Negative equity rears head again as 262 homeowners see property values drop below outstanding loans

Falling prices pushed 262 homeowners into negative equity in the fourth quarter last year, marking the first time in two years that some property values have dropped below outstanding mortgage loans, the Hong Kong Monetary Authority said on Thursday.

Home prices in Hong Kong fell 2.4 per cent in December, practically wiping out virtually all of last year’s gains, according to government data released on Thursday. Last month’s decline means house prices have slipped 9.2 per cent since they reached a peak in July.

Some small flats have lost up to 20 per cent of their value because of falling property prices, causing the negative equity trend to reappear.

Hong Kong home prices gained just 1.6 per cent in 2018, ending the year down 9 per cent from July peak, government figures show

The HKMA said these negative equity cases were mostly related to housing loans given to bank staff or to those under the mortgage insurance programme, which have higher than normal loan-to-value ratios. These type of mortgages could be as high as 105 per cent of the value of the property, compared to the normal ratio of between 50 per cent to 70 per cent.

The de facto central bank said these mortgages amounted to HK$1.18 billion (US$151.5 million), with the shortfall estimated at HK$58 million. The number represents 0.05 per cent of all borrowers and 0.09 per cent of the total outstanding mortgage value of HK$1.2 trillion.

Although the numbers may be small, banks could take a hit if the borrowers start defaulting on their loans.

Property analysts have mixed views over the outlook.

The number of negative equity cases could more than double to 600 by June if home prices continue to fall, said Raymond Cheng, head of Hong Kong and China property research at CGS-CIMB Securities.