Should I Buy HK Foreclosed Properties in 2024?

During economic downturns, 'foreclosed properties' often become more attractive. In 2024, the Hong Kong government reduced stamp duty for home buyers, spelling good news for overseas buyers, short-term investors, and buyers of new properties. In the era of comprehensive withdrawal of cooling measures, are foreclosed properties still a good investment choice?

Foreclosed properties, simply put, are properties repossessed by banks or financial companies due to the homeowner's failure to repay the loan. Such properties often come at more appealing prices, providing an opportunity for market entry or investment. This article will delve into the features of foreclosed properties, how to find them, and the issues to be mindful of when purchasing.

Foreclosure: What Is It?

'Foreclosed property,' or Foreclosure, refers to properties repossessed and auctioned by banks or mortgage finance companies. If a homeowner fails to repay the mortgage loan to the bank or financial company, the lending institution will issue a loan recovery notice, demanding repayment within a specified period. If the homeowner still cannot repay the loan, the lender will apply to the court for property repossession and announce clearance through an executor. This entire process usually takes about six months to a year.

Features of Foreclosed Properties

• Definition and Source: Foreclosure homes are those repossessed by banks or financial companies due to the homeowner's inability to repay the mortgage loan.
• Price Advantage: Foreclosed properties are usually priced lower because the lender aims to recover the debt quickly, not to maximize the selling price.
• Market Situation: During economic downturns, as homeowners' financial conditions deteriorate, the number of foreclosed properties increases.

Auction Process for Foreclosed Properties

Those interested in foreclosed properties should pay attention to auction sites and real estate platforms, which typically provide information on property auctions, such as dates, times, and locations. There are two main ways to purchase foreclosed properties: open sale and public auction.

Open Sale for Foreclosure Home

In the open sale process, buyers need to find an agent, visit properties, and select suitable foreclosed properties. Then, through the agent, submit a bid and pay a 3%-5% temporary deposit to ensure sincerity. If the bid is not accepted, the temporary deposit will be refunded. The bank will choose the highest bidder from all bids for the sale. If all bids are below the reserve price, the bank may re-tender.

Public Auction for Foreclosure Home

In public auctions, buyers should pay attention to when the property they like will be auctioned and instruct a lawyer to review property rights to ensure no disputes. During the auction, as long as the bid exceeds the bank's reserve price, the property can be acquired. After successful bidding, buyers must immediately pay a 10% deposit and sign an official sale and purchase agreement.

Potential Risks for Buying Foreclosed Properties

Property Condition Inspection: Properties sold by banks may have maintenance or legal issues. It's advised to have a lawyer conduct a thorough inspection before purchase. Once the sale and purchase agreement is signed, even if problems with the property are discovered later, the transaction must be completed, otherwise, a breach of contract compensation must be paid.

Mortgage Application: Foreclosed properties can apply for a mortgage, but buyers need to be aware of issues such as unauthorized construction and lost property deeds. In most cases, after unauthorized constructions are removed, a loan can be successfully applied for. However, if the property deed is lost or only a copy exists, banks generally do not approve the mortgage.

Debt Responsibility: Buyers should be aware of whether foreclosed properties have outstanding management fees, water bills, electricity bills, etc., which are usually borne by the buyer. Typically, buyers can check the land registry to see if the property has any liens for unpaid bills such as management fees or building maintenance fees.

Avoid Joint Ownership Properties: Avoid buying properties with only half ownership, such as "Joint Tenancy" and "Tenancy in Common" properties, because the other half of the ownership remains with someone else, preventing the buyer from fully owning the property rights.

FAQ for Foreclosure Properties

Q: When does the foreclosure auction process start?

A: Once the homeowner defaults on the loan for two to three months, the foreclosure process will begin.

Q: Are foreclosed property prices always lower than market prices?

A: Generally, foreclosed properties are priced 20-30% lower than similar units in the market. However, the auction starting point is usually set based on the property's valuation. Market fluctuations can significantly affect valuations.

Q: Does the foreclosed property transaction process differ from second-hand property transactions?

A: In foreclosed property transactions, successful bidders must immediately pay a 10% deposit and sign an 'official sale and purchase agreement,' completing the transaction within 45 days. Second-hand property transactions typically start with a temporary contract.

Q: Can you apply for a mortgage to buy a foreclosed property?

A: Yes. As long as the property does not have ownership issues, such as being lost, damaged, or partially owned, you can apply for a mortgage loan for up to 30 years.

Q: Is 2024 a good time to invest in foreclosed properties?

A: Although the Hong Kong government's comprehensive easing of real estate restrictions in 2024 may stimulate transactions in the new and second-hand property markets, and with the price increases of new and second-hand properties at historical lows, foreclosed properties may not offer significant price advantages. Investing in foreclosed properties in 2024 might not be the best choice. Conversely, rental yields are rising, especially for small units, reaching a 3.3% yield, a new high in 11 years.

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