"Ah Mike, this unit is 10% below market price. The owner says it comes with a deed of assignment, no problem!" Last month, a friend of mine who has worked as a real estate agent for five years almost helped a client close a 'bargain' deal. Fortunately, before signing the provisional agreement, the client's lawyer discovered a problem—the unit was actually a 'deed of assignment' property, which carried a series of legal risks. In the end, the client not only couldn't get on the property ladder, but also wasted two months and tens of thousands of dollars in deposit.
In Hong Kong's property market, units under a "transfer deed" indeed often appear at prices below market value, and for first-time buyers eager to get on the property ladder, the appeal is obvious. But as a veteran in the real estate industry with 15 years of experience, I must tell you: properties under a transfer deed are definitely not as simple as "cheap is good". In today's article, I will break down the legal risks of transfer deed properties in the simplest way, so you can avoid this major pitfall on your property journey.
What is a 'Transfer Deed'? Understand the Core Concept at Once
Legal Definition of a Transfer Deed
"Deed of Gift" refers to a contract in which a property owner transfers property to another person either as a 'gratuitous transfer' or for a 'nominal consideration' (such as $1). Under Hong Kong law, this method of transfer is completely legal and is commonly used for property transfers between family members, such as parents giving property to their children or the transfer of ownership between spouses.
:::tip Expert tips The deed of transfer itself is not illegal, but it will leave a permanent record in the Land Registry, and this record will affect the future resale and mortgage applications of the property. :::
Transfer Agreement vs. General Sales Contract
A general sale contract (Assignment) refers to a transaction between the buyer and the seller at market price or close to market price, where the buyer needs to pay a reasonable consideration. In contrast, a transfer contract does not involve a real 'market transaction,' and this difference can lead to the following issues:
- Mortgage Difficulties: Banks may question the true market value of the property
- Resale Restrictions: Some buyers may be discouraged by the deed transfer records
- Legal Risks: May involve issues of debt or tax evasion
Why does a property appear as a gifted or transferred contract item?
In the Hong Kong property market, there are three main reasons why transferred deed properties appear:
- Internal family transfer: Parents give property to their children, avoiding the complicated procedures of inheritance.
- Debt restructuring: Owners transfer property to relatives or friends to avoid claims from creditors.
- Tax planning: Attempting to reduce stamp duty or estate tax through a gift deed (but this practice carries legal risks).
:::warning Important Reminder If the deed of transfer is intended to evade debts or taxes, such a transfer may be overturned by the court, and the buyer could face the risk of unstable ownership. :::
Five Major Legal Risks of Buying and Transferring Contract Units
Risk One: Numerous Difficulties in Mortgage Applications
This is the most direct and also the problem that most buyers will encounter. Most banks in Hong Kong take a conservative approach to properties transferred by assignment deeds, and the reason is simple: banks cannot determine the true market value of the property.
Based on my experience, when banks handle mortgage applications for transferred properties, there are usually the following restrictions:
- Significantly lower mortgage ratio: Generally, properties can achieve a 60-70% mortgage, but properties with assignment deeds may only achieve a 40-50% mortgage.
- Conservative valuation: Banks may reduce the valuation by 10-20%, and may even refuse to provide a valuation.
- Higher interest rates: Some banks may increase the mortgage interest rate, raising the cost of mortgage payments.
- Direct rejection: Some banks may directly refuse to provide a mortgage for properties with assignment deeds.
:::highlight Real case I had a client who bought a transfer deed unit in 2023 for a transaction price of 5 million. He originally planned to get a 60% mortgage, but in the end, only one bank was willing to approve a 40% mortgage, and the interest rate was 0.5% higher than the market rate. As a result, he had to come up with an additional 1 million for the down payment, greatly increasing his mortgage pressure. :::
Risk 2: Property ownership may be overturned
This is the most serious legal risk. If the deed of transfer is for the purpose of evading debts, the creditor can apply to the court to overturn this transfer. According to Sections 49 and 50 of the Bankruptcy Ordinance, the court has the power to revoke transfers made with the 'intention to defraud creditors'.
Specifically, if the following situations are met, the transfer contract may be overturned:
- The transfer occurred within 5 years before the owner's bankruptcy
- The owner was already insolvent at the time of the transfer
- The purpose of the transfer was to evade debt
Once the deed of assignment is overturned by the court, you as the buyer may lose ownership of the property, and even if you are a bona fide third party, you may have to face a lengthy legal litigation.
Risk Three: Difficulty in Resale, Poor Liquidity
Even if you successfully purchase a property with a transfer deed, you will face difficulties when reselling it in the future. The reason is simple: most buyers are wary of properties with a transfer deed.
According to my observations, properties transferred through gift deeds have about 20-30% lower liquidity in the secondary market compared to regular properties. The main reasons include:
- Buyers are concerned about mortgage issues
- Buyers are concerned about legal risks
- Real estate agents are unwilling to recommend (because the transaction is difficult)
This means that even if you want to sell the property, you might have to do so at a price below the market value, effectively losing the advantage of having 'bought cheaply' initially.
