As the completion date approaches, mortgage approval still pending is a nightmare scenario for many property buyers. Failing to complete the transaction on time directly results in the forfeiture of all deposits paid\u2014commonly known in Hong Kong as \"forfeiting the deposit\" (*taat deng*). Worse yet, if the seller subsequently resells the property at a lower price, the defaulting buyer may also be held liable for the price difference.\n\nThis article explains the meaning of deposit forfeiture, breaks down how compensation and damages are calculated, examines the consequences of defaulting on a Home Ownership Scheme (HOS) flat, and provides practical, actionable strategies to take when your bank cannot approve your mortgage in time.<\/p>\n
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\"Deposit forfeiture\" is a common Hong Kong real estate term referring to a situation where a buyer fails to complete a property transaction in accordance with the contract after signing the agreement for sale and purchase, thereby forfeiting the deposit paid. Because the deposit is confiscated by the vendor, it is also colloquially termed 'Deposit forfeiture'. To fully grasp the meaning of \"Deposit forfeiture\", it helps to distinguish between two stages: First, walking away from the deal after signing the Provisional Agreement for Sale and Purchase but before executing the formal agreement; in this case, the buyer typically only loses the initial deposit (commonly called 'the preliminary deposit\"). Second, defaulting after the Formal Agreement for Sale and Purchase has already been signed; here, the buyer forfeits the substantial balance of the deposit (known as '\"the further deposit\") and faces a significantly higher exposure to subsequent legal claims.<\/p>\n
Regardless of the stage at which it occurs, once a default takes place, the buyer not only loses the deposit but may also compromise their bargaining position with other sellers in the future. Conducting a prudent assessment of one's financial capability prior to signing remains a fundamental risk-management practice adopted by many property buyers.<\/p>\n
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Some buyers overestimate their repayment capacity when signing the contract, or underestimate ancillary expenses such as the down payment, stamp duty, agency commissions, and renovation costs. When the time comes to actually produce the funds for completion, they discover their cash reserves fall short, leaving them with no choice but to forfeit the deposit. This scenario is not uncommon among first-time homebuyers, who tend to take a relatively optimistic view when estimating the total cost of purchasing a property.<\/p>\n
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Bank mortgage approvals take time. Some buyers may fail to secure an adequate loan amount or may even be rejected altogether due to issues with proof of income, credit ratings, or property valuations. When a bank cannot approve a mortgage in time, or when the approved loan-to-value ratio falls short of expectations, buyers struggle to raise sufficient funds before the deadline to complete the transaction. This scenario is particularly thorny as the completion date nears, and it represents one of the most common default risks.<\/p>\n
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Due to property market volatility, if a property's valuation drops after contracts are signed, the mortgage loan-to-value (LTV) ratio the bank is willing to offer may decrease accordingly, forcing the buyer to top up a larger down payment. On the other hand, some buyers choose to terminate the transaction because their confidence in the market outlook weakens or their personal financial situation changes abruptly. These factors can emerge within a short period, leaving buyers trapped in the predicament of defaulting on their deposit.<\/p>\n
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Compensation for defaulting on a property purchase is not a fixed, single amount; rather, it depends on the stage of the transaction and the vendor\u2019s actual incurred losses. Simply put, the minimum penalty is the loss of your deposit, while the worst-case scenario involves being held liable for the resale price deficit. The following hypothetical examples illustrate the different compensation scenarios.<\/p>\n
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