How much above bank valuation to pay for Hong Kong property
I was sent an email today by a reader of my blog who wants to buy an apartment on Park Island and is finding that every apartment for sale is at a minimum 15-20% above the valuation offered by banks for mortgage purposes.
My advice to him, was that this phenomenon is not only something that happens on Park Island. In Hong Kong, in a "rising market" it is in fact the norm that when you buy a place it will usually be at a price 10-15% above bank val. There are many reasons for this, but basically the banks are somewhat conservative, and also use valuation figures of transactions that closed 2-3 months ago. Since I have been in HK since 1997, its always been that way.
The potential buyer was looking at an apartment offered at 5 million for 712 square foot. He told me that HSBC values it at 4.4m and Bank Of China values it at 4.52m, and wanted to know if 5m was a "fair price". My advice on this is as follows:
Some “local banks” will give it a slightly higher valuation. So try to see what they will offer a valuation at.
In a rising market in HK, as mentioned above, it is usual to pay 15% above bank val. 15% of a bank val of $4.4m = $.44m + $4.4m = $4.84m. So the price of 5m, is "about right".
Another rough test to assess what price to pay is to calculate the average price for a Park Island property and then apply that to his property of interest. It seems that the current asking price now is around $6500 per square foot, so $6500 * 712 square feet would give a price of 4.628m. If the apartment is on a higher floor, nicely decorated, has ocean views, etc then a price above the average square foot price should be anticipated.
Add to this the current state of the stock market. If the HK markets are rising, this also tends to increase asking prices.
My suggestion ultimately to the person who sought my advice was to offer 4.7m with a view to perhaps settling for 4.8m. The problem with a rising market is that if you procrastinate too long, you will find that prices have risen, and then 3 months later you are still looking, only at higher prices than 3 months ago. I have seen this happen many many times to friends who are too cautious to make the big decision to buy. On Park Island in particular, I feel interest still in the early stages as expats become aware of how good the apartments are, do I feel its still a very good time to buy right now.
Hello,
ReplyDeleteThank you for your blog - as a soon-to-be resident of Park Island it makes interesting reading.
I think prices have not quite reached 6500 yet, at least not average prices. I use this link to keep an eye on things:
http://www.centadata.com/pih09/pih09/estate.aspx?type=2&code=WDPPWPPESB&lang=eng
Not trying to nitpick tho, and you are right, things are definitely on the up. I think at least 20% increase over a year ago, which is huge, but compared with many other areas in Hong Kong, relatively "stable", ie a good deal :), but for how long?
Hi M. Thanks for the comments and glad you like my blog :)
ReplyDeleteWhen are you planning to be a Park Island resident? Just in time the warmer weather which is about to start.
I think Park Island remains a good deal, even if prices rise, but I do know some long term residents are are definately concerned about the rising prices. Well the renters anyhow. Those that have bought seem quite happy to see prices going up :)
Very useful blog - we are using this as part of our process in deciding where to live in HK and came across your site.
ReplyDeleteI am moving to HK soon and been considering Park Island. This blog has been very helpful! Can't wait to go and check it out myself. Hopefully a budget of 10~12K should get me a 2 bedrm (I wonder if i can cut the rent down if i pay the yearly rent upfront). Anyways Thanks!!
ReplyDeleteI HAVE BEEN LOOKING TO BUY AN APARTMENT ON MA WAN (PARK ISLAND) AND THE CLOSEST I CAN GET TO A BANK VALUATION IS ONE I LIKE ASKING 15% OVER BANK VALUATION. THE AGENTS TELL ME THIS IS NORMAL BUT I HOPE TO GET IT AT 8 OR 10 PER CENT OR BELOW THAT EVEN COMPARED TO BANK VAL. ANY ADVICE PLEASE?
ReplyDelete10-15% is considered normal in a "rising market". As to whether the market is rising now, I am not so sure. I would try to get it within 5-10% of bank valuation. The problem is that you are unlikely to find any desperate seller as interest rates are so low, so you will probably need to pay above bank rates, even during this current period where the market is not particularly hot.
ReplyDeleteAgree - 10 % above bank val is pretty normal in HK, maybe even higher since they introduced extra stamp dutie taxes.
DeleteHSBC just raised its valuations for Park Island putting up prices around 1% I think.
ReplyDelete