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The information below outlines the typical procedure for buying a residential property from the purchaser’s perspective (in cases where a mortgage loan is needed):
1) Assessing one’s financial situation
For purchasers that need a mortgage loan for the purchase, the purchaser should consult his/her bank to obtain an initial assessment of the maximum mortgage loan that he/she can be entitled to. This will help the purchaser to assess his/her budget.
2) Submitting an offer
Upon locating the property of your choice, the purchaser will need to instruct his/her banker to obtain a valuation of the property to see whether the purchase price represents the market value and whether he/she will be able to obtain a mortgage loan with acceptable repayment terms.
The purchaser will then need to instruct his/her appointed agent to submit an offer to the landlord. The purchaser will need to indicate the following information:
- Purchase Price
- Completion time: 2 months completion time is standard, counting from the date of signing the Formal Sale & Purchase Agreement
3) Signing of the Provisional Sale & Purchase Agreement
Upon the vendor’s acceptance of the purchaser’s offer, the purchaser’s appointed agent will assist with drafting a Provisional Sale & Purchase Agreement, which is typically the first of two contracts that the purchaser & vendor will sign. This is a binding legal document entered into between all parties, including the agent, vendor and purchaser.
Before entering into the agreement, the agent must provide an updated Land Search of the property to the purchaser. The Land Search is a document stored with the government’s Land Registry department. It indicates the registered owner of the property and incumbrances (if any) that are registered against it. The purchaser should request for the agent to explain the information shown on the Land Search.
At this stage, the purchaser will need to submit an Initial Deposit equivalent to 5% of the purchase price to be stake held with the vendor’s solicitor.
The purchaser will need to appoint a solicitor to act on his/her behalf in managing the transaction and conveyancing documents.
The purchaser will then need to formally apply for a mortgage loan. Purchaser will need to supply: the Provisional Sale & Purchase Agreement, HKID copy, income proof and other documents requested by the bank.
4) Signing of the Formal Sale & Purchase Agreement
The Formal Sale & Purchase Agreement is typically the final agreement that you will enter into directly between yourself and the vendor. The date of signing the Formal Sale & Purchase Agreement is normally 2 weeks from the date of signing the Provisional Sale & Purchase Agreement.
On this day, the purchaser will need to provide the following:
- Further deposit: an amount equivalent to 5% of the purchase price payable to the vendor’s solicitor
After the mortgage loan application has been approved by the bank, the bank will usually issue a facility letter indicating the terms of the loan. The bank will issue instructions to the purchaser’s solicitor to prepare the relevant mortgage documents for the purchaser to sign. The purchaser’s solicitor will arrange for drawdown of the mortgage loan in preparation for completion.
5) Completion Day / Key Handover Appointment
On or before the completion date, the purchaser will need to pay the balance of the purchase price (i.e. difference between the purchase price and mortgage loan amount), legal fee and stamp duty to the purchaser’s solicitor. Also, the purchaser will need to execute the assignment of the property.
On the completion date, the purchaser’s solicitor will then send the balance purchase price together with the assignment of the property to the vendor’s solicitor.
It is typical for the exchange of keys to take place between the vendor and the purchaser’s solicitor. The purchaser will then pick up the keys from the purchaser’s solicitor.
The vendor’s solicitors will send the assignment executed by the vendor and the vendor’s previous mortgage (if applicable) to the purchaser’s solicitors within a certain period of time after completion.
The title deeds of the property will be sent to the purchaser’s mortgagee bank for retention after completion of registration.