Ask Melanie: Should we wait to buy our dream home?
My wife and I have lived in Hong Kong for a long time and now plan to stay. I'm 61 and drawing a pension. My wife is 54 and wants to work to 65. We easily save HK$44,000 per month. We've got HK$5.2 million in cash, HK$6 million in investments and no debt. We've lived in our North Point flat for many years. Rent is HK$26,000 per month. We could buy in our building now for HK$9 million (bank valuation) but people say the market will crash. Should we wait? (Name withheld)
No. Get on with it. You know the block, know you would be happy living there and can afford it. That's half the battle in Hong Kong. Many people simply can't afford to buy a property they would be happy calling home. The new rules limit your mortgage on a HK$9 million property to no more than HK$5 million, so you need a deposit of HK$4 million, plus HK$337,000 for stamp duty, HK$90,000 for agent's fees (assuming no discount) and about HK$25,000 for legal fees and disbursements.
That leaves about HK$700,000 cash to cover contingencies and renovations. Assuming a bank will lend to the usual retirement age of 65 years for your wife, your repayments over 11 years at current mortgage rates of 2.55 per cent will be about HK$43,000 a month. Buying your own home looks achievable, affordable and reasonably comfortable.
On average, people of your ages live into their mid 80s, so you should be taking a long-term view of the market, which will no doubt swing up and down over the next 20 to 30 years. If you buy now and the market crashes you have no reason to expect to have to sell into that crash. You will simply sit tight, knowing you've secured the apartment you want.
I'm assuming your wife has insurance in place in case of ill health or death and that at least 70 per cent of your pension will be paid to your wife on your death.
Looking towards your wife's retirement, make sure buying your home doesn't prejudice building capital to generate your retirement income. Double check this before committing to the purchase. That means totting up your budget to confirm your ongoing savings rate after mortgage repayments. Allow for future interest rate rises.
Crunch the numbers to estimate the value of your portfolio at retirement and make some predictions about restructuring your capital. You should also consider how you will fund, or pay off, your mortgage if your wife has a change of heart and wants to retire before the age of 65.
If you persist in hovering on the sidelines and the market doesn't crash but continues to rise, you will miss out completely. Buying a home will slip beyond your reach, not least because the longer in the tooth you become, the less attractive you look to the banks. You could top up a higher deposit by selling other assets, but this will reduce diversification and increase risk.
Another significant point in your case is that market downturns in Hong Kong are accompanied not by owners flooding the market with cheap property (especially as the new loan-to-value rules work against forced sales, always rare here in any event), but by transaction volumes coming to a standstill. You might find owners in your block are no longer prepared to sell.
Of course, the market may drop and if it dropped 30 per cent you'd save HK$2.7 million to HK$3 million on the purchase price and related costs, disregarding rent paid in the meantime. But it might continue to rise. Low interest rates, affordability and supply and demand fundamentals for property at your price point make this likely over the next one to two years.
There's definitely more downside risk for you in not buying than in getting on with it. So get on with it. You'll kick yourselves more for missing out on owning a home than for possibly paying a short-term premium for the home you want.
The views presented are of a general nature. For specific advice, talk to a professional planner. See the column archive at scmp.com/askmelanie