Battle lines drawn on mortgage ceiling

LOANS for residential property now account for almost 25 per cent of all loans made for all purposes in Hongkong compared with just 10 per cent of the total a decade ago.

But in the 12 months to September the annual rate of growth in loans for housing dropped to less than 20 per cent - still a worthwhile rate, but less than the 35 per cent growth in 1991.

Sales and purchase agreements completed in December last year at 7,970 were up slightly on November, but down 35 per cent on December 1991. Their total value was down to $20.36 billion.

For the whole year there were 135,261 agreements registered, down 23.5 per cent on 1991, but total value was up 13.1 per cent to $322.5 billion, reflecting higher average flat prices.

It is these sorts of figures that lie behind the current debate on whether to ease the mortgage ceiling of 70 per cent of valuation imposed in November 1991 to cool property speculation.

Since the imposition of the 70 per cent ceiling on mortgage loans, the growth in lending has slowed and in the 12 months to September was just under 20 per cent.

The steady and substantial increase in lending for mortgages reflects the rising affluence of the community and the consequent change of attitudes to home ownership.

This change, in turn, has led to rapid rises in prices for residential property as the build up in demand for home ownership has been transferred into the market place.

The question being asked now is whether the mortgage ceiling has done its job of cooling speculative fever and should be removed.

It is a matter of whether it is time to ease the ceiling, especially to allow the owner-occupier with legitimate intentions back into the market for both the existing and new housing stock.

The most recent loan statistics and figures for completed sale and purchase agreements do show that the market has cooled off.

Residential loans (including home ownership scheme and private sector participation scheme funding) levelled off in 1992 to about 24.2 per cent of total lending for all purposes.

Since 1981 the total amount lent for private housing has increased by almost 15 times to slightly in excess of $200 billion as of the end of September 1992.

A further $19 billion has been lent under the Home Ownership Scheme and the Private Sector Participation Scheme, up more than 12 times on a decade ago.

The fully-licensed banks, of course, dominate the market, with an 80 per cent market share and the rest being handled by restricted-licence banks and deposit taking companies.

At present the debate is finely balanced, with the Government and the banks concerned that speculation has barely been cooled and is ready to break out again when he ceiling is lifted.

This is especially the case when negative real interest rates make borrowing attractive to make a quick capital gain.

But others are concerned that if the ceiling remains in place too long the residential property market will fall into a far deeper hole that it will be difficult to get out of. They are also concerned that ''true'' owner-occupiers are being restricted.

Real estate developers and agents agree there are basically two groups of intending home buyers (speculators apart) most affected by the 70 per cent mortgage.

The most publicised are first home buyers who simply find it difficult to get the 30 per cent deposit together.

Less publicised are problems in the secondary market, where higher prices are making it difficult for buyers to move up a step and buy a better apartment.

This has occurred because of the growing gap between the relatively conservative valuations placed by banks and other lenders on existing apartments and the actual asking prices on flats up for resale.

This means that instead of a 30 per cent deposit the intending buyer might have to come up with as much as 50 per cent of the purchase price.

Last week's column wrongly used the forecast ''real'' increase in service exports and imports to calculate ''nominal'' figures for Hongkong's services trade in 1992.

The outcome is that the main thrust of the article remains the same - Hongkong has a large surplus on services trade - but the numbers in the article are understated for 1992.

In fact, the territory's services exports for 1992 will top $152 billion on a nominal basis, not the $138 billion in the article and imports $102 billion, not $97 billion.

All other 1992 forecasts in the article should be adjusted accordingly.

Mr Perkin is chief economist at the Hongkong General Chamber of Commerce.