Rise in big mortgages offered by Hong Kong developers to speed up sales raises default fears
Some developers are offering loans of up to 85 per cent of a property’s value, just as interest rates are set to rise and property prices to fall
The number of Hong Kong developers providing mortgages for homebuyers hit a record in the second quarter of this year, raising concerns over a possible rise in defaults should an increase in interest rates and falling prices hurt sentiment in the world’s most expensive property market.
Builders offering financing to buyers accounted for 17.4 per cent of total mortgage deals for new flats from April to June, up from 6.5 per cent in January to March, according to data from mReferral Mortgage Brokerage Services on Wednesday.
“It is the highest since we started gathering data in 2015,” said Sharmaine Lau, chief marketing officer at mReferral.
In May alone, nearly three out of every 10 mortgage deals for new flats, or 32.9 per cent, were financed by developers, the research showed. According to the Hong Kong Monetary Authority’s latest data, mortgage loan financing in the primary market amounted to HK$18.5 billion (US$2.4 billion) from April to June.
Developers typically offer financing plans that are much higher than the standard mortgage ceiling of 60 per cent of the value for flats below HK$10 million and 50 per cent for those above that figure, with some offering as much as 80 or 85 per cent of a property’s value.
The risk of default for buyers taking on such loans was worryingly high, said Cookie Wong Wing-yin, managing director at Ricacorp Mortgage Agency.
“The market is widely expecting that interest rates will increase twice this year, and those who have taken up developers’ loans would face higher borrowing costs once the preferential terms end in the first few years,” she said. They would also be the hardest hit if home prices started to fall, she added.
Brokerage Nomura predicted home prices in Hong Kong could fall by up to 13 per cent next year as higher interest rates bite. Its warning was the latest after Citi, UBS and CLSA all predicted of price falls of up to 15 per cent, sparked by interest rate rises as well as a slowing economy and a falling Chinese yuan currency that could crimp buying from mainland China.
MReferral said that of the 1,020 mortgage transactions in May, about 300 were deals for Chinachem Group’s Parc City development in Tsuen Wan.
Chinachem provided 30-year first mortgages of up to 80 per cent of the flat price, at 2.5 per cent below the prime rate for the first three years, changing to the best lending rate, which is currently 5 per cent, from the fourth year.
The bigger loans helped, as Chinachem sold all 950 units at Parc City, worth HK$9 billion, in just two weekends in August last year, with buyers needing to pay the total amount in May of this year. It had registered 22,500 potential buyers for the first batch of the 521 units, the largest number of subscribers for a new project since 1997.
Separately, Nan Fung Development said on Wednesday it would provide mortgages of 80 per cent of the value for flats priced below HK$8.33 million at its LP6 development in Lohas Park, Tseung Kwan O.
The developer said that more than 7,300 prospective buyers had registered for the first batch of 487 flats to go on sale on Saturday.