[pauly]

ok , its a silly question , but im posting here because ive recieved great advice in the past.
recently ive been studying how to become wealthy, and i have realised that although there are no get rich quick schemes that i would personally follow it seems that there are general recommendations that the agendaless advisers seem to agree on
ie
1 start contributing to a pre - tax savings account (10-15%salery)
2own your own home (and pay bi-weekly)
3 get savings for emergencies (about 6 months worth)
4 get insurance for your health and sallery

my questions are as follows
is the mpf in hk pre tax? and can you cash it in if you leave ?
are there any pre tax savings accounts in hk ( such as a 401k , isa etc???)

this post is also intended to generate discussion and opinions about my findings
thanks in advance guys

[freeier]

mpf shld be pretax. up to 12k of your annual income is tax exempted in this situation if u pay mpf.

whether u can draw it when u leave. i'm fairly sure u can draw it sometime in the future of your life but u'd have to figure out when. 8-)

on point 2, i don't think buying a property makes much sense unless u are paying all in cash. the cost of fund is higher than the rental yield. it wld make sense for u to invest the money in something better yield than apartments.
but if u take the view that your property will be your investment underlying and u expect it to go up like 10% p.a. for the next 5 years, ya by all means buy one.

[pauly]

the points made by the source i listened to gave a few arguments for owning property
firstly that in the net worth or renters compaired to the net worth of homeowners was statistically massivly different (this is in america)

secondly that where as real estate statistically increases 5% and the stock market 10% annually .The guy pointed out that most people dont buy 100% of the property they buy 10-30% then borrow the rest - so that 5 % increase is on the total value of the property - wich is far more than what was invested

finally that after 20 years of renting you have nothing to show for it , but abviously 20 years of mortgages leaves you with a piece of real estate.

non of the above are my oppinions im just passing on what i learned - im happy to be wrong if if means i end up wealthy

[KnowItAll]

Besides.. you're building up your own equity instead of paying the landlord's mortgage.

My mind works in simple ways when it comes to owning property. At the end of a few years, I'd have a lot more left behind then I would I had been renting the same apartment.

[chris_in_hk]

Hong Kong is a great place to invest. There's no capital gains tax or dividend tax. Tho' if you're American you'll still get taxed by the US Gov.

The MPF isn't much and only allows you to contribute 12k to it a year. For which you can claim a pre-tax deduction. You can cash it in if you're leaving the country for good. But you won't get rich through the MPF. Apart from the MPF there's no such thing as 410k's or ISA's here.

All that business about owning a house to get rich is totally different over here than the US, where most of the books are written for. There isn't all the tax breaks and rules that make it so advantageous over in the States. They just don't apply here. However, if you're planning to stay in HK long term it could be your advantage to buy rather than rent. You basically don't have anything to show for it if you're a long-term renter.

The surest path to becoming a millionaire over here is through investing in stocks and funds for the long-term. You can also do it through property but the rate of return on property is less than stocks on average.

[freeier]

well, psychologically it might mean something, but mathematically its a fallacy.

- in american or canada the rental yield is high, maybe 8~10%. it would be more rewarding to purchase a property.
- u pay 30% of a perperty, it goes up 5% u make 5/30 = 1/6. if it goes down 5% (not to mention 50% during the 98 crisis) u also lose 1/6.

in asia the numbers don't work out correctly.
take for example, a flat that is priced at 4mil hkd.
if you buy that flat using a loan of 80%, i.e. cash of 800k and loan of 3.2mio. The interest currently charged on the loan is ~5%, effectively 160k hkd per year. you need to repay maybe 40k hkd per year on the capital principal. that means total of 200k per year which is effectively 17k per month on mortage. additionally you have to pay 1.5k per month for the maintenance of the place = 18.5k.

if you rent the place, the cost is probably around 14k. you save 4.5k per month. Investing in a compounding rate of 3% p.a., 4.5k per month would end up to be 2.6m HKD at the end of 30years (same time u take to clear the housing loan).

