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?

Long-lasting low interest rates. Signup and view all the answers

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

1997 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?

Up to 80% of property value 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?

Government tax incentives. Signup and view all the answers

Which of the following is a disadvantage of renting?

Limited remodeling options Signup and view all the answers

What happens during the mortgage foreclosure process?

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

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

A decline in property values. Signup and view all the answers

What is not usually specified in a rental contract?

Home appreciation rates Signup and view all the answers

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

Pride of ownership Signup and view all the answers

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

Rising property values. Signup and view all the answers

What is one potential financial benefit of home ownership?

Tax deductions on property taxes Signup and view all the answers

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

Foreclosure proceedings initiated. Signup and view all the answers

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

Lantau Island Signup and view all the answers

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

Both monetary and non-monetary items Signup and view all the answers

What is a common challenge associated with renting?

Restrictions regarding pets Signup and view all the answers

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

An increase in home values. Signup and view all the answers

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

Low interest rates facilitating loans. Signup and view all the answers

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

Total assets and income potential Signup and view all the answers

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

Selling their homes. Signup and view all the answers

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

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

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

By applying the formula involving loan amount, interest rate, and number of payments 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)?

$2.1 million 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%?

$5250 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?

$2,090,747.8 Signup and view all the answers

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

A government financing program requiring eligibility criteria Signup and view all the answers

What happens to the outstanding balance after each monthly payment?

It decreases by the amount of the principal repayment Signup and view all the answers

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

Mortgage application fee Signup and view all the answers

What is the first step in acquiring a mortgage?

Complete the application form and enclose the relevant documents Signup and view all the answers

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

Arrange for the borrower to sign the Letter of Offer Signup and view all the answers

Which entity is NOT typically a source of mortgage loans?

Tax consultant Signup and view all the answers

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

Proximity of the bank to your home Signup and view all the answers

What is the final step in the mortgage acquisition process?

Receiving the mortgage schedule for repayments Signup and view all the answers

What does a title check verify?

The legal interest of the seller in the property Signup and view all the answers

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

Consider the mortgage amount and terms, such as reimbursement and penalties Signup and view all the answers

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

25-33% Signup and view all the answers

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

300 basis points (3%) Signup and view all the answers

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

Zoning laws Signup and view all the answers

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

Making counteroffers Signup and view all the answers

What is typically required when obtaining financing for a mortgage?

Income, debts, and credit history Signup and view all the answers

What impacts the determination of a property's price?

Whether it's a buyer's or seller's market Signup and view all the answers

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

30% Signup and view all the answers

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

They negotiate pricing and represent at closing 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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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.