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Friday, June 17, 2016, 12:58

Hong Kong home foreclosures climbing

By Reuters

Hong Kong home foreclosures climbing
High rise residential buildings are seen in Hong Kong on March 6, 2016. (PHILIPPE LOPEZ / AFP)

LITTLE TRANSPARENCY

The finance companies typically charge between 10 and 30 percent interest compared with 2 percent from banks, and their loans typically last 1-5 years rather than banks' 20 or 30 years. They often provide mortgages to people who banks have turned away because they don't have a steady income or can't prove it.

Some of those analysing the problem say they don't trust the official data to provide a full picture of the leverage in the home loans sector. The HKMA data is also 17 months old – the last time it measured finance companies' bank loans was in December 2014, before the worst of mainland China's economic slowdown and the market crash that wiped a third off the value of its stock markets.

"I don't think there's a lot of transparency. It is a problem," said Moody's Investors Service Senior Analyst Sonny Hsu, who called finance companies a "blind spot" and recently raised the issue with the Hong Kong Monetary Authority (HKMA) and a number of banks, who he said gave him verbal assurances it wasn't a systemic problem.

In its most recent published statements on the issue in the spring of 2015, HKMA downplayed the risk posed by finance companies in the property sector.

It said the total value of banks' credit facilities to finance companies was less than 0.4 percent of total loans and that the total value of loans with property as collateral was HK$9.2 billion, accounting for no more than 1 percent of outstanding residential mortgages.

However, it also acknowledged the data excluded "a vast number of other finance companies" that don't have relationships with banks.

When asked for updated data, an HKMA spokesperson said in a written reply that the bank did not regulate finance companies but neither did such companies have a "systemic implication".

The spokesperson also said that the HKMA had advised banks last year to cut credit lines to finance companies lending above HKMA guidelines and to lower debt servicing ratios for borrowers who exceeded certain leverage thresholds.

PULLING BACK

As much as 10 percent of the market may be operating outside of the HKMA rules, according to brokerage Ricacorp. Five years ago, there were just over 800 registered finance companies, according to the Companies Registry. Now there are more than 1,600.

The situation is severe enough to make finance companies ease back, said HKPFA official Lam.

"Nowadays I seldom see finance companies finance up to 70 percent of the property value because 70 percent today next month is maybe already 75 percent and 3 months later is 80 percent," Lam said.

Still, some of the biggest property developers seem less afraid. One, Henderson Land Development Co Ltd, recently began advertising first-time mortgages of up to 95 percent in partnership with an unnamed finance company. Another, Sun Hung Kai Properties Ltd, has started advertising loans worth 120 percent of the property value.

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