More than 1,000 Hong Kong homeowners could see loans exceed value of properties in first quarter

More than 1,000 homebuyers are on the verge of falling into negative equity in Hong Kong, after the prices of flats in some housing estates declined by more than 10 per cent from October last year, industry insiders said.

Negative equity occurs when a home loan exceeds the market value of the property involved. The last time the city recorded more than 1,000 such cases was in the second quarter of 2016, when it reported 1,307 instances of negative equity. The surge could also deepen a correction in home prices in the coming months.

There were 128 cases of negative equity in the three months ended December 31, according to Hong Kong Monetary Authority data. This means instances of negative equity could have risen by 680 per cent by the time the authority releases data for the first quarter of 2020 by the end of this month.

“The number of negative equity [homeowners] might rise above 1,000 in the first quarter this year,” said Ivy Wong, managing director of Centaline Mortgage Broker.

The massive jump in cases comes after the Hong Kong government relaxed mortgage-lending rules on October 16 last year, allowing first-time homebuyers to secure loans worth up to 90 per cent of a flat’s value, for old homes worth up to HK$8 million (US$1.03 million), up from the HK$4 million previously allowed. The sales of such homes jumped 34 per cent to 3,804 homes in November, from a month earlier, according to data from Midland Realty.

“In mid-October last year, the number of people taking out mortgages with high loan-to-value ratios jumped,” Centaline’s Wong said. The values of some of these flats have declined by more than 10 per cent since. “So those taking a 90 per cent mortgage have fallen into negative equity,” she added.