Mortgage rate stifles ownership

PUBLISHED : Wednesday, 02 June, 1993, 12:00am
UPDATED : Wednesday, 02 June, 1993, 12:00am

THE policies of the Hongkong Government will ensure that 50 per cent of the population never become homeowners, according to a leading property analyst.


In the latest strike at the Government's controversial policy aimed at curbing rising property prices, the president of the Society of Real Estate Agents of Hongkong, Michael Choi, has suggested an 85 per cent lending ceiling for bona fide first-time buyers.


At the moment, 70 per cent mortgage ceiling is in place.


The criticism comes following the news that the Government's much-vaunted ballot to help the plight of the 40,000 to 45,000 first-home buyers from the so-called sandwich class will only benefit 1,000 of in a draw in August.


Mr Choi has suggested the banks make a special case for those who fail in the ballot.


''The Government may be reluctant to relax the limit, but it should for first-time buyers,'' he said.


Mr Choi said that seeing all those who applied for a ballot in August had to prove they were first-home buyers, they should then be able to submit to their bank the document proving they were in the ballot and be allowed to borrow up to 85 per cent.


''The Government always says they don't know how to distinguish real first-time buyers - well now they have a way,'' he said.


''That way it can make very good use of the scheme.'' Mr Choi said the 70 per cent mortgage ceiling penalised the end-user.


''These people have good incomes, but they don't have a million dollars for the deposit, or however much 30 per cent of their purchase price amounts to,'' he said.


Faced with inflexibility from the banks, developers such as Sun Hung Kai and Henderson Land have taken action themselves.


They are offering to top up mortgages to the 85 per cent level at which most first-time buyers who can afford to service a mortgage, can afford the deposit.


''Whether it is sanctioned or unsanctioned, it is happening,'' said Nicholas Brooke of agents Brooke Hillier Parker.


''If the Government doesn't take some action, more developers will do this, '' he added.


The crux came with the size of deposit, said the head of research at Morgan Stanley, Peter Churchouse.


''Low and middle-income groups simply don't have access to savings of $300,000 for a deposit, which is why the 70 per cent mortgage ceiling penalises them,'' he said.


''The situation discriminates against the people it should help,'' he added.


Mr Churchouse said that by restricting land supply and maintaining interest rates well below inflation, the territory's administration merely fuelled the property market.


''They say they are concerned about speculation, but the 70 per cent ceiling doesn't affect speculation,'' he added.


The Government's policy on restricting land sales merely kept prices up.


''In most other countries in the world the inflation rate is less than the interest rate. The situation here is ideal for fuelling the property market, '' said Mr Churchouse.


He said if the Government really wanted to bring down property prices it would have to lower land prices, because, in Hongkong, 50 to 60 per cent of the price of a flat in Hongkong was the land value.


''By its own policies, the Government here makes housing unaffordable,'' he said.


The average number of sales and purchase agreements had remained static at around 7,000 to 8,000 per month since 1985. The monthly figure then dropped back to between 5,000 and 6,000 in 1990.


In late 1990, it leapt to 18,000 to 19,000 per month.


''That was indicative of speculation. Prices rose 65 per cent in a short time,'' very sharply,''said Mr Churchouse.


The Government then introduced the ceiling, but it had not worked.