Mortgage war seen boosting small developers
Foster Wong and Cameron Dueck
A renewed mortgage price war in Hong Kong could come at a cost to bank margins but is likely to give the city's small and medium residential developments a boost, says Cheung Kong (Holdings).
The developer believes the rising number of financial incentives from banks is a timely measure to revive sentiment in the property market in the growing economy.
'Growing job security in light of Hong Kong's stable economic performance would encourage more people to buy properties this year already,' Cheung Kong executive director Justin Chiu Kwok-hung said. 'Aggressive mortgage pricing from banks will just give the market another positive push.'
Mr Chiu expected mass-market residential housing to be a better bet this year after lagging the luxury sector last year.
Competition in Hong Kong's mortgage loan market has become fiercer with HSBC slashing rates in a bid to regain its lost market share.
Hong Kong's biggest bank will cut its mortgage interest rate 50 basis points, offering home loans at 2.75 per cent below the prime rate - or 5 per cent in real terms - until the end of next month. This compares with its old rate of prime minus 2.25 per cent with a rebate of 0.3 per cent of the principal.
HSBC's move has already tempted would-be homebuyers, with nearly half of 224 respondents in a survey saying they would speed up property purchases because of lower mortgage rates.
The survey, conducted by Midland Realty, also found that lower mortgage pricing would drive the market by improving the affordability ratio - the monthly mortgage payment as a fraction of total disposable income.
'For every 5 per cent increase in household income, affordability ratio will improve to 29.2 per cent from 35.3 per cent. This is where the market stimulus will be,' Midland corporate development director Gordon Tse Tze-man said.
Yet, other lenders emained cautious about launching any countermoves. Bank of China (Hong Kong), which had the lion's share of new mortgages last year, yesterday stressed it had no plan to follow HSBC's move although it was reviewing its mortgage terms.
'We have no immediate plan to slash our mortgage rate. After all, mortgage pricing depends on individual banks' funding costs,' said Chiu Man-ming, BOC's deputy general manager of retail banking.
Anthony Muh, Alliance Trust's head of Asia-Pacific, warned the United States would continue raising interest rates and it was too early to tell what the impact might be on property prices.