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Raymond Ma

Chief Executive's comments fail to placate developers and the banking industry

The long-standing rift between property developers and the banking industry over easing the 70 per cent home loan ceiling shows no sign of healing, despite hints by Chief Executive Tung Chee-hwa that a removal might be unlikely.

While developers and property analysts insist that easing the  restriction would give  the sagging property sector a lift, bankers oppose the move, saying it would increase credit risk.

New World Development sales and marketing director Barbara Ho said banks should raise the loan-to-value ratio to between 80 per cent to 90 per cent to give more  flexibility to home-buyers who could not afford  the initial down payment.

'It will not increase the banks' credit risk, because they can carefully assess  the applicants' repayment ability  before loan approval,' she said.

Mrs Ho expected the sales volume, especially in the secondary market,  to rise once the mortgage ceiling was lifted.

She said second-hand buyers would find it  more convenient and cost-effective  to borrow up to 90 per cent  from banks, rather than seek  top-up financing from Hong Kong Mortgage Corp's extended mortgage insurance scheme.

Hongkong Land residential development director Tony Tse Wai-chuen also supported the relaxation.

However, he agreed the market recovery still depended on the economy's performance.

Victor Lui Ting, executive director of Sun Hung Kai Real Estate Agency, marketing arm of Sun Hung Kai Properties, said  a higher loan-to-value ceiling would definitely  motivate individual buyers, but would not be crucial to the  property market as a whole.

Morgan Stanley managing director Peter Churchouse said the government  had  an opportunity to  increase  the mortgage-lending ratio since  property prices had tumbled 65 per cent to 70 per cent from their peak, and the market was close to the bottom of the cycle with infrequent speculation.

'The top-up mortgage [insurance premium and interest rate] is now  expensive. Secondary sales can be stimulated if buyers  can get 80 to 85 per cent mortgage loans,' Mr Churchouse said.

He said flat sales, particularly in the secondary market, would go up if the mortgage lending restriction was eased, but the impact on  the property market  would be  marginal. The relaxation would not mean  higher risks for  the banks, since they had to  assess borrowers'  credibility  and repayment ability before lending money, he added.

However, Bank of East Asia executive director and deputy chief executive Chan Kay-cheung said  lifting the 70 per cent ceiling was unlikely to  boost the  market.

Lawrence Law, head of banking services at  HSBC, said the bank was against the removal of the 70 per cent loan ceiling for the second-hand market, adding  that the loan-to-value ratio was not a factor in the market's  doldrums.

'That's the line because it serves us well in keeping the quality of our mortgage portfolio,' Mr Law  said. 'I think that at the moment we are happy to use the 70 per cent loan-to-value  guideline as a maximum for our advance ratio.

'But if customers are willing to use mortgage insurance, then we are happy to extend our advance to 90 per cent.''

The rift began after Secretary for Housing, Planning and Lands Michael Suen Ming-yeung  said earlier this month  that the government was considering relaxing  the home loan ceiling for the secondary market.

However, Financial Secretary Henry Tang Ying-yen said on Monday that lifting the ceiling would have  a limited impact on the property market.

Last Friday, Yam Tsim Mong district councillor Henry Chan Man-yu quoted Mr Tung as saying he would not give up the mortgage ceiling to ensure the stability of the banking system.

Analysts said that bankers preferred not to see  an easing of the mortgage level, as they were worried it might  lead to a  price war between banks, which would  further trim  profits.

Johnny Ho, chief executive of Mevas Bank, sister company of Dah Sing Bank, said the bank's objection to  easing the  restriction came from a concern about  risk management.

'This is not related to the pricing,' Mr Ho  said, adding that this  was unlikely to see a substantial fall based on current levels.

Dah Sing Bank is one of the few Hong Kong banks that offer customers  prime minus 2.65 per cent.

'No one dares to say  home prices will not go down further.  Once  prices are down more than 10 per cent, these mortgaged properties will become negative equity assets, and as a result the banks will suffer.'

FOR AND AGAINST

Peter Churchouse: Flat sales will go up if the mortgagelending restriction is eased, but the impact on the property market as a whole will be marginal.

Chan Kay-cheung: An increase in the lending amount is unlikely to boost the local property market.



Rift widens over easing of home loan ceiling