Real estate financing

Common ways of financing commercial real estate acquisitions

The main sources of financing property acquisitions are:

(a) Borrowing from banks; and

(b) Equity raising.

In view of the economic contraction brought about by Covid-19 on the non-residential property market in Hong Kong, starting from 20 August 2020, the Hong Kong Monetary Authority has adjusted the loan-to-value ratio caps for non-residential property upward generally by 10%, so that for all transactions with provisional agreement for sale and purchase signed on or after that date, an applicant can borrow a bank loan ranging from 30% to 50% of the property value, depending the property value and whether the applicant is a borrower or guarantor of another loan.

Typical security created

Typical security interests include:

  • Legal charge over the real property;
  • Equitable mortgage over the real property (common for "off-the-plan" sales);
  • Debenture incorporating a fixed and floating charge over all assets of the borrower or the company holding the legal title of the property. These include assignment of leases, sale contracts, rental and sale proceeds, a charge over the rental account and any reserve account, and an assignment of insurances; and
  • A charge over the shares of the borrower or the company holding the legal title to the property.

Most security documents must be filed with the Hong Kong Companies Registry within one month of execution. Otherwise, it is void against all creditors and any future liquidator. The money secured under the charge becomes immediately repayable at the lender's option.

Restrictions for foreign lenders

There are no restrictions on granting security over real estate to foreign lenders.

Costs relating to the granting and enforcement of security

In Hong Kong, stamp duty is not payable on loan agreements, mortgages or security documents unless either:

  • The mortgage is not made in favour of a recognised financial institution and gives an irrevocable power of attorney to the mortgagee with immediate and automatic right to sell the property; or
  • It is a legal mortgage of Hong Kong shares when stamp duty of HK$5 is payable on each instrument of transfer.

Registration fee at HK$230/ HK$450 (depending on the amount or value of the consideration or value of

the property or share or interest affected) for registration of the charge instrument will be payable.

Note that the law does not impose a requirement on the time limit for the registration of an instrument, but late registration may lead to a loss of registration priority. If an instrument is duly presented for registration within one month after the date of its execution, it may retain a priority back to that date of execution. If it is registered outside the one-month period, the priority will be counted from the actual date of its due presentation for registration.

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