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Monday, August 8, 2016, 23:23

HKMA mulls curbing ‘aggressive’ homes loans

By Lin Wenjie
HKMA mulls curbing ‘aggressive’ homes loans
A view of properties in North Point. The Hong Kong Monetary Authority (HKMA) is said to mull scrutinizing high-interest-bearing loans and had sent out questionnaires to local banks last month seeking details of mortgages under their management. The HKMA has yet to reveal any plan to restrict “aggressive” mortgage loans, but has warned that such practices may increase credit risks for banks that have been financing builders and moneylenders. (Parker Zheng / China Daily)

The Hong Kong Monetary Authority (HKMA) — the city’s de facto central bank — is reportedly planning to reign in local banks which have been financing “aggressive” mortgage loans proposed by property developers that are deemed to heighten credit risks for lenders and contribute to a housing bubble.

The HKMA is said to mull scrutinizing high-interest bearing loans and had sent out questionnaires to local banks last month seeking details of mortgages under their management.

Market gurus, however, have allayed fears over possible curbs on mortgage loans at a time when there’re signs of the real estate sector making a recovery, saying homes buyers can borrow from alternative lenders.

The HKMA has yet to reveal any plan to restrict such “aggressive” mortgage loans, but has warned that these practices may increase credit risks for banks that have been financing builders and moneylenders.

It expressed concern publicly for the first time over developers’ financing programs after Sun Hung Kai Properties (SHKP) — one of the city’s biggest developers — revealed plans to offer mortgage loans of up to 120 percent of a property’s value to customers.

“The government is worried about a housing bubble bursting with these mortgage loans remaining at a high level,” said Vincent Cheung Kiu-cho, national director of Greater China at property consultant firm Cushman & Wakefield.

But, he believed that the local property market will not be much affected even if the HKMA were to tighten up on mortgage loans. “Homes buyers can still turn to small personal loans, while developers can also find ways of countering any curbs introduced.”

The HKMA had taken similar measures three years ago when, in 2013, it asked banks to set the risk weighting for new residential home mortgages at a minimum of 15 percent to ensure that lenders’ ability to cushion capital risks is deep enough, with the aim of cooling a runaway housing market.

According to the Rating and Valuation Department, the price index of private domestic units stood at 275.7 in June this year — the same as that for May, but was up 1.58 percent over the March reading of 271.4.

Meanwhile, new mortgage loans extended reached a staggering HK$17.8 billion in June — up 15.8 percent on May — while outstanding mortgage loans rose by 0.3 percent to HK$1.08 trillion, the HKMA said, based on a residential mortgage survey conducted in June.

Sharmaine Lau Yuen-yuen, chief economic analyst at local mortgage loan service provider mReferral, believed that SHKP’s offer is only a short-term promotional stunt.

Under the offer, a buyer is required to mortgage his existing apartment to a SHKP financing subsidiary to qualify for the 120-percent loan.

“Some developers have already trimmed their mortgage loan schemes, providing loans of just up to 85 percent of a flat’s value at the most. So, I believe the government will only give some sort of notification to the developers,” said Lau.

She also noted that non-bank mortgage lending only accounts for 3 percent of total loans issued in Hong Kong, so it will not pose a big risk to the financial system. The transaction volume could rebound in the second half as homes prices stabilize and interest rates remain low, she said.

Last year, the HKMA raised the minimum down payment required for properties valued at less than HK$7 million from 30 percent to 40 percent. It also required buyers of apartments worth more than HK$10 million to fork out a down payment of 50 percent — up from 40 percent.

Buyers with insufficient savings to make the down payment often turn to developers for mortgages.

cherrylin@chinadailyhk.com
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