Oh, and we forgot the 800k you forked out initially. Adding that into the investment sum, and you'd get 4.6mil HKD at the end of the 30years.


Note I used 5% interest rate and investment return of 3% for the computation. You juggle the investment return upwards (some ppl are probably able to do 5%, or even 8% p/a on a long term basis), the returns are going to be much more.

So the issue is how u would be able to squirrel away that 4.5k you can save from the mortage and put it into effective usage. Which is where most people are unable to, and not that property investment is such a good idea.

[Deverson]

Originally Posted by KnowItAll

Besides.. you're building up your own equity instead of paying the landlord's mortgage.

My mind works in simple ways when it comes to owning property. At the end of a few years, I'd have a lot more left behind then I would I had been renting the same apartment.

KIA, let's say there is an appartment for 5,000,000 HK$, one has no equity.
I assume the average interest rate is about 4-5% in HK! So only the payments of interest would be around 225,000 HK$ pa, but you still don't repay anything to the mortgagor....
So how does this system work??? Sorry for being stupid, but I asked myself many times how people in HK earn money with estates... And can you really expect an annual growth rate of 5%???

[HKNewBi]

Hong Kong's property market is very volatile. Big ups and downs. Buy low, sell high - the basics - and you can make a great return. The basic idea of paying off your own mortage (ie owning the property) vs paying off the landlord's mortgage (ie renting the propery) sounds great. But it really doesn't stack up too well in HK as some of the examples above show.

Until recently, the sums were a complete no brainer in the UK for example. Mortgages were significantly less than the rental equivalent and you also stood to make a capital gain along the way. Also, rather oddly, the inland revenue allows you to tax deduct mortgage interest on a rental property but not on your own home (as is the case in the States - thus making property ownership so much more attractive).

But there are downsides to all this:

1. In the long term, you end up with a lot of capital tied up in the property. It is better, in most cases, to own 10% of 10 houses rather than 100% of one as you will get a better return.

2. If the property market drops you can find yourself in a very difficult situation. If you can't sell your house as you have negative equity, this may mean you can't take up a job opportunity overseas / in another town, move in with a partner etc. It is very possible you could suddenly find yourself in debt to the bank to the tune of £100,000 or more! It might take 5 - 10 years for the property to bounce back, assuming it does.

It can really affect a lot of life choices more than perhaps people realise when they first buy their own property.

But, as in most situations, to make money does require a bit of a gamble.

[freeier]

asians tend to be very sentimental as far as property is concerned.
(i am one myself i vouch for it)

the uncertainty in early life made people defensive, and having a property that you can call your own is what many of the older people termed 'successful'.

numerically it does not add up, that's because there is a lack of proper understanding of the overall value and cost of money. but as long as this lacking persist, people are just going to continue to bid up property prices andthat's how the early comers have a perception property is the sure way to makemoney...

how long mroe would it last ? don't ask me..
but i know for sure, with maybe 30~50% of the market capitalization in the HSI invovlved in property, we are not going to read about real facts and numbers on property evaluation, from the owner's point of view.

quoting kia, with the mass media in bed with most of these companies, and all involved wants the market to go up for all their own reason, i don't see when rationality wld come back. but i'm not going to try and hunt for the last hero
8-P

[chris_in_hk]

Long-term stock market returns are around 11%. That's higher than property yields, so that's why the stock market's better. However, you do need a place to live.

The US tax laws which make it easier to get rich through property are that the capital gains you get from buying a property, which then goes up in price, is that you don't need to pay any capital gains if you roll your money over into a more expensive property within a certain amount of time. That means you can keep on climbing the ladder into a more expensive place. There's also tax breaks but I can't remember the details as I'm not American.

Say you've got a 20-yr mortgage. After 20 yrs you'd have paid off the original value of the property and the interest payments. The numbers get a bit complicated as it's a per annum interest rate on the outstanding sum that you're paying down. That's to put it simply. There's different variations of mortgages available.