Buying Tenanted Properties: Valuation Challenges

When purchasing a "tenanted" property, banks often require appraisers to conduct an internal valuation; if the tenant cannot arrange it, the valuation is often conservative or delayed, affecting approval and timely completion. **Key point: This is not due to the seller's lack of cooperation, but because tenants have the legal/contractual right to "quiet enjoyment" and compliance requirements, and cannot be forced to allow viewings without consent. This article explains why banks emphasize interior inspections, the differences and risks of tenanted versus vacant possession, and feasible coping strategies.

Q1｜Why do banks emphasize interior inspections? What are the practical impacts if unable to inspect?

According to HKIS's "Valuation Standards", valuation reports must specify the scope and date of inspections. Many factors affecting market perception (such as building age, condition, maintenance, alterations, layout, lighting, moisture, etc.) can only be confirmed through on-site inspections. If instructed not to inspect, the valuer must assess the risks before deciding whether to proceed and make corresponding assumptions/limitations. The outcome often results in conservative valuations or delayed reports.

Practical consequences:

• Lower valuation → Pressure on the loan amount that can be approved;
• Approval delays → Need for additional documentation or rescheduling of inspections;
• Individual rejections → Risks are unacceptable.

Insufficient valuation or delays can compress the completion timeline, leading to default risks and additional costs.

Q2｜What are the main differences and risks between "selling with a tenancy" and "selling vacant possession"?

• Selling vacant possession: On the completion date, the property must be unoccupied, cleared out, and the keys handed over. In practice, the seller usually arranges reasonable times for valuers/buyers to inspect the interior to ensure mortgage and settlement proceed smoothly.
• Selling with a tenancy: After completion, the buyer takes over the landlord's position, but before the transaction, the buyer is not a party to the existing tenancy and has no direct control over the occupant's right to occupy the interior; additionally, the "quiet enjoyment" principle under the tenancy and compliance requirements for agents mean that viewings cannot be forced without the occupant's consent. Therefore, the buyer may not be able to arrange an internal inspection; this could lead to more conservative valuations or delays.
• Potential risks involved: Besides restricted inspections, selling with a tenancy also involves issues like inheriting deposits, and taking on responsibilities for rent/maintenance; when information is incomplete, this should be reflected in the price, and each aspect should be disclosed and confirmed in the documents (e.g., rent amount, deposit amount and handling method, lease term, any rent arrears, management fees and maintenance responsibilities).

Q3｜Can I still get a high loan-to-value mortgage if I can't get into the property for valuation?

Yes, it's possible, but it becomes more difficult. Regardless of the maximum loan-to-value ratio (based on the latest regulations), whether there is sufficient and credible valuation is always the core of the approval process. If you are unable to enter for valuation, you usually need to:

• Adjust the timeline: Strive to extend the completion period to accommodate review and approval;
• Adjust finances: Use a higher down payment or negotiate to absorb the risk of a conservative valuation;
• Discuss with the bank whether mortgage insurance or other credit enhancement arrangements can be provided—but the premise is still that the valuation can be established.

First, confirm the transaction mode (vacant possession / with tenancy), then use time (scheduling reviews) and information (full rental disclosure) to gain certainty in valuation and approval; all key records should be documented and preserved. If you are considering such a transaction, it is advisable to consult with banks and valuation professionals early to assess feasibility, and seek specific advice from your representative lawyer regarding documents and risk disclosure.