120 per cent mortgages? Lending schemes in spotlight as banking regulator flags concern over aggressive tactics to lure home buyers

Hong Kong’s banking regulator has expressed concern over the ultra-accommodative financing schemes offered by some Hong Kong developers to entice home buyers, saying that it is studying whether controls are needed to help offset credit risk.

The Hong Kong Monetary Authority (HKMA) said it is monitoring the recent practises by developers, including financing schemes that provide prospective buyers with 80 per cent or more of a home’s purchase price to drum up sales.

“Such loans provided by some individual developers have been increasing in multiples over the past year,” HKMA Deputy Chief Executive Arthur Yuen Kwok-hang wrote in the authority’s official website on Monday.

“While property developers are outside our supervisory ambit, the fact that banks lend to property developers which, in turn, provide mortgages to homebuyers, indirectly increases the potential credit risk faced by banks,” Yuen wrote in the HKMA’s opinion blog InSight.

“The HKMA considers this is a cause for concern, and therefore has been discussing with banks and studying the need of introducing appropriate measures with a view to strengthening the risk management of banks in respect of loans provided to property developers offering mortgage loans with high loan-to-value ratios.”

It is the first time the HKMA has expressed concern since developers such as Sun Hung Kai Properties (SHKP), Henderson Land Development and New World Development, launched aggressive mortgage tactics to help bolster sales last year. The authority’s warning also come just four days after SHKP announced an unprecedented home loan worth as much as 120 per cent of a flat’s value without the need to submit income proof. The financing was tied to SHKP’s project Park Yoho Venezia, in Yuen Long.