Hong Kong is one of the most expensive real estate markets in the world. 7.3 million people live on only 77 square kilometers of land that the government has allocated to housing. The average living space is 180 sqft (16.7 sqm, equivalent to a one car garage) and the average price of a home in Hong Kong in 2019 is more than USD 1.2 million. The sky-high property prices in Hong Kong put private apartment ownership beyond the reach of many aspiring homeowners and real estate investors.
One way to get your foot in the door, is to pool money from family members or friends to purchase a flat jointly. If you invest in a Fixer Upper, you not only benefit from potential asset appreciation over time, but also from the value-add created by your redevelopment or renovations. When making the decision to rent or buy a place, emotional factors play a strong role, so a nicely renovated, fully furnished apartment can set your investment property apart. We followed this approach when we purchased our first flat in Sheung Wan, Hong Kong back in 2007. Chris and I did not have sufficient funds for the down payment and renovations and hence asked another friend to invest alongside us. Our first investment was a success and triggered the launch of our real estate development business Provest. We went from single apartment redevelopments to setting up our first private and closed property investment funds in 2012 and 2014. And since 2018 we are managing an open private equity real estate investment fund, following a value-add strategy under the newly created Vivid Invest brand.
When two or more people buy a property together there are two ways a property can be held, either as ‘Joint Tenants’ or ‘Tenants in Common’. It is important to note that ‘Joint Tenants’ co-own a property and each owner has an equal share in the property (e.g. in case of four joint tenants, each has a share of 25%). If you sell the property, each co-owner is entitled to an equal share of the sale proceeds regardless of how much he has contributed to the purchase or mortgage payments. Also, should one co-owner die, his share will be allocated equally to the remaining co-owners, irrespective of the individual will of the deceased.
As ‘Tenants in Common’ each co-owner owns a specific (also unequal) share of the property. Since co-owners can also sell their share of the property to someone else, it is advisable to draft a ‘Tenancy in Common Agreement’ to spell out the rights of each co-owner. Since co-owners can sell their share of the property to anybody, the agreement should stipulate that the other owners have the right of first refusal, or that they can vet potential buyers. Before we bought the apartment in Sheung Wan in 2007, we sought the help of a law firm to draft a ‘Tenancy in Common Agreement’. After all, you would like to be prepared for any eventuality and not put the relationship to your co-investors at risk.
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