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The escalating number of households with negative equity will affect market sentiment by reducing the number of potential buyers and depressing property values, say analysts.

The Hong Kong Monetary Authority (HKMA) estimated the residential mortgage loans mired in negative equity had soared 27.7 per cent, from about 83,000 by the end of March to about 106,000 by the end of June. Negative equity means the outstanding loan amount exceeds the present market value of the mortgaged property.

A three-month delinquency ratio of negative equity  improved from 2.56 per cent at end-March to 2.28 per cent at end-June.

Professional Property Services chairman Nicholas Brooke said the negative equity figures had been understated.

He said the residential prices plummeted more than 70 per cent from their peak and the cumulated number of negative equity owners could exceed 150,000.

'The increase in negative equity will affect sentiment. In reality, it reduces the number of potential buyers,' Mr Brooke said.

'The growing figures will depress the market in terms of value.'

Pang Shiu-kee, managing director of S.K Pang Surveyors, said the rapid growth in negative equity was a result of the valuation on property prices falling after the outbreak of Sars.

'The figure, in fact, is not awful,' Mr Pang said. 'The  important factors  in the property and financial markets [together] are unemployment, cut wages and lay-offs.''

He said the slump in the economy  had weakened the ability of owners  to repay instalments  on mortgage loans.

He expected the number of negative equity owners would  remain at about 150,000, unless  economic factors improved.

However,  the reduced delinquency ratio of negative equity would prompt a slow-down in properties  repossessed by creditors, he said.

Louis Chu Lap-wai, Chung Sen Auctioneers director and general manager,  estimated about 5,000 to 6,000 properties had been repossessed, and were poised to be released for sale or auction.

He said the sale of repossessed units at 5 to 15 per cent below market value would put pressure on the secondary market.

'Negative equity will be eased when  property prices turn around,' he said.

Midland Realty executive director Victor Cheung said residential prices could edge up  10 per cent in the second half of the year because of  the anticipated government stimulus  to reduce housing supply and boost demand.

He said residential values plunged more than 10 per cent when the outbreak of Sars  contributed to the surge of negative equity, but he saw a rebound of  5 per cent in the mass market, while the luxury market went up about 10 per cent.

The  HKMA figures excluded some 58,400 loans associated with government-funded co-financing schemes, another 23,200 loans associated with private sector co-financing schemes, and those  with a second mortgage.



Negative equity set to weigh on sales figures