Surge in paper losses for mortgage holders The number of home loans in negative equity has risen more than threefold in three months as falling property prices take their toll on homeowners amid the financial crisis. The number of mortgage holders sitting on a paper loss jumped to 10,949 - or 2.3 per cent of the total - in the three months to the end of December, the Hong Kong Monetary Authority says. The combined value of the outstanding loans in negative equity jumped to HK$24.8 billion at the end of December, from HK$6 billion at the end of September, when there were 2,568 cases. Negative-equity cases are expected to climb further this year, rekindling bitter memories of the city's last big property downturn and putting pressure on the government to help homebuyers burdened with debt. The number of negative equity mortgages is the highest since December 2005, but is still a far cry from the peak of 105,697 cases in June 2003 at the height of the severe acute respiratory syndrome epidemic. Negative-equity loans are those on which the outstanding amount owed exceeds the current market value of the property. The HKMA figures are based on first mortgages - loans of 70 per cent of the home value. If second mortgages of 70 per cent to 95 per cent were considered, the number of negative-equity loans would be higher. HKMA chief executive Joseph Yam Chi-kwong said he did not expect the situation to become as severe as in 2003 or during the east Asian financial crisis in 1998. 'Unlike the previous housing slump, when prices dropped by 65 per cent, this time there is a greater degree of stabilisation,' he told legislators yesterday. Residential property prices dropped about 19 per cent in 2008, according to the property benchmark Centa-City Index. Bankers and analysts forecast that property values will continue to fall and the number of mortgage holders in negative equity will continue to rise. Alva To Yu-hung, a director of property consultancy DTZ, said prices at major housing estates had dropped 30 per cent. 'Many flat owners who bought units in the first half of last year have to complete deals when [the flats] are completed. They will inevitably move into negative equity as property prices fall,' he said. Patrick Chow Moon-kit, Ricacorp Properties' head of research, said The Arch at Kowloon Station had seen one of the sharpest falls, with average prices dropping 45 per cent to HK$10,175 per sq ft between March and December. However, some developments appear immune from the bearish sentiment. A source said an investor had offered HK$60.66 million, or HK$26,500 per square foot, for a 2,289-sq-ft flat at Sun Hung Kai Properties' The Cullinan, a new luxury project at Kowloon Station. Stanley Wong Yuen-fai, an executive director with local bank ICBC (Asia), said the number of property owners in negative equity could reach 30,000 this year. 'The worst has yet to be seen,' he said, but there was no cause for panic. 'If home prices fall another 10 per cent this year, the adverse impact on household wealth will be limited.'