Thursday, May 11, 2006

Property purchase update #1

I have instructed solicitors to attend to the purchase. I have used the same firm before and do not anticiapte any problems here.

Getting the finance together is taking slightly more effort. The competiton among the lending banks is quite intense and I have been offered a choice of HIBOR + 0.7% or Prime - 2.75% which are, by historical standards for investment property loans, quite attractive rates. I will go with the HIBOR option as it is slightly cheaper (and has been consistently so over the last two years). I have also settled for a term of 11 years and a gearing ratio of about 40%. This will show a positive cash flow with a sufficient buffer to cover interest rates rising another 1.5%.

The only minor irritation is the requirement that my wife guarantees the loan because she is a director of the company that is purchasing the property. She also holds one share on trust for me. This arrangement is a legacy of the time when Hong Kong companies were required by law to have at least two shareholders and at least two directors. I will deal with this problem by updating the company's articles of association and asking my wife to resign and transfer the one share back to me. Given that the bank did not require this last time I borrowed through this company, I am slightly irritated by this change in policy - only slightly though.

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