Owners and developers of rural real estate are urging the HKMC to review its 'discriminatory' policy The Hong Kong Mortgage Corp (HKMC) is being urged to relax its lending policy for village houses following improvements in the quality of their construction. Developers of village houses and Heung Yee Kuk, the body representing rural interests, said it was unfair that mortgage seekers could borrow up to 95 per cent of the values of properties in the primary and secondary residential market through HKMC's mortgage insurance programme, but buyers of village houses could not. Buyers of village houses can get mortgages of 70 per cent from a handful of banks, including Bank of China. Most lenders have adopted a conservative policy towards such properties, offering a loan-to value ratio of 50 per cent to 60 per cent. HKMC senior vice-president Kenny Fok Tsz-chun said 'small village houses' were not eligible for mortgage insurance. 'This is because such properties are exempt from complying with certain regulations under the Buildings Ordinance,' he said. Unlike private residential projects, which must be inspected by the Buildings Department before occupation permits are issued, village houses are checked by the District Lands Officer on completion of construction. Instead of occupation permits, village houses receive a certificate of compliance. Angela Lee, partner at the law firm Baker & McKenzie, said companies were reluctant to provide insurance to buyers of village houses. Exemptions under the Buildings Ordinance might give insurers the impression that the construction of village houses was not as strictly regulated as the building of private residential projects, she said. The absence of an occupation permit would also be a major barrier in convincing insurers to provide mortgages with a loan-to-value ratio of more than 70 per cent, she said. 'It is hard to say what is right or wrong, but it is the insurers' business decision,' Ms Lee said. For Heung Yee Kuk vice-chairman Daniel Lam Wai-keung, however, this view of small village houses is wrong and outdated. 'The quality of village houses in the New Territories has improved a lot over the past three years,' he said. He said guidelines on building village houses issued three years ago required that all construction be supervised by qualified technical engineers, and all critical structures be endorsed by registered structural engineers. 'If the house is close to a hillside, owners are required to build a nine-inch concrete retaining wall. It is unfair if the village houses cannot receive the same mortgage terms as private residential units,' Mr Lam said. Although village houses enjoyed certain exemptions, he said, standards for new village houses were no different from those for private villas. To comply with the stricter regulations, Mr Lam said homeowners had to spend more money on employing professional architects and engineers to enhance the quality of their houses. The average cost of building a standard village house is between $900,000 and $1.4 million. The Housing, Planning and Lands Bureau granted permission for the construction of 29,791 village houses by the end of last month under a policy introduced in 1972. Another 9,690 applications were being processed and 2,311 cases were pending, it said. Relaxing the lending policy for village houses would boost market activity, said Jenny Tsang, general manager at Kei Cheung Property Development, which has been building village houses in Tai Po for the past 10 years. 'We are also lined up with some financial institutions to provide second mortgage loans to entice buyers.' Another property developer said village houses were the ideal choice for first-time buyers given that the overall prices were below $2,000 per sq ft in areas such as Tai Po, Yuen Long and Tuen Mun. She said asking prices for 700 sq ft houses averaged $1.4 million. 'Buyers of village houses should not be discriminated against.' Banks should provide extra mortgages for buyers of village houses as the market was dominated by end-users, the developer said. 'It also helps those who can afford the monthly repayments, but do not have enough money for a 30 per cent down payment.' However, the banks have a different view. Lack of proper maintenance, illegal structures and unclear ownership have prompted them to tighten their lending policies for village houses. Cheung Nam-chung, senior general manager at Liu Chong Hing, which provides mortgages of up to 60 per cent of the value of village houses, said these potential problems would also affect the properties' resale value. 'Once market sentiment turns sour, banks are likely to tighten [their lending policies] for village houses further,' he said. The HKMC began offering its mortgage insurance programme in 1999, enabling buyers to cover loans worth 80 per cent of a property's value instead of the usual cap of 70 per cent. The programme has since been extended to cover loans of 85 per cent, 90 per cent and, most recently, 95 per cent.