Hong Kong Property Market Overview
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Questions and Answers

What is a consequence of having negative equity in a home?

  • The outstanding mortgage is greater than the home's current value. (correct)
  • Homeowners have more equity in their property.
  • Homeowners cannot refinance their mortgage.
  • The mortgage value is less than the home's current value.

    • What year did the property price levels hit their lowest point before starting to rise?

  • 2003 (correct)
  • 1997
  • 2001
  • 2000

    • What event demonstrates the lender's attempts to recover loan balances from borrowers?

  • Refinance
  • Default deferment
  • Home appreciation
  • Foreclosure (correct)

    • What has primarily fueled the property market rise since 2009?

    <p>Long-lasting low interest rates.</p> Signup and view all the answers

    In what year did many Hong Kong homeowners experience negative equity?

    <p>1997</p> Signup and view all the answers

    What is the maximum loan amount a bank can provide under the MIP based on an 80% LTV ratio?

    <p>Up to 80% of property value</p> Signup and view all the answers

    Which of the following is not a factor that influenced home prices in the HK property market post-2003?

    <p>Government tax incentives.</p> Signup and view all the answers

    Which of the following is a disadvantage of renting?

    <p>Limited remodeling options</p> Signup and view all the answers

    What happens during the mortgage foreclosure process?

    <p>Lenders force the sale of the home to recover mortgage balances.</p> Signup and view all the answers

    Which market condition preceded the rebounding of home prices in 2003?

    <p>A decline in property values.</p> Signup and view all the answers

    What is not usually specified in a rental contract?

    <p>Home appreciation rates</p> Signup and view all the answers

    Which of the following reflects a psychological benefit of home ownership?

    <p>Pride of ownership</p> Signup and view all the answers

    What can result from a prolonged period of low interest rates in the housing market?

    <p>Rising property values.</p> Signup and view all the answers

    What is one potential financial benefit of home ownership?

    <p>Tax deductions on property taxes</p> Signup and view all the answers

    What is the likely effect of homeowners quitting payments on their mortgage?

    <p>Foreclosure proceedings initiated.</p> Signup and view all the answers

    Which area is not mentioned in relation to property prices in graph analysis?

    <p>Lantau Island</p> Signup and view all the answers

    What type of costs should be considered when comparing renting and buying?

    <p>Both monetary and non-monetary items</p> Signup and view all the answers

    What is a common challenge associated with renting?

    <p>Restrictions regarding pets</p> Signup and view all the answers

    What is typically considered a sign of a recovering property market?

    <p>An increase in home values.</p> Signup and view all the answers

    What is the primary reason for the quick rebound of the property market after 2003?

    <p>Low interest rates facilitating loans.</p> Signup and view all the answers

    What should one evaluate when determining how large a monthly mortgage payment they can afford?

    <p>Total assets and income potential</p> Signup and view all the answers

    What can negative equity lead homeowners to consider as a potential solution?

    <p>Selling their homes.</p> Signup and view all the answers

    What does amortization refer to in the context of mortgage payments?

    <p>The paying off of debt with a fixed repayment schedule</p> Signup and view all the answers

    How is the monthly payment (P) calculated for the mortgage?

    <p>By applying the formula involving loan amount, interest rate, and number of payments</p> Signup and view all the answers

    If the property value is $3 million and the mortgage loan is 70%, what is the loan amount (L)?

    <p>$2.1 million</p> Signup and view all the answers

    What is the interest part of the first month's mortgage payment if the loan amount is $2.1 million and the monthly interest rate is 0.25%?

    <p>$5250</p> Signup and view all the answers

    What is the outstanding balance after the first month's payment if the initial balance was $2.1 million?

    <p>$2,090,747.8</p> Signup and view all the answers

    Which of the following best describes the Mortgage Insurance Programme (MIP)?

    <p>A government financing program requiring eligibility criteria</p> Signup and view all the answers

    What happens to the outstanding balance after each monthly payment?

    <p>It decreases by the amount of the principal repayment</p> Signup and view all the answers

    What is NOT included in the closing costs of a real estate transaction?

    <p>Mortgage application fee</p> Signup and view all the answers

    What is the first step in acquiring a mortgage?

    <p>Complete the application form and enclose the relevant documents</p> Signup and view all the answers

    What does the bank do once the mortgage loan is approved?

    <p>Arrange for the borrower to sign the Letter of Offer</p> Signup and view all the answers

    Which entity is NOT typically a source of mortgage loans?

    <p>Tax consultant</p> Signup and view all the answers

    When comparing two mortgage offers from different banks, which factor is least likely to affect your choice?

    <p>Proximity of the bank to your home</p> Signup and view all the answers

    What is the final step in the mortgage acquisition process?

    <p>Receiving the mortgage schedule for repayments</p> Signup and view all the answers

    What does a title check verify?

