Real Estate Matters | Clarifying costs for buyers – Part II

Juliet Risdon

Investing in a property involves not only the purchase price of the property itself, but also the associated costs of the purchase.

In this three-part series, we break the cost of purchasing a property into three categories, and have outlined the details in each one.

The categories are:

• Purchase Costs – The cost of the property itself
• Legal & Administration Costs – Taxes, notary, registration fees etc
• Property Costs – Renovation, improvements and furnishing
• Last week we looked at Purchase costs, and this week we are going to look at Legal and Administration Costs.

Property prices in Macau are in HKD, so for the sake of consistency please assume that all prices here are in HKD.

For the purpose of this article, we are going to look at a property that is purchased for HKD 6,000,000.

However, be warned that these costs do fluctuate, and whilst the figures themselves may change, you will at least know what you are looking for.

1) Legal & Administrative Costs – $277,000

These costs are the ones directly associated with the purchase of the property, and include such things as Government Taxes and agency fees.

2) Stamp Duty – $126,000

The government charges a stamp duty on all property transactions on a sliding scale payable within 30 days of the signing of the Promissory Sales & Purchase Agreement.

For the purpose of this example, we have kept the price in HKD. It should be noted that the government will convert the price in MOP to make the calculation.

Stamp duty consists of four parts:

• 1% Up to $2,000,000
• 2% over $2,000,000 and up to $4,000,000
• 3% over $4,000,000
• 0.5% of the total amount

In our case, the breakdown is;

• 1% x $2,000,000 = $20,000
• 2% x $2,000,000 = $40,000
• 3% x $2,000,000 = $60,000
• 0.5% x $120,000 total = $6,000
• Stamp Duty payable = $126,000

The stamp duty example given here applies to everybody. There is also a special stamp duty of an additional 10% of the purchase price for non-residents of Macau or when the property is purchased under a company name.

3) Agency Fee – $60,000

The property agency will usually charge a fee equal to 1% of the purchase price, normally payable as the deal executes. However, some agents request 50% of the fee upon signing the Provisional Agreement and 50% upon completion of the purchase.

4) Notary & Registration Fees – $80,000

It is our experience that different law offices use different ways to break down the Notary and registration charges. We will list the various items individually, but don’t be surprised if you get a blank stare if you ask for a breakdown of charges from a legal office.

The charge includes:

• Notary Fees – Deed Transfer
• Notary Fees – Mortgage Loan
• Stamp Duty & Registration Fees – Deed Transfer
• Stamp Duty & Registration Fees – Mortgage Loan
• Land Registry / Registration Fees

Law offices will not be able to tell you the exact amount payable until the day of the transaction.

Why?

Because the calculation of the fees depends on the interest rate on the day of the transaction, and can only be calculated once this is confirmed. Brilliant !

5) Lawyers / Law Office Fees – $9,000

There are normally charges issued by the lawyers office for the work conducted.

Naturally, there are Lawyers Fees for drafting the various agreements, conducting background checks on the property etc. These fees usually vary between $3,000 and $10,000 dependent on the number of contracts and difficulty of the transaction, but essentially the fee is time based.

There are also witness fees as the bank usually require a lawyer to witness the signing of the document that gives the bank the power to re-possess a property should you fail to pay back the loan.

Finally there are fees for certificates and document copies that can vary from $800 to $2,000.

6) Bank Fees – $2,000

Many banks now charge a loan application fee regardless of whether the purchase goes ahead or not.

Another popular fee introduced by banks is the ‘loan arrangement fee’, which is typically $2,000 – $4,000.

For the purpose of this example, we have not included the interest on mortgage loans, which is of course payable over the term of the mortgage and will vary according to the interest rate being charged.

Next Week: Part 3 – Property Costs

Juliet Risdon is a Director of JML Property and a property investor.

Having been established in 1994, JML Property offers investment property & homes. It specializes in managing properties for owners and investors, and providing attractive and comfortable homes for tenants.

www.JMLProperty.com

[email protected]