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Sandy Li

Cooling measures? What cooling measures?! If there were any, the property markets in Hong Kong and China do not seem to have noticed them.
Developers in Hong Kong either have the financial strength not to be bothered by the lending restrictions or have the means to support home buyers with funding.
On Monday, Vanke Property (Overseas) surprised the market when it announced that it would use the funds it had set aside to buy land to provide mortgages to home buyers of its first project in Hong Kong. The company is the Hong Kong-listed arm of the mainland’s second-largest developer by sales, China Vanke.
The change not only underscores the easy credit available, but also how difficult it is for Hong Kong regulators to restrict lending to developers as a way of reining in skyrocketing prices, which are already the world’s highest.
Watch: Why is Hong Kong housing so expensive? 

“Vanke’s sudden change in the usage of the funds gives an impression that these buyers need additional financing provided by the developer. Otherwise, they may encounter difficulties in pushing through the purchases. The alarm is ringing loudly as home prices have risen to a risky level,” said Alvin Cheung Chi-wai, associate director of Prudential Brokerage.
Cheung said Vanke’s move indicated its quick response to the Hong Kong Monetary Authority’s tightened controls to prevent developers from offering generous mortgages to buyers.
Hong Kong homebuilders to face tougher limits on bank borrowing
 Vanke said it would use HK$350 million, nearly half of the remaining proceeds raised from a 2016 rights issue, to provide first and second mortgages to buyers of Pavilia Bay, a joint venture project with New World Development in Tsuen Wan.
The 983-unit development has nearly sold out, with one-bedroom flats going for about HK$9.6 million, a record price for such units at the development.
The robust sales were partly driven by mortgages of as much as 80 per cent of the flat’s value being offered by Vanke and New World, through a 20-80 entity, Ultimate Vantage.
The alarm is ringing loudly as home prices have risen to a risky level
Alvin Cheung, Prudential Brokerage
With Vanke’s 20 per cent equating to HK$350 million, New World will be required to inject HK$1.4 billion into the finance firm. Together, they will provide HK$1.75 billion in mortgages, or 20 per cent of the HK$9.2 billion of sales revenue that Pavilia Bay will bring.
“Yes, home purchasers who took up these schemes will repay less in monthly instalments, but it will increase after the holiday period of about two to three years. By that time, their financial burden will increase as interest rates rise,” said Prudential Brokerage’s Cheung.
Likewise, buyers of Cheung Kong Property Holdings’ Ocean Pride, a stone’s throw from Pavilia Bay, were offered even more aggressive loan plans that covered up to 85 per cent of the flat’s value. That drew 14,000 prospective buyers to sign up when the project launched for sale last week.
In three rounds of sales, CK Property said it had generated HK$10.1 billion, selling 960 units.
Hong Kong home prices rise for 13th month to surpass 2015 record
“About 40 per cent to 50 per cent of our clients interested in buying Ocean Pride indicated that they will use the large mortgage loans provided by the developer or finance firm. But we do not know if they will change their minds later,” said Sammy Po, chief executive at Midland Realty’s residential market.
CK Property charges 2.25 per cent below prime for the first three years, and will match the prime rate from the fourth year. The prime lending rate currently stands at 5 per cent.
Under such terms, a buyer purchasing a flat for HK$6.25 million would be required to cough up a down payment of HK$1.25 million, or 20 per cent of the flat’s value.
The remaining 80 per cent, or HK$5 million, would be financed by the developer’s finance arm or other money lenders, which operate outside the regulatory oversight of the Hong Kong Monetary Authority.
About 40 per cent to 50 per cent of our clients interested in buying Ocean Pride indicated that they will use the large mortgage loans provided by the developer or finance firm
Sammy Po, Midland Realty
Assuming a 25-year, HK$5 million loan at an initial 2.75 per cent rising to 5 per cent, the initial monthly repayments of HK$23,066 will increase 24 per cent from the fourth year to HK$28,544.
“If the [housing] price corrects deeply, the outcome would not be pretty. Highly leveraged properties of course would turn into negative equity at a quicker pace. But if a deeper correction occurs, they would not be the only group of buyers who suffer,” said Alan Jin, a property analyst at Mizuho Securities.
But cases of developer financing are relatively few, according to Denis Ma, head of research at JLL, and they are unlikely to have a significant impact on the housing market.
“Primary sales have accounted for only 30 per cent of sales in recent months and volumes, in general, remain at historically low levels. So, right now we don’t see them as being a trigger that leads to a major market correction,” he said.
Is Hong Kong’s property market heading for its biggest crash since 1997?
Hong Kong is a free market so the fundamental elements influencing price movements, such as interest rates, can be monitored and forecast, barring any huge external shocks. Buyers, therefore, have more time to adjust their strategies, said David Ji, Greater China head of research and consultancy at Knight Frank.
“In contrast, the mainland market is a more policy-driven market, which means that there are more unpredictable ups and downs where overexposure will lead to greater losses,” he said.
.


