Last month, Ah Ming finally saved enough for a down payment and was ready to realize his dream of 'getting on the property ladder.' With his real estate agent's guidance, he set his sights on an old apartment in Sham Shui Po — 50 years old, but with the advantage of a low price per square foot, a convenient location, and a mortgage cheaper than renting. Just as Ah Ming was about to place an offer, a friend suddenly reminded him: 'Have you considered that this building could be forced into a sale at any time? And some maintenance fees might shock you!' These words made Ah Ming hesitate.
In Hong Kong's property market, older buildings have long been an "entry ticket" for many first-time homebuyers. According to data from the Rating and Valuation Department, there are over 200,000 private residential units in Hong Kong that are more than 40 years old, accounting for about 25% of the total private housing stock. Although these older properties are relatively affordable, the hidden risks of compulsory sale and sky-high maintenance costs are "landmines" that many buyers tend to overlook. In today's article, I will use my 15 years of experience in real estate to break down the real risks of buying older properties, helping you avoid home-buying traps.
Core Concept Analysis: What Exactly Are Strong Beats and Maintenance Fees?
What is 'compulsory auction' (forced sale)?
Compulsory sale, commonly known as a "compulsory auction," refers to the process under the Land (Compulsory Sale for Redevelopment) Ordinance where, once the ownership of a building reaches the statutory threshold (currently 80%), the developer or owner can apply to the Lands Tribunal for a compulsory auction of the entire building, even if the remaining 20% of owners disagree and cannot prevent it.
:::tip Expert Opinion The threshold for compulsory sales was lowered from 90% to 80% in 2010, speeding up the redevelopment of old buildings. For buyers, this is a double-edged sword: if you are on the side of being 'compulsorily sold', the compensation amount may be lower than the market price; but if you know how to calculate, you may also profit from it. :::
The compulsory sale procedure generally takes 2-3 years, during which the owner has to face:
- Uncertainty: Not knowing whether the compulsory sale will ultimately succeed.
- Compensation disputes: The Land Tribunal will assess compensation based on market value, but it is often lower than the owner's expectations.
- Relocation pressure: Once the compulsory sale succeeds, the owner must move out within the specified time.
Old Building Maintenance Fees: An Expense That Can Blow Up at Any Time
Old buildings in Hong Kong commonly face problems such as structural aging, insufficient fire safety facilities, and exterior wall peeling. According to the Buildings Ordinance, owners are responsible for the maintenance and upkeep of buildings, and the Building Department also regularly issues 'repair orders' requiring owners to carry out compulsory repairs.
Common maintenance items for older buildings include:
- Exterior wall repairs: shared cost per household can reach 50,000 to 150,000 yuan
- Elevator replacement: shared cost per household 30,000 to 80,000 yuan
- Fire system upgrades: shared cost per household 20,000 to 60,000 yuan
- Rooftop waterproofing projects: shared cost per household 10,000 to 30,000 yuan
:::warning Guide to Avoiding Pitfalls Many owners of old buildings only realize they "can't afford to eat" after receiving maintenance notices. If you plan to buy an old building, be sure to set aside at least 100,000 yuan as a maintenance reserve, otherwise you could easily fall into financial difficulties. :::
The Relationship Between Forced Seizure and Repair Costs
Some buyers think, 'Anyway, it will be forcibly auctioned sooner or later, so we don’t need to worry about repair costs,' which is completely wrong. In fact:
- Forcible auction is not guaranteed: Even if ownership reaches 80%, the Land Tribunal will still consider multiple factors, including reconstruction value and owners’ reasons for objection.
- Repair orders will not be canceled due to a forcible auction: During the forcible auction process, the Buildings Department can still issue repair orders, and owners must comply.
- Repair costs will affect auction compensation: If the building’s condition is poor, its valuation will be lowered, and the final compensation amount will also decrease.
Practical Case Sharing: Real Cases Teach You How to Avoid Pitfalls
Case 1: The "Trap" Story of Old Buildings in Sham Shui Po
In 2020, Mr. Chan purchased an old flat in Sham Shui Po, which was 48 years old, for 2.8 million HKD. At the time, he felt that bargains were hard to come by and immediately put down a deposit. Six months after moving in, the owners' corporation suddenly notified that external wall repairs were required, and each household had to contribute 80,000 HKD. Gritting his teeth, Mr. Chan paid the amount, but a year later he received another notice to replace the elevator, which required an additional 50,000 HKD contribution.
Worse still, in 2022, a developer acquired the building's ownership and applied to the Land Tribunal for a compulsory sale. Mr. Chan had thought he could 'make a profit,' but the appraisal report showed that due to the building's poor condition, each unit was valued at only 3 million Hong Kong dollars. After deducting the 130,000 Hong Kong dollars already spent on maintenance and transaction costs, Mr. Chan almost made 'zero return'.
:::highlight Insider Tip Before buying an old building, you must request the 'maintenance record' and 'future maintenance plan' from the Owners' Corporation. If the corporation indicates that 'there will be major repairs in the near future,' you should immediately calculate the additional costs and include this amount in your budget. :::
Case 2: The 'Turnaround' Story of an Old Building in To Kwa Wan
On the contrary, Miss Lee bought a 45-year-old unit in To Kwa Wan in 2018 for 3.5 million HKD. Before purchasing, she did her homework thoroughly and discovered that the area had already been included in the Urban Renewal Authority's redevelopment plan, and the developer had acquired over 70% of the property rights. After calculating, Miss Lee believed there was a 'chance,' so she boldly entered the market.
