買樓靠父幹？父母應助孩子上車嗎？

Hong Kong is known to have the world’s costliest real estate. As per data from Hong Kong’s Rating and Valuation Department, the housing prices have steadily increased from 2010 to 2020. While property prices have grown by 145% over the past 10 years, it is worth noting that even during the pandemic year, Hong Kong witnessed 0.31% increase in housing prices.

According to a 2019 UBS Global Real Estate Bubble Index report, Hong Kong continues to be the least affordable housing market. The report states that, “In Hong Kong, even those who earn twice the city’s average income would struggle to afford an apartment of moderate size. It would take 21 years for a skilled service worker to be able to buy a 60m2 (650 sqft) flat near the city centre.”  

Why Do Hong Kong’s Youngsters Want to Buy Properties?

•    Seems Like a Popular Life-Goal: Despite the skyrocketing prices, owning a house/property seems to be a life-goal for the young population of Hong Kong. A lot of youngsters, at the very start of their careers, dream of entering respectable professions such as medicine, banking, or advertising, but a vast majority of them look at these professions as means to an end. The end being “earning enough money to be used for buying flats and renting them out for a profit”. It’s disheartening to know that when young students are offered various career avenues to pursue their aspirations, many a times, they choose the high-paying finance or banking jobs, thereby giving up on less lucrative jobs that may otherwise be personally rewarding.

•    EMIs More Attractive Over Monthly Rental Payments - Young professionals don’t wish to keep paying the high rents and rather don’t mind paying almost the same amount as an EMI towards the house loan.

•    Ingrained in the Culture - Buying a home is a deep-rooted concept in Hong Kong society, and it has long been a top life-goal for the majority of the population. Home ownership symbolises a sense of being able to control fate and implicitly declares that an individual is moving forward, both economically and socially.

•    Fear of Future Property Hikes - Property agents and relatives also play on the fear that one’s housing goal will become “even more unattainable if they don’t buy now”.

Role of Parental Support in Financing Kids’ Property

Let’s look at a 2018 Sun Life study, “Parents Should Realise Children’s Wishes?” to understand the prevailing sentiment of parents' role in their kids’ financial matters. The study revealed that getting onto the city’s property ladder was top of the wish-list for 59% of student respondents, with 49% of the respondents expected their parents to lend or give them money. A 17-year-old student opines that it is the parents’ responsibility to financially support their children in buying property in the future.  The survey reflects that the younger population does indeed have an expectation from the parents to support them on financial matters, especially around property-related decisions.

On the other hand, 43% of ‘parent respondents’ agree that parents should provide regular financial support to their children even after their children have started full-time employment, or purchased property.

As per another AIA MPF survey, 70% of the parent respondents agreed to offer financial support to help their kids buy properties. 50% indicated that helping their kids buy flats is more important to them than their own retirement, while 53% are prepared to remortgage their own homes to help kids climb the property ladder.

So, clearly it is an implicit agreement that parents in Hong Kong will help kids with property purchases.

Pros and Cons of Providing Housing Loans to Your Kids

Below you will find a list of some advantages and disadvantages of helping kids with financing their properties.

Pros:

•    Offers Flexibility to Kids - A loan from a parent to a child can be structured with more flexible terms, such as lower interest rates. There are no credit checks that need to be carried out, and no forms have to be filled.

•    Allows your Kids Purchase a Property of their Choice- Offering a loan on flexible terms may allow the child to purchase a home that may otherwise be unaffordable. This not only allows them to purchase their preferred property, but also allows them to benefit from the appreciation of a house that may be worth considerably more than what they could have purchased on their own.

•    Enables You to Be Closer to Your Loved Ones -Some parents may want to help kids buy a property near to their residence to be able to keep in touch and be closer to their kids and grandkids.

Cons:

•    May Affect Own Life Post Retirement: The mindset of Hong Kong parents who view supporting their children buying an apartment as more important than their own retirement could affect the parents’ retirement life. Of course, parents will continue to care for the kids but they should also pay attention to preparing their lives post retirement.

•    May Not Get the “Returns” - The philosophy of “raising children for old age” is no longer valid for Hong Kong.   As per an AIA MPF survey, “despite 78% of younger respondents agreeing they should provide their parents with regular financial support, 71% admit they have difficulty in making ends meet and cannot support their parents in retirement.”

•    May Sour Relationships: If there are unpredictable events in future, such as a divorce, or conflict between siblings or with parents, parents may have to face property ownership disputes.

•    May Lead to a Pampered Generation - Kids may continue to be dependent on parents for financial matters and may not develop the resilience and the maturity to manage their own finances.

How to Prepare Your Kids to Buy a Home?

-     Let Your Child Live with You Temporarily -  If a large part of your kid’s salary goes towards rental payment, you can be sure it’s going to take them longer to save up for that down payment. You could consider letting your adult child live with you temporarily.

-     Loan/Gift Some Money - If you have sufficient resources, you may consider gifting part or all of the down-payment. Another way to help is to take care of the realtor fees or closing costs.

-     Inculcate Good Credit Habits - Help your child build a good credit history. That will make it easier for them to receive a housing loan. Factors such as credit card payment history, the length of time the kid has had a credit card account open, how often the cards are used, whether the dues are paid before the due date or not, may impact the credit history and thereby the loan receiving ability.

-     Get the Paperwork in Order- If you have the financial assets to be able to loan a big sum towards purchase of property, be sure to establish the right paperwork for loan’s repayment schedule and accrued interest (if any). It will be wise to work with a financial adviser, CPA, and an attorney to hammer out the details. 

-     Go For the Co-Signer or the Co-Borrower Route -In case your kid needs your income and credit history to qualify for the loan, this might be the easiest option to go for. Under this arrangement, all parties have ownership interest in the property and are responsible for repaying the loan. Make sure all parties understand their respective responsibilities and are aware of the consequences.

-     Impart Sound Financial Education - In case you do not have the means to financially support your child in the home ownership decision, you could support them by educating them about the home-buying process based on your own past experiences.  Teaching your child about finances, savings, and the importance of good credit practices early on will also set them up on the right path of sound decision making.

To conclude, it is necessary to find the right balance between your own personal financial situation and your ability and willingness to help your children. Your emotional and financial support is paramount to your kids’ growth and development, but do not become too focused on protecting them for life. If you have the capability and the bank balance to be of help to your kids, certainly go ahead and make their lives easier by offering them a loan. Assist where you can, but without risking your own retirement funds.