‘Government is crazy’: increase in mortgages for first-time Hong Kong homebuyers will boost debt, limit cooling measures
- Any move to ease restrictions will push ‘more people to chase high-priced assets with more debt on their shoulders’
- The prices of lived-in homes have fallen by 7.2 per cent since August 2018, but are still 2.2 per cent higher than in January 2018
A possible increase in the amount first-time homebuyers can borrow as mortgage may encourage people in Hong Kong to chase expensive property, further driving up prices in the world’s most expensive property market, analysts have said.
This comes after Paul Chan Mo-po, the special administrative region’s Financial Secretary, hinted on January 5 that the government was considering relaxing “loan-to-value” ratios for mortgages to help first-time homebuyers. But he did not say when this might happen. A loan-to-value ratio represents the percentage of a property’s value a homebuyer can borrow.
The maximum loan-to-value ratio for homes worth between HK$7 million (US$893,069) and HK$10 million is 60 per cent, subject to a loan cap of HK$5 million. And through the Hong Kong Mortgage Corporation’s mortgage insurance scheme, first-time buyers can get as much as 90 per cent of an apartment’s value for homes that cost less than HK$4 million, and 80 per cent for homes that cost HK$6 million or below.
“The government is crazy. It is not helping people to get a home, it is pushing more people to chase high-priced assets with more debt on their shoulders. The concept is wrong,” said Nicole Wong, the regional head of property research at investment bank CLSA, who also questioned the timing of the suggestion.
“When prices pick up, who will benefit? Those who already have homes, and developers,” she added.
The prices of lived-in homes in Hong Kong have fallen by 7.2 per cent since August 2018, but are still 2.2 per cent higher than in January 2018, according to the city’s Rating and Valuation Department.
Philip Tse, a property analyst at brokerage Bocom International, said he expected prices of small apartments could drop by 15 per cent – instead of 20 per cent as forecast earlier – if the restrictions on mortgages are eased.
“It will push those who have not thought about buying a home into the market, or those who got cold feet earlier. We will start to see that cooling measures, added and adjusted earlier, will be lifted one by one,” he said.
Tse said, in the initial stages, homebuyers might be able to receive as much as 90 per cent of property values as loans for homes that cost between HK$4 million and HK$6 million.
Richard Lee, the chief executive of agency Hong Kong Property, said: “Those who did not dare to buy a home as they did not have the down payment, will join [the market] in force.
“It will slow down the decline in home prices, particularly of small flats, [whose prices] have suffered the most. If the economic environment does not worsen, transactions will be boosted if these measures are implemented.”
Alvin Cheung Chi-wai, associate director at Prudential Brokerage, said easing restrictions on mortgages will definitely push up home prices. “This is an alternative way for the government to lift cooling measures,” he said.
“The sentiment will change as buyers as well as developers will foresee that home prices will soon stop dropping. We will not see developers or sellers slashing their prices by too much – more than what Sino Land did,” said Cheung.
“It is good news for buyers, at first look, as you can save less and pay less for a down payment. But it is not just you. Others can also pay less, which means a large consumption power will be released. When demand is up, and supply has not changed, a price increase is inevitable.”
Not surprisingly, developers big and small are in favour of any potential relaxation. Donald Fan, chief operating officer at developer Paliburg Holdings, said: “It is good for first-time buyers. The restrictions in the market are quite strict, with quite a lot of requirements such as stress tests.”
Fan said the government should let first-time buyers borrow more when the interest rate is still not high. “For a flat worth HK$10 million, you need [a down payment of] HK$5 million. Not many people can afford this, especially when Hong Kong’s home prices are so high,” he said.
Fan added property developers might increase the proportion of relatively small apartments that fit the requirements of a potential relaxation in their projects, but not significantly.
Donald Choi, the chief executive of developer Chinachem Group, said the move will benefit homebuyers.
“With the low unemployment rate, the interest rate is not an obstacle to buying. It is the large down payments that keep a lot of potential homebuyers from buying,” said Choi. “They can pay the mortgage, even with an increased interest rate, but have not saved enough to accumulate the huge down payment yet.”
Choi added that with more supply of land and apartments to come, housing prices will be stable and in line with economic growth.