Exclusive | Hong Kong Monetary Authority asks banks to exercise caution when offering property loans for speculative ‘confirmor sales’

HKMA expects banks ‘to put in place effective risk-management policy, procedures and controls to manage the additional risks associated with such transactions’, according to email seen by the Post
But industry observers say removal of property curbs is unlikely to lead to a revival of confirmor sales

Hong Kong property

Salina Li

Published: 7:30am, 7 Mar 2024

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The Hong Kong Monetary Authority (HKMA) has advised banks to take extra care when lending to property speculators, in an indirect attempt to clamp down on asset flipping a week after the city abandoned decade-old curbs for the real estate industry.

Hong Kong’s de facto central bank “expects banks which offer mortgage loans for confirmor transactions to put in place effective risk-management policy, procedures and controls to manage the additional risks associated with such transactions”, the HKMA said in an email to banks in the city seen by the Post.

“Banks are welcome to discuss with the HKMA if they currently offer, or plan to offer, mortgages for confirmor transactions.”

A confirmor sale occurs when a purchaser or confirmor enters into an agreement for the sale and purchase of a property with the owner or vendor, but before completion sub-sells the property to a sub-purchaser. A few such transactions have been noticed since the removal of the curbs by the Hong Kong government last week.

Confirmor sales usually involve speculators seeking short-term capital gains. For instance, the recent buyer of a second-hand flat in a housing estate in Sha Tin has immediately increased the asking price of the property by 15 per cent, according to local media reports.

During his budget speech last week, Financial Secretary Paul Chan Mo-po announced an immediate end to Hong Kong’s decade-old property curbs, including the Buyer’s Stamp Duty designed to target non-permanent residents, the New Residential Stamp Duty for second-time purchasers, as well as the Special Stamp Duty aimed at homeowners that resell their properties within two years.

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There has been an immediate uptick in residential property transactions since the removal of the cooling measures. About 137 deals were recorded over the week in 50 major housing estates, a 52-week high, while all 138 units offered by Henderson Land Development at its new project, Belgravia Place, were snapped up in only four hours on Sunday.

Some banks told the Post that they do not provide mortgages for confirmor transactions, or do so on a case-by-case basis.

“Due to lack of market demand, Bank of East Asia [BEA] has not provided mortgages for confirmor transactions in the past,” the lender said on Wednesday. “At this moment in time, BEA has no plans of offering mortgages for these transactions, but special considerations for terms of individual mortgages could be made on a case-by-case basis, based on the relationship between the bank and the customer.”

Potential homebuyers line up for Henderson Land’s Belgravia Place project in Hong Kong’s Tsim Sha Tsui on Sunday. Photo: Yik Yeung