You’ve set your sights on a three-bedroom apartment on the Southside—perfect for your growing family. However, it’s unlikely you’ll be able to make the purchase without selling your current flat. But with the new baby on the way and your daughter about to start school, selling first could mean your family would have nowhere decent to stay during the transition. So, what do you do—buy, or sell first? We break down the pros and cons.
Buying First
Pros
You’ll have a place to live, and you’ll be able to secure your dream home. To reduce risk, you may also be able to make a conditional offer on the second property that is contingent on the sale of your existing property. In such cases, the sales process of your existing property would usually have commenced, and you could issue the seller a letter of intent and an agreed-upon sum of “earnest money” to show your sincerity. It is worth noting that while this is a possible scenario, it is not particularly common in the Hong Kong property market.
Cons
Double Stamp Duty (DSD)
You’ll have to pay double stamp duty for owning two properties at the same time. While buyers who sell their original properties within six months of purchasing their newer homes can apply for a DSD refund, you would still need enough cash to pay DSD upfront.
Special Stamp Duty (SSD)
Should you be forced to sell your original property quickly to avoid paying DSD, you may instead be liable to pay 10 to 20 per cent special stamp duty if you end up reselling the unit within 36 months of purchase.
Mortgages
For those who have a prior borrowed or guaranteed outstanding property mortgage loan, the maximum loan-to-value ratio (LTV) is 40%, compared to 50% for a person who does not own a property. If you are not able to offload your original property at a desirable price, the reduced mortgage LTV ratio may bite into the gains you had hoped to realise.
Interest Rates
Banks offer bridging loans, which are special plans for “buy first, sell later” property purchasers. Bridging loans usually come with higher interest rates, so purchasers will likely need to consider interest rates from three distinct loans.
Selling First
Pros
You avoid paying DSD, and you won’t have to pay for two mortgages (assuming that you qualify for both).
Cons
You may not have a place to live. Your friends or relatives may not take kindly to having to put you (and your family) up, especially in a crowded city like Hong Kong. Even with temporary housing such as serviced apartments—which do not come cheap—you would likely need to find storage space for your furniture and household appliances until you secure your next property.
An alternative option would be to rent a property for a standard lease period of 12 + 2 months, which would give you more time for your property search. After all, you wouldn’t want to rush a big investment decision!
Conclusion
If you have enough cash for a second down payment, DSD, and possibly the costs of holding on to your original property until you get the offer you want, then buying first may be the better option. Plan and start the process early enough to attempt to run in parallel with the sale of your existing unit.
Selling first would likely be the more cash-efficient method if you have a place to stay in-between homes, so if you get a great offer as well, this could be the better pick—not to mention this would also leave you open to shop the market to score the best deal for your second flat purchase.
