With no sign of a cooling property market, many people in Hong Kong are resorting to purchasing property with joint funds—the purchase of a property by two or more parties, such as friends, families or relatives, who share the loan and ownership. But is buying properties with joint funds really the answer to home ownership? We look at the potential perks—and what you may be getting yourself into:
Pros
You pay less for more
Soaring housing prices have urged many home buyers to spend most of their salary and savings on acquiring property—but even if they are able to afford it, they might be sacrificing size for a smaller lump sum payment, or the location of the unit might not be ideal.
In contrast, buying property with joint funds grants buyers higher purchasing power, enabling them to purchase an apartment with a higher down payment. Co-owners can also share the property taxes, management fees, utility expenses and various home maintenance costs.
You get a tax allowance sooner
Home owners are eligible for deduction for home loan interests under salaries tax and personal assessment. The amount of deduction, which is capped at HK$100,000 per dwelling, is deducted in proportion to your share of ownership over the unit.
You’ll feel good about yourself
According to Chinese tradition, owning property—in full or otherwise—symbolises success and security. You’ll also feel confident in knowing that you’ll be able to provide for your family, or plan for retirement.
Cons
You might get a bad credit rating
All joint owners are held accountable to credit reporting. If one of the buyers falls behind in their payment, all parties will see an adverse impact on their credit score. And, if one of the individuals approaches another lender in hopes of applying for additional loans, they will have to submit a credit report that shows only the total sum of the mortgage. This might deter the lender from providing a loan as they may view the total sum of the mortgage as the individual's sole responsibility.
You might fight over decisions and responsibilities
With the amount of money, effort and responsibility that goes into joint property ownership and maintenance, don’t be surprised if you encounter disputes along the way. If a consensus cannot be reached, a jointly owned property may become a point of contention in relationships and even result in a lawsuit.
Slower decision making
Beyond the dispute itself as mentioned above, this leads to delays in decisions (years, potentially). This might lead to a missed opportunity when buying or selling, which could cost significant sums of money.
Who does the work?
In a jointly owned property, it can fall to one party to bear the brunt of the administration of managing the property. If this is accepted by all parties, this is fine. However often it leads to a feeling of unfairness which can strain relationships.
Relationships change
Relationships between friends, business partners, spouses and even siblings can change over time. This possibility needs to be planned for in advance, with clear agreements upfront (in writing) describing what will happen to the property under various potential future scenarios. Otherwise, occurrences in the future could lead to costly and stressful disputes (in the case of a divorce, for example), or put the ownership in limbo (i.e. probate, in the case of one party’s death).
Illiquidity risk
Consider this: disputing buyers who own or live in the same property cannot walk away from the property or the joint ownership arrangement as easily as they held it outright or were merely renting. If one party wants to sell their stake, it’s virtually impossible unless they have agreement from the other party. This can lead to you having millions of dollars locked up in a property with no way to exit at market value.
Higher costs
Since joint ownership can (and should) involve more detailed documentation, this will add to the legal costs and time required throughout a property ownership cycle.
Conclusion
As enticing as it sounds, purchasing property with joint funds as a shortcut to owning property in Hong Kong carries with it the risk of bad credit and burnt bridges. If you do decide to purchase a property with another party, be careful to fully agree in writing how decisions will be made in the future, which lead to a much smoother outcome for everyone over time.