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Hong Kong housing

Hong Kong developers use wads of cash to skirt mortgage rules and salvage sales

Hong Kong’s property prices have been rising as developers throw wads of cash towards mortgage plans for buyers, even as banks tightened lending. Photo: Nora Tam

Potential buyers at the sales office of Cheung Kong Property's Ocean Pride project at the Fortune Metropolis in Hung Hom. 26MAY17 SCMP/ Edward Wong

The Pavilia Bay" by New World in Tsuen Wan. 06DEC16 SCMP/Dickson Lee

Hong Kong’s real problem is not shortage of homes, but affordability of homes

Housing demand in Hong Kong is driven by housing aspirations, not by housing shortage. Photo: Nora Tam

Centaline affordability ratio

Hong Kong homes shrink as prices soar, and affordability goes out the window

What 50 square feet of living space looks like, with two people. Photo: Felix Wong

A 360 picture of a of Seven Victory Avenue (Ho Man Tin) 263 sq. ft. demonstration flat. 21SEP16 SCMP/Martin Chan

A press visit to the showflats of Henderson Land Development's Seven Victory Avenue in Ho Man Tin. Picture were taken in Tsim Sha Tsui. 21SEP16 SCMP/Jonathan Wong

table

Hibor rate edges higher, boosting average monthly mortgage payments by HK$100

epa05071875 A general view shows luxury residential housing in West Kowloon, Hong Kong, China, 17 December 2015. The Hong Kong Monetary Authority (HKMA) announced an upward adjustment of 25 basis points to Hong Kong's base rate to 0.75 percent. The slight interest rate increase follows a 25-basis point upward shift in the US federal funds rate on 16 December 2015, which marks the end of a long period of near zero percent interest rates in the United States. The HKMA rate hike will make mortgages in Hong Kong more expensive, and will likely put downward pressure on housing prices in the southern Chinese city. Hong Kong's interest rates mirror that of the US Federal Reserve rate as the Hong Kong dollar is pegged to the US dollar. EPA/ALEX HOFFORD

A General view of the construction site of West Kowloon Terminus of the Hong Kong section of the Express Rail Link. 01DEC15

Hibor mortgages have inched up slightly, underscoring the financial risks of holding the floating rate loan over the slightly more expensive alternatives. Photo: Felix Wong

Hong Kong homebuyers turn to  finance companies as banks tighten mortgage lending

Standard bank loans are capped at 60 per cent of the value of homes between HK$6 million and HK$10 million, and 50 per cent for homes above HK$10 million. Photo: Edward Wong

Hong Kong homebuyers undeterred by mortgage rate rises in seeking Kai Tak flats

Potential buyers line up at the sales office for the Victoria Skye development in Kai Tak. Photo: Jonathan Wong

General view of the construction site of Victoria Skye at Kai Tak. 02JUN17 SCMP / Edward Wong

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Homebuilders have stepped in to provide mortgage funding as banks tightened lending to rein in skyrocketing prices


Hong Kong property

Hong Kong developers use wads of cash to skirt mortgage rules and salvage sales

.css-1c6uqr6{color:inherit;font-weight:inherit;font-size:inherit;font-family:inherit;line-height:inherit;overflow-wrap:break-word;}Homebuilders have stepped in to provide mortgage funding as banks tightened lending to rein in skyrocketing prices

Homebuilders have stepped in to provide mortgage funding as banks tightened lending to rein in skyrocketing prices