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Hong Kong real estate requires 40% down
Saturday, October 24, 2009
Admittedly not an expert on Hong Kong real estate and having no idea how other forms of "stimulus" factor into buying property in this part of Asia, the simple disparity between down payment amounts between here and there, as reported in today's Wall Street Journal, seems like it's worth pointing out.
Concerns about a growing bubble in Hong Kong's high-end property market pushed central bankers here to increase the required down payment on luxury homes to 40%, from the current 30%.Since they don't seem to be having the same types of problems at the middle or low end, clearly, a lot of that newly created credit on the mainland is finding its way into the hands of people who probably aren't hurting for work.The new measure, which goes into effect immediately, applies to properties valued at HK$20 million (US$2.6 million) or more, part of an attempt to tamp down an overheated sector that has alarmed regulators and set off a wave of populist anger.
The Hong Kong Monetary Authority, the city's de facto central bank and main banking regulator, said that luxury-home prices already had exceeded Hong Kong's historical peak in prices, in 1997.
While property prices in much of the rest of the world continue to languish, prices in traditionally volatile Hong Kong have been on a tear this year, thanks in large part to low interest rates and a wave of liquidity from mainland China, where Beijing last year unleashed a four trillion-yuan (US$585.6 billion) stimulus.
Nonetheless, the difference between 40 percent down and the effective "no money down" in the U.S. (after combining the tax rebate with FHA or VA financing) is quite startling...
6 comments:
A whole new generation of defaulting mortgages is being created. This time the taxpayer will have to pay the difference (GSE), instead of foreign savers (securitized mortgages).
Future tax rates will be what, a million percent of income, to pay for all this? Stop loaning money to people who don't repay. That is a stupid foundation for an economy. I don't want to repay someone else's mortgage.
For decades Hong Kong regulations require a minimum of 20% down for any mortgages. But the banks typically operate on a 25% down. Mortgage interest is not deductible. And one pays tax for real estate capital gains, albeit at a reduced rate. Nevertheless, people work very hard to buy and pay off their apartments. It is a societal expectation that at the typical retirement age of 60, one must fully own one's place of living or talk of 'shame' would start to fly around. The percentage of full ownership of apartments (very few owns house) at retirement is more than 90%.
For those of you who think we have bottomed, I heard a news story on the radio yesterday. Ski resorts in the Lake Tahoe area normally hire high school and college kids to run the ski lifts. Resort operators are very happy that they are now able to hire college graduates for all these positions, because these people are "Highly qualified".
If you need a B.A. to run a ski lift, we are ALL in trouble.
Those are some pretty amazing statistics about mortgages in Hong Kong - it's nice to see that, in some parts of the world at least, people still think a paid-off property is a good thing. I can't tell you how many stories I've heard in recent years about senior citizens with huge mortgages.
Tim, (I am the 2nd anon who added info about HK):
Right next door up in Canada, situation is also quite different than US despite high cultural similarity. Canadian mortgages are calculated with a semi-annual interest compounding, meaning higher effective interest than the US using the same rate. Interest 'points' are prohibited by law - i.e. no financing gimmicks. Interest is not tax deductible - thus monthly payments are higher. But capital gain is tax free for one's primary resident.
Nevertheless, under these tougher conditions a high percentage of Canadians pay off their mortgages before retirement. The number I have is around 80%.
Also, unlike the US, Canada has a long-standing culture of saving for retirement and a rainy day. To encourage this, government offers 'registered' pension plan where up to $15,000 can be saved per year tax free. Every year there is a 'mad rush' to stock away $15,000 in all kinds of pension investment, a $50B annual business, a vast saving pool of $4 trillion dollars. (Had Americans done the same, there will be a $40 trillion poll of savings now, instead of equal amount of debt.)
You can see how a small country like Canada, so heavily influenced by the US, yet prudent enough to 'go for equity' instead of 'go for debt'. This is why our northern buddy is in such fine financial shape despite the tsunami from south.
Most banks in the US would also require 40% down - or darned close to it - on a $2.6 million house. And on many condos the minimum down payment is now 100%, if the project is not FHA approved or "warrantable" to Fannie or Freddie (requiring a high percentage of owner-occupancy among other things).
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