the preliminary deposit.