Buying in Hong Kong and Macao: Price is the only bar

By Alex Frew McMillan International Herald Tribune

HONG KONG Buying a property in Hong Kong or Macao is not a problem. But finding the money to pay for it might be.
"There are no restrictions, no barriers whatsoever: It basically comes down to whether you can get a mortgage," said Michael Lipin, an American expatriate. "That's the ultimate restriction."
About half of Hong Kong's seven million residents live in government housing. The rest of the city is up for grabs - at a price.
Hong Kong has one of the world's most feverish property markets, with developers jockeying to claim record prices. The most recent was 31,384 Hong Kong dollars, or about $4,000, per square foot, or about $370 per square meter. Even a small apartment in a pedestrian, multitower development costs about 2.5 million Hong Kong dollars. The property-purchasing process in Hong Kong is based on common law and is similar to that in England, the territory's former colonial ruler. There was some concern about property rights when China reclaimed Hong Kong in 1997, and then regained Macao from Portugal in 1999. But both cities operate as autonomous Special Administration Regions, and the change has had little overall effect on real estate markets.
After searching for two months, Lipin recently bought a one-bedroom apartment in Mid-Levels, a popular neighborhood on Hong Kong Island. "The technical aspect of looking for a flat is very easy," Lipin said. "But I found the process quite time-consuming. You really have to shop around to find the best value."
And the market has quirks. Properties on the fourth floor, or any floor with a four in it, are slightly cheaper because the Cantonese word for four, "sei," sounds like the word for "death." Similarly, a property overlooking a cemetery may be cheaper, although it is considered to have good feng shui for people with a lot of yang, or masculine, characteristics. And many owners have made unapproved alterations, such as closing in balconies, constructing internal staircases and even building rooftop structures. The Hong Kong government has been cracking down and ordering that buildings be restored to their original conditions. A lawyer or broker can track such an order, but if none is found, it may just mean that inspectors have not gotten to the building yet.
Ronald Cheung, an executive at Midland Realty, a Hong Kong real estate agency, recommends that buyers use local lawyers and get mortgages, even if they can afford to pay cash. "If the bank allows you to buy and lends you the money, they will ensure the property must be in good title," Cheung said. "Always get a mortgage: Don't settle everything in cash."
Title searches can be complicated in Macao, where records are not standardized. Also, real estate agents there are not licensed, unlike their counterparts in Hong Kong. Cheung said it was thus doubly important to deal with reputable law firms, banks and real estate agencies there.
In Hong Kong, a buyer typically puts down 5 percent of the purchase price when a preliminary sales and purchase agreement is signed; another 5 percent is paid about two weeks later when a formal agreement is signed. The balance is due at closing - normally six to eight weeks later.
There are penalties for pulling out of a sale after the preliminary agreement is signed.
The broker's fee generally ranges from half a percent to 1 percent of the price; the lawyer's fee varies but usually is about 6,000 Hong Kong dollars. A stamp duty is 0.75 percent to 3.75 percent of the price. For local residents, a bank generally will finance as much as 70 percent of the price; mortgage insurance will allow as much as 95 percent on some purchases, with less favorable interest rates and other restrictions. But people living abroad are not shut out. Cheung said he had worked with American, Korean and Japanese purchasers who had arranged mortgages with banks at home to be handled through branch offices in Hong Kong.
In addition to buying Hong Kong properties for their own use, some people make investments, even though the rental yield in Hong Kong is much lower than it is in other countries, said John Au-yeung, a real estate agent with Cosmopolitans. "At the moment, it is not uncommon for the yields to be about 2 percent, and rents don't go up quickly," he said. As a result, most investors focus on potential capital gains from the property rather than rental income. Also, buying a property can produce a residence permit, if the purchase is costly enough. In Hong Kong, the magic figure to invest is 6.5 million Hong Kong dollars, in any combination of property and financial instruments like stocks and bonds. Macao grants residence permits to people who invest 1 million patacas, or $120,000, in property and have another 500,000 patacas in fixed deposits at Macao banks.  There is some small print: Hong Kong's offer is not open to Chinese from the mainland, unless they are permanent residents in another country, and it is also off limits to Afghans, Albanians, Cubans and North Koreans. In Macao, an investor must have a university education or run a company.  And the investment figures are net, meaning the money must be a down payment and not a mortgage. Also, Macao's lower threshold is a little misleading. Au-yeung noted that Macanese banks are deliberately undervaluing properties in an effort to cool the local market, which was showing signs of overheating when the city's casino boom began a couple of years ago. "The government has a tacit agreement with the bankers that they can only value the property at two-thirds of the market price," Au-yeung said. "So even though they say 1 million patacas is O.K. to qualify, actually you have to buy a property worth 1.5 million."

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