09 March, 2013

Old vs new: Tong lau or not tong lau

Living in Hong Kong, we all know how difficult it is to rent an apartment with a reasonable sized living room, a bedroom that you can fit more than a double bed in (if you can even fit that), a shower that fits your six foot tall boyfriend and a kitchen where you can swing a cat. 

And if you can find an apartment with such delights, it probably costs the same as your monthly salary, rent or mortgage.

// In fact, like usual, HK Mag somehow nearly stole my idea for this post. Luckily, they opted to give you some great ideas on how to manage a small space (whereas I'm trying to figure out how to manage a small budget). //

The issue with all of this, is that in Hong Kong, prices will always go up, unless something happens due to force majeure – an act of God, like SARS.

Yes, the government recently made a pretty rubbish effort at blocking out 'foreign' investment, which was driving up prices (READ: Mainlanders paying cash to willing buyers, even for modest apartments in Tin Hau, and then leaving them empty because they don't even need the income from a renter). The problem with that was it somewhat cruelly punished any expats waiting seven years for their permanent residency (PR).

So how can you get around that? With the mortgage interest rates set so low, thanks to the US, many who bought previously have been living quite comfortably, even renting out apartments for almost double their mortgage repayments. But for those that haven't yet bought, why don't you?

Oh yes, because the property prices are ridiculously high and never come down.

I've heard that recently, property agents have seen a reduction in the number of transactions around the Sheung Wan area – so I could presume that the same is the case elsewhere. Another friend is selling his gorgeous and spacious apartment in Midlevels for below the bank valuation amount (this is the amount you can get a mortgage for – though each bank can vary in its valuation). He hasn't had much interest. But the mortgage advisor at the bank told me that while there is no movement, the behaviour in the market is like there's not enough apartments to pick from, so the market remains high.

Meanwhile, I want to buy an apartment in my beloved neighbourhood of seven years, Sai Ying Pun. For several reasons, it's only recently that I've been able to think about buying an apartment. But now, prices in Sai Ying Pun have soared because the MTR will open here next year. Actually, prices have been steadily rising since the announcement several years ago.

My old apartment block, Connaught Gardens (高樂花園) is really popular in this area, it has clear views and rises high above the noise, with some apartments overlooking the harbour. When I first lived there seven years ago, it was around HKD 2.2 million to buy an apartment no bigger than 450 square foot. But now, it's about HKD 4.8 million.

So what do you do, especially if you work from home like me and need a little more room (after all, if you're paying rent or a mortgage, why pay extra for an office space somewhere else, when you can work from home?).

Usually, a tong lau (唐樓), or Chinese building is an option. Chinese buildings are those without elevators, sometimes also without running gas (but the gas tank delivery system here is really efficient). For renters at least, these are usually a bit cheaper and bit larger, with better efficiency gained from not giving so much space to one or more elevator shafts.

But now days, particularly in areas slated for urban renewal, those apartments are even more expensive. Why? Because the owners want to be able to claim a higher amount when the Urban Renewal Authority (URA) or a developer come knocking. My rent went up every year, over 30% in two years, despite that our two-year lease system implies that you can have two years at the same rate. (This is usually handled with "my son is coming back and needs to move in there." Followed by, "whatever, how much more rent do you want?").

Ok, so back to my original argument – what about buying?

Well, it all works differently with a tong lau. For starters, around here, they are currently around HKD 5 million in my neighbourhood – more expensive than some new builds (which are admittedly a bit smaller) in this neighbourhood. But the bank valuation is usually more what you'd expect for a tong lau: HKD 2-2.5 million.

It means you can only get a mortgage for that value, if the bank even offers mortgages on tong lau. And, for a tong lau, you have to pay 50% deposit. Yes, funds you have, not fund you borrow from the bank. And, the bank will only mortgage you a set percentage, like 70%, of their valuation. And only over a period of up to 20 years.

Here's another snag: Many of them come with tenants already inside. If you take a mortgage under that situation, you also have a whole set of different rules. As a first time PR buyer, you can't apply for additional funding towards your deposit if the apartment has a tenant. And you can't have the same kind of mortgage deal – you have to repay more.

Confused yet? I am.

It seems strange to be unable to buy an apartment in the area that was your home for so long. The area where somehow you can afford to rent but not to buy. Do I want to live further out? Not really, not yet. I'm not a fan of Kennedy Town and I don't think their future MTR will change that.

The block I live on is currently a building site. Most of the neighbourhood is – but my block is about 70% building site. Yet I still want to stay because that's how much I like it here. Move to Kennedy Town and I'm only setting myself up for several more years of dealing with noisy building sites. Did I mention I work from home?

Hong Kong is home but the government have more than failed on Donald Tsang's promise to make it affordable for up to 90% of the population to own an apartment within this decade. It's hard to see how this can change in Hong Kong.

Sometimes friends say that it's wasteful to buy in Hong Kong. Even the friend selling an apartment in Midlevels admits that it's overpriced for what it is. And yes, it's a very certain culture to believe in buying property – very English, very American, not so Euro. But my answer is thus: In Hong Kong, rents will only go up. So why not buy?

(And there we go, back to the beginning of this post).

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