2025-02-21 28Hse Editor
Recently, Yoho West, a large-scale new development in Tin Shui Wai under Sun Hung Kai Properties (SHKP), announced its first price list involving 280 units. The flats were sold at a discounted price of about HK$2.9 million, at a discounted average price of HK$10,888 per square foot, a six-year low for a new development in Hong Kong. To attract buyers, the most straightforward way is to adjust home prices and use low-price strategies.
To promote new projects, developers use a variety of sales strategies, including providing discounts or cash rebates to buyers to reduce the cost of buying a flat. That said, it’s important to note that different discounts will affect the unit’s bank valuation differently, and may be unapplicable depending on each bank.
To put it simply, buying a new first-hand property is different from buying a second-hand flat. In terms of price alone, a new first-hand property involves different terminologies, including “original price”, “contract price”, and “net purchase price”. First-time buyers may be confused about these three terms.
First, “original price” refers to the selling price of a unit as stated by the developer in the price list, without discounts or concessions. “Net purchase price” refers to the discounted price, including all discounts.
“Contract price” refers to the price stated when signing the Sales and Purchase Agreement, but is not necessarily equal to the net purchase price. Why? This is because the contract price may not fully reflect all the price concessions offered by the developer, such as cash rebate for early payment of the property price or furniture vouchers, which are not immediately reflected in the contract.
Whether the contract price is the same as the net purchase price, banks and the Hong Kong Mortgage Corporation (HKMC) will only use the contract price to evaluate whether a case is eligible for mortgage insurance when approving new mortgages; for example, whether the contract price exceeds the upper limit of the property price, and will not base on the original price in the price list.
For example, let’s say the contract price of a property exceeds HK$10 million, but the net purchase price is less than HK$10 million. According to current measures, the maximum loan-to-value LTV ratio for eligible pre-construction properties with a price of HK$10 million or less is 90%. Judging from the above example, buyers can only apply for 80% mortgage insurance at most. Those who think they can apply for a 90% mortgage will need to pay more for the down payment.
It is worth noting that this is only for the purpose of assessing the loan-to-value ratio under the mortgage insurance scheme. However, the actual loan-to-value ratio will be calculated based on the net purchase price after all discounts and rebates. Therefore, if you miscalculate your mortgage, you may have to pay for the wrong amount.
Generally speaking, when purchasing a new property, buyers need to choose payment plans, discounts and cash rebates before the transaction. It should be noted that regardless of whether the developer gives out cash rebates before or after the transaction, the bank will first deduct the relevant fees when calculating the loan amount. However, there is an exception to this rule, and that is the early repayment cash rebate. Since there is no guarantee that the buyer will eventually repay the loan, there is no deduction for this type of rebate.
As getting a mortgage is an important and complicated part of the homebuying process, buyers are advised to check with their real estate agents and banks to learn more about mortgage and loan schemes before entering the property market, so that they do not end up with any financial losses due to miscalculation of their mortgage.
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