Two years later, the developer successfully acquired 80% of the ownership and applied for a compulsory sale. The Lands Tribunal ultimately approved it, and Ms. Li received a compensation of 4.8 million dollars. After deducting the purchase price and holding costs, the net profit was about 1 million dollars.
:::success Expert Opinion If you want to 'Bo Qiang Pai', you must do the following homework:
- Check whether the area is a redevelopment target of the Urban Renewal Authority or a developer.
- Understand the current concentration of property ownership (can be checked through the Land Registry).
- Assess the value of building redevelopment (floor area ratio, location, etc.)
- Reserve at least 2-3 years of holding costs
:::
Case Three: The Nightmare of the Kowloon City 'Repair Order'
Mrs. Wong purchased a 52-year-old unit in Kowloon City in 2019. At the time, the agent emphasized 'low property price and high rental returns.' Shortly after moving in, the Buildings Department issued a repair order requiring the owner to carry out maintenance on the exterior walls, rooftop, and fire safety systems, with a total cost reaching 6 million Hong Kong dollars, of which Mrs. Wong had to contribute 120,000 Hong Kong dollars.
Due to insufficient funds in the owners' corporation, some owners refused to pay, causing the project to be repeatedly delayed. The Buildings Department eventually filed a lawsuit in court to request compulsory enforcement of the repair order. Mrs. Wong not only had to pay HKD 120,000 for the repair costs, but also had to share the legal fees, bringing the total expenditure close to HKD 150,000.
:::warning Guide to Avoiding Pitfalls Before buying an old building, be sure to check the 'Buildings Department Maintenance Order Records'. If the building has received a maintenance order but has not carried it out, you need to carefully assess the risks, because once you move in, you will be responsible for the related obligations. :::
Notes and Risks: 5 Things You Must Do Before Buying an Old Building
1. Check the registry to understand the ownership status
Before buying an old building, you must check the Land Registry to understand the following information:
- Ownership concentration: Are there developers or consortia who have acquired a large number of units?
- Legal litigation records: Have any owners filed lawsuits due to maintenance fees or other disputes?
- Mortgage records: Are a large number of units being repossessed by banks (commonly known as "bank-owned units")?
:::tip Expert Opinion If you find that more than 50% of the ownership of a building is concentrated in the hands of the same buyer, this is usually a sign of a compulsory sale. You can consider 'following the buyer' into the market, but be mentally prepared, as the compulsory sale process may take several years. :::
2. Request maintenance records from the corporation
The owners' corporation is an organization that manages the daily affairs of the building, and they have detailed maintenance records and financial statements. You should request from the owners' corporation:
- Maintenance records of the past 5 years: to understand what maintenance works have been carried out in the building
- Future maintenance plans: are there any major maintenance projects about to start?
- Owners' corporation reserve fund: does the corporation have sufficient funds to handle unexpected maintenance?
If the corporation indicates 'no records' or 'not convenient to provide,' this is a warning signal, and you need to be extra careful.
3. On-site Inspection of the Building's Condition
Talking on paper is not as good as inspecting in person. You should visit the building at different times (daytime, nighttime, rainy days) and pay attention to the following details:
- Exterior wall condition: Are there any peeling, cracks, or water seepage marks?
- Public spaces: Are the lobby, corridors, and stairs clean?
- Firefighting facilities: Are there fire extinguishers, fire hoses, and other equipment?
- Elevator condition: Does it frequently break down?
:::highlight Insider Tip If you notice a large number of bamboo scaffolds on the exterior walls of a building, this usually indicates that repair work is being carried out. You can ask nearby residents to find out about the repair costs and progress. :::
4. Calculating Holding Costs
Buying an old building is not just about the 'purchase price'; you also need to calculate the following holding costs:
- Management fees: Management fees for old buildings are usually higher, ranging from 2,000 to 3,000 HKD per month
- Rates and government rent: Payable quarterly
- Maintenance reserve: Set aside at least 100,000 HKD
- Mortgage payments: If you need a mortgage, calculate the monthly payments
:::warning Guide to Avoiding Pitfalls Many first-time homebuyers only calculate 'mortgage cheaper than rent,' but neglect management fees and maintenance costs. As a result, after moving in, they find that 'monthly expenses are even higher than renting,' and ultimately are forced to sell the property and exit the market. :::
5. Consult Professional Advice
Buying an old building involves knowledge in legal, financial, and engineering aspects. It is recommended that you consult the following professionals:
- Real Estate Agent: Understand the compulsory sale trends and market conditions in the area
- Lawyer: Review the sales contract to ensure there are no legal pitfalls
- Surveyor: Assess the building's structural condition and maintenance costs
- Mortgage Consultant: Understand the bank's mortgage policies for old buildings (some banks do not approve mortgages for properties over 50 years old)
Summary: Old buildings can be bought, but you need to do your homework
Buying an old building is not a 'flooding monster'; as long as you do your homework, understand the risks of compulsory sale and maintenance costs, you can still find a 'good deal.' Here are 5 key pieces of advice I have for you:
- Check property records to understand ownership status: Grasp the signs of compulsory sale in advance
- Request maintenance records from the management company: Avoid being caught off guard
- Inspect the building on-site: Confirm with your own eyes
- Calculate holding costs: Set aside a maintenance reserve fund
- Consult professional advice: Don’t go it alone
Remember, buying property is a major event in life, and you must not rush into the market just because it is 'cheap.' Older buildings can be your 'entry' opportunity, but they can also be a financial trap. Do your homework thoroughly to move steadily in the Hong Kong property market.
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