    <p>The legal interest of the seller in the property</p> Signup and view all the answers

    In the mortgage selection process, how do you determine the preferable bank?

    <p>Consider the mortgage amount and terms, such as reimbursement and penalties</p> Signup and view all the answers

    What percentage of take-home pay is traditionally suggested to be spent on housing?

    <p>25-33%</p> Signup and view all the answers

    What is the minimum increase in mortgage rates that banks must consider during stress testing?

    <p>300 basis points (3%)</p> Signup and view all the answers

    Which factor should be evaluated when selecting a property’s location?

    <p>Zoning laws</p> Signup and view all the answers

    What is a common action during the home buying negotiation process?

    <p>Making counteroffers</p> Signup and view all the answers

    What is typically required when obtaining financing for a mortgage?

    <p>Income, debts, and credit history</p> Signup and view all the answers

    What impacts the determination of a property's price?

    <p>Whether it's a buyer's or seller's market</p> Signup and view all the answers

    Which amount is often suggested for a down payment when purchasing a property?

    <p>30%</p> Signup and view all the answers

    What is a purpose of using a real estate agent in the home buying process?

    <p>They negotiate pricing and represent at closing</p> Signup and view all the answers

    Study Notes

    HK Property Market

    • In 1997, many homeowners in Hong Kong had negative equity.
    • Property prices reached their lowest point in 2003.
    • The property market experienced rapid growth since 2009 due to low interest rates.
    • The mortgage payment includes both principal repayment and interest charges.
    • Amortization is a method for calculating a fixed repayment schedule over time.

    Interest Charged on Mortgage Payments

    • The formula to calculate the monthly payment is P = r(L) / (1 − (1 + r)−𝑛).
    • Interest part for the 1st month = beginning outstanding balance x interest rate.
    • Principal repayment for the 1st month = Monthly payment – interest part.
    • Ending outstanding balance = beginning outstanding balance – principal repayment.

    Mortgage Insurance Programme (MIP)

    • MIP offers mortgage loans up to 80% of the property value for eligible applicants
    • MIP requires only 20% down payment.

    Taxes

    • Hong Kong has a stamp duty on the sale or transfer of immovable property.
    • Stamp Duty depends on the property value.

    Alternative – Renting

    • Advantages of renting: easier to move, fewer maintenance responsibilities, lower initial costs.
    • Disadvantages of renting: no tax benefits, limitations on remodeling, restrictions on pets, legal concerns regarding lease, costs including a security deposit, utilities, and renter's insurance, not a permanent residence.

    Rental Contract (Lease Agreement)

    • The rental contract protects the lessor/landlord and the lessee/tenant.
    • The contract specifies the monthly rent and due date, late payment penalties, lease duration, deposit requirement, renewal options, amount of security deposit, and the right to sublet.

    Buy?Rent?

    • To determine the lowest-cost alternative, compare the cost of renting with the cost of buying.
    • Factors to consider: rent increases, mortgage rates, home appreciation rates, rate of return on invested funds, and non-monetary factors.

    Should You Buy Your Home?

    • Benefits of homeownership: financial rewards, psychological reward, lifestyle flexibility, and stability.
    • Financial benefits include deducting property taxes and mortgage interest, potential increase in value, and building equity.

    Home Affordability

    • Traditional financial guidelines suggest spending no more than 25-33% of take-home pay on housing.
    • Banks conduct stress testing by assuming a mortgage rate increase of 300 basis points (3%).

    Home Buying Process

    • Evaluate your homeownership needs.
    • Find a property to purchase, including location selection, using a real estate agent, conducting a home inspection, and getting an appraisal.
    • Price the property: determine the home price, calculate costs, and investigate mortgage types.
    • Negotiate the purchase price: counteroffers, earnest money, contingency clauses.
    • Obtain financing: apply for a mortgage, qualify for a mortgage, and understand guarantor roles.
    • Close the transaction: sign documents, pay closing costs, including title check, attorney's fees, appraisal fees, property survey, stamp duty, and real estate commission.

    How To Acquire a Mortgage

    • Complete the application form and provide relevant documents.
    • The bank will assess the appraised property value and your repayment ability.
    • Upon approval, sign the Letter of Offer and the legal charge.
    • The bank will disburse the mortgage amount to the seller.
    • Receive a schedule of monthly mortgage repayments.

    Sources of Mortgage Loans

    • Sources include retail banks and mortgage brokers.

    Mortgage Selection

    • Factors to consider: Mortgage amount, Cash reimbursement, Interest penalty period.

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    GE1202 Managing Your Personal Finance Lecture 5 PDF

    Description

    Explore the evolution of the Hong Kong property market, from negative equity in 1997 to significant growth post-2009. Understand key concepts like mortgage payments, interest calculations, and mortgage insurance programs. This quiz will test your knowledge on important factors affecting property ownership in Hong Kong.

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