Risk Four: Complex Stamp Duty Issues
The stamp duty handling for transfer deeds is much more complicated than ordinary sales. According to the Stamp Duty Ordinance, transfer deeds require payment of 'ad valorem stamp duty,' but the calculation method is different from ordinary sales.
:::warning Tax Trap If the consideration for the deed of transfer is nominal (for example, $1), the tax authorities may calculate the stamp duty based on the market value of the property rather than the transaction price. This means you may have to pay a higher stamp duty than expected. :::
In addition, if you are not a first-time homebuyer, you will also have to deal with the issues of "Special Stamp Duty" (SSD) and "Buyer’s Stamp Duty" (BSD), which can significantly increase your home purchase costs.
Risk Five: Hidden Legal Disputes
The transfer of property rights may involve various legal disputes, such as:
- Family disputes: If the gift deed is from parents to one of the children, other children may raise objections.
- Divorce disputes: If the gift deed involves property transfer between spouses, it may be redistributed during a divorce.
- Inheritance disputes: If the gift deed is intended to bypass inheritance, other heirs may file a legal lawsuit.
Once these disputes break out, as a buyer you might be dragged into them, and even if you are a good-faith third party, you will still have to spend a lot of time and money to deal with them.
How to Safely Buy Transferred Contract Units? A Practical Guide to Avoiding Pitfalls
Step 1: Conduct a thorough title search to understand the property's history
Before considering buying a conveyance unit, the first step is definitely to check the Land Registry. You need to review the following documents:
- Complete property transfer records: Understand the time and background of the conveyance deed
- Owner's bankruptcy records: Verify whether the owner has been bankrupt or faced debt issues
- Property legal documents: Check if there are any legal lawsuits or injunctions
:::tip Insider Tip The cost of a record search is only a few hundred dollars, but it can help you avoid risks worth millions. Do not skip this step just to save money. :::
Step Two: Hire a Professional Lawyer to Conduct an In-Depth Investigation
When buying a unit with a conveyance deed included, you must hire an experienced real estate lawyer. The lawyer will help you with the following tasks:
- Review the legal validity of the transfer contract
- Investigate the background and reasons for the transfer contract
- Assess legal risks and potential disputes
- Provide professional opinions and risk assessments
A good lawyer may charge higher fees (usually 20-30% more than a typical transaction), but the money is definitely worth it.
Step 3: Communicate with the bank in advance to confirm mortgage feasibility
Before signing the provisional agreement, be sure to first confirm the feasibility of the mortgage with the bank. You can provide the bank with property information and request a preliminary valuation and mortgage assessment.
If the bank says it cannot provide a mortgage, or the mortgage ratio is too low, you need to reconsider whether it is worth buying this unit. Remember: the premise of paying less than the rent is that you can successfully apply for a mortgage.
Step 4: Request the Owner to Provide Complete Documents
When purchasing a transfer deed unit, you should ask the owner to provide the following documents:
- Explanation of the reason for the deed of assignment (preferably a written statement)
- Proof of the owner's financial situation (e.g., bank monthly statements)
- Complete maintenance records of the property
- Records of payment for management fees and rates
These documents can help you gain a more comprehensive understanding of the property's condition and reduce future risks.
Step Five: Consider Purchasing Title Insurance
If you decide to buy a deed unit, it is strongly recommended to purchase title insurance. Title insurance can protect you against losses in the following situations:
- Property ownership overturned by the court
- Hidden legal disputes arise
- The owner's creditors initiate claims
The premium for title insurance is usually 0.5-1% of the property value. Although it is not cheap, it can provide you with important protection.
:::success Success case I had a client who bought a assignment unit in 2022. Although the price was low, he did his homework: checking the land registry, hiring a lawyer, and purchasing title insurance. As a result, after holding the property for two years, he successfully resold it at market price and made a considerable profit. :::
Summary: Transfer agreements are not a catastrophe, but should be handled with care
Buying units with transfer contracts is not entirely unfeasible, but you must clearly understand the legal risks involved and be well-prepared. Here are five key pieces of advice I have for you:
- Thoroughly check the records: Understand the complete history of the property and the background of the transfer deed.
- Hire a professional lawyer: Don’t skip this step to save money.
- Confirm the mortgage in advance: Ensure you can successfully apply for a mortgage.
- Request complete documents: Ask the owner for all relevant documents.
- Consider title insurance: Provide yourself with additional protection.
Remember, in the Hong Kong real estate market, cheap does not necessarily mean good, and expensive does not necessarily mean bad. Buying property is a major life decision, so never fall into legal traps just because you want a bargain. If you have any questions about a transfer of property, the best approach is to seek professional advice rather than taking risks on your own.
Do you have experience buying property units with an assignment of deed? Or are you considering purchasing this type of property? Feel free to leave a comment below to share your thoughts, or send us a private message for professional consultation. If you find this article useful, remember to subscribe to our blog, where we regularly share more in-depth analysis of the Hong Kong property market and home-buying guides!