HKMC to set up Shenzhen mortgage insurance joint venture

PUBLISHED : Wednesday, 09 July, 2008, 12:00am
UPDATED : Wednesday, 09 July, 2008, 12:00am

The government-run Hong Kong Mortgage Corp (HKMC) will set up a joint venture with a subsidiary of the People's Bank of China in Shenzhen to provide mortgage insurance services for homebuyers.

A source said the directors of HKMC yesterday approved a resolution for the partnership, which will have paid-up capital of less than 300 million yuan (HK$341.55 million). The mortgage agency will take a controlling stake.

HKMC chief executive James Lau could not be reached for comment.

The HKMC's expansion outside Hong Kong made sense as a way to expand its income, said Billy Mak Sui-choi, an associate professor of finance and decision science at Hong Kong Baptist University.

Mr Mak said the business environment in Hong Kong was not favourable for the HKMC because mortgage turnover had not risen substantially in recent years and not every homebuyer needed to borrow through the mortgage insurance programme.

'The HKMC has expertise and experience in mortgage insurance that they can apply in other markets,' he said.

Previously, the mortgage agency established a 50-50 joint venture in Malaysia with Cagamas, the national mortgage company in Malaysia. The venture launched its first mortgage guarantee programme last week.

But some analysts are concerned that the HKMC may face higher risks in a new market, especially since property prices in Shenzhen have fallen recently.

Home prices in Shenzhen fell 35 per cent between October last year and May as a result of mainland macroeconomic measures, according to a report by Citic Ka Wah Bank.

But Mr Mak said that with PBOC as its partner, the HKMC would not necessarily be taking on more risk.

'PBOC knows the market well,' he said, adding that the joint-venture company could mitigate risk by a prudent loan approval process.

Stanley Wong Yuen-fai, an executive director at ICBC (Asia), agreed the mortgage agency could lower its risk by applying a conservative valuation on property.

Mr Wong said lenders would be able to provide loans at higher loan-value ratios under the mortgage insurance programme, which could be helpful to first-time homebuyers.

He said the HKMC could provide mortgage insurance in other cities on the mainland if the Shenzhen venture was successful.

Branching out

The HKMC will partner a subsidiary of the People's Bank of China

The joint venture will have paid-up capital of less than, in yuan: 300m yuan