Caution sounded as developers’ financing schemes seen as enabling highly-leveraged home buyers

New flat buyers in Hong Kong are taking advantage of developers’ generous financing plans with larger mortgage sizes, although experts cautioned that the leveraging could amount to heightened risk of defaults should the residential market reverse its rising trend.

The highly geared home owners, many of whom are young buyers, are bound to be the first to feel the pinch in the event of a major drop in property prices, analysts say.

Ivy Wong Mei-fung, managing director of Centaline Mortgage Broker, a unit of the Centaline Property Agency, said the schemes on offer from developers provide financing for an average of 80 per cent of the flat’s value at low interest rates for the first two or three years.

The average loan size was HK$3.5 million, she said.

Centaline found that nearly 18 per cent, or HK$2.6 billion, of the estimated HK$14.7 billion in approved mortgage loans for new flats due to be delivered next year came from developers’ finance units rather than banks. That compared with 16.4 per cent for new developments scheduled for completion this year, and 11.6 per cent for projects delivered last year.

“But this group of borrowers will see their mortgage interest rate rise to 5 per cent after the preferential terms come to an end,” she said.