Decline from previous quarter signals worst is probably over for homeowners The number of homeowners with negative equity in their properties fell in September from the previous quarter, the first decline since the end of 2001. Hong Kong Monetary Authority data released yesterday showed that 99,805 bank mortgages were in negative equity on September 30, 5.6 per cent less than the 105,697 at the end of June. The amount owed on these loans totalled $155 billion, or 29 per cent of all bank mortgages, compared with $165 billion three months earlier. Until now, the number of homes in negative equity has climbed each quarter, except for one, since the authority started its survey two years ago. In March last year, the number fell to 67,500 from 73,000 in December 2001. Negative equity occurs when owners' homes are worth less than the outstanding balances on their mortgages. September's decline likely signals that the worst is over for Hong Kong's beleaguered homeowners, many of whom bought when property prices peaked in 1997 and 1998 and have since seen home prices tumble by two-thirds. Sars exacerbated the decline this year but housing prices have since shown a minor rebound. 'The negative equity problem appears to have eased somewhat as indicated by the decline in the number and amount of mortgage loans in negative equity,' said William Ryback, deputy chief executive of the authority. 'It is hoped that this positive development will continue along with the overall improvement of the economy.' Analysts agree the decline means the economy is on an upswing. Hang Seng Bank chief economist Vincent Kwan said: 'It's not surprising, given the property market has been improving or rebounding from low levels in the past couple of months.' Falling negative equity levels would make more people feel wealthier and spend more, Mr Kwan said. 'An improvement in property prices and a drop in negative equity would surely ease the pressure on some households and have some sort of positive impact on consumption.' DBS Bank (Hong Kong) director Sunny Cheung Yiu-tong said the loan business was becoming healthier, with the number of missed payments and mortgage defaults declining. 'We've also seen an increase in inquiries about interest rate reductions because of rising property prices,' he said. 'Those who fell into negative equity before are now coming to us for a better rate and saying they would transfer their loans to other banks if we don't give it to them. This is creating a lot of pressure for us to compete with the other banks.' The authority surveyed 25 banks representing 98 per cent of the sector and extrapolated to get the total figure. It said the poll did not include the 85,950 mortgages provided by the government or other private-sector sources such as property developers, meaning the number of homes in negative equity is likely to be higher.