Ask Melanie | Prospect of property slump adds to risk
Melanie Nutbeam, a certified financial planner based in Hong Kong, addresses common personal finance queries. Send your questions to [email protected]
You need to carefully identify and manage a number of risks. These include working out your new debt level as a percentage of the value of your Hong Kong home.
If property values in Hong Kong drop by 20 to 30 per cent, as some are forecasting, your loan-value ratio may increase to an uncomfortable level. If property values drop even further, the bank may require a top-up of the mortgage and you would need to consider whether you have liquidity to enable this.
Given the Wan Chai property is in the same market and likely to be similarly affected by a downturn, don't rely on being able to sell this to generate any equity, especially given it's already leveraged to 70 per cent of its value.
Second, although interest rates in Hong Kong are still historically low, they've risen significantly in the past 18 months, and this climb will continue. Third, you anticipate repaying the loan from the sale of your Wan Chai property. This assumes the property appreciates by the time you want to repay your loan.
Finally, as you are buying overseas, if you are planning to use rental income from the offshore property to support your Hong Kong mortgage, currency risk needs to be managed. Also, you haven't said where you plan to retire, so future currency risk may need to be considered.