Moving up in the world

PUBLISHED : Wednesday, 29 March, 2006, 12:00am
UPDATED : Wednesday, 29 March, 2006, 12:00am

A guide to buying a property for first-timers

Buying a flat is a big step, so it makes sense to plan ahead and get it right - from searching for the property to obtaining mortgage finance and completing the legal documentation. Hiring legal and banking consultants can help make things go more smoothly.

Legal procedures

Angela Lee, a partner at legal firm Baker & McKenzie, has provided a list of pointers and the proper legal steps required to complete a purchase:

The provisional agreement

A provisional sale and purchase agreement must be signed once you are satisfied with the property and agree on the purchase price. Unless it is expressly 'subject to contract', this agreement obliges you to buy the flat, otherwise you may lose your initial deposit or be liable for breach of contract.

Usually 3 per cent to 5 per cent of the purchase price is payable as an initial deposit on signing. A total of 10 per cent of the price is payable within 14 days of signing the provisional agreement. It is in the interest of the buyer that the deposit is held by the seller's lawyer as stakeholder and is not paid directly to the seller.

The balance, being 90 per cent of the purchase price, is payable on completion, which is usually between one and three months after signing the formal agreement.

Title investigation

The seller holds a set of title deeds, including the land grant and documentary transfer of the property title, as proof of his ownership of the property.

The buyer's solicitor will review these title deeds to ensure that the seller has a good title to the property and full rights to sell it to the buyer free from encumbrances.

Completing the purchase

For the protection of the purchaser, the completion of the acquisition - that is, paying the balance of the agreed price and signing all legal documents - should take place at least 30 days after the provisional agreement is signed.

This will provide sufficient time to ensure that there are no competing claims for the property and prevent the risk of not getting a clear title of the property on completion of the purchase.

Before completion you should conduct a final inspection of the flat to ensure that it is in the condition that both parties agreed on, and vacant possession can be delivered to the buyer.

As a rule, you should never sign any legal document if you do not understand its contents. Ask your solicitor for assistance and advice to avoid undesirable consequences.

Mortgage financing

For most buyers, buying a flat is not possible without mortgage financing. In Hong Kong, homebuyers can borrow a normal 70 per cent mortgage from banks and, through the mortgage insurance scheme, the ratio of loan to property value can go up to 95 per cent. A variety of loan schemes are available, from conventional mortgages based on the prime lending rate to fixed-rate loans and deposit-linked packages.

Florence Pau, senior vice-president and head of consumer finance and SME business with Citic Ka Wah Bank, says some banks have recently become more aggressive in getting mortgage business with attractive interest rates. But she says most players in the industry will continue providing tailor-made schemes to suit customer needs as a key strategy to compete for business.

Mortgage-related insurance

On completion of a home purchase, it is essential for the buyer to acquire appropriate insurance for the protection of the property and personal items. Three types of insurance plans are well accepted by most mortgage customers - fire insurance, home content insurance and mortgage life insurance plan, according to Citic Ka Wah Bank.

Fire insurance covers the building structure of the property. It generally includes the outbreak of fire, lightning and loss and damage resulting from disasters such as typhoons, storms and floods. Risks such as landslides and subsidence are also covered.

Home content insurance covers items inside the house such as furniture, electrical appliances, the front door, ceilings, floors, bay windows and personal property such as watches and accessories if the loss is caused by fire, theft, explosion or accident.

It also includes the coverage of personal liability insurance.

Mortgage life insurance provides cover for the insured person or the insured person's family to keep making mortgage repayments and to relieve any potential financial stress in the case of temporary and or total permanent disability or death.

An outline of home purchase and mortgage finance procedures

In general, supporting documents include your identity card; preliminary sales and purchase agreement; main personal bank book/statements for the past three months; latest tax demand note; your employer's letter or most recent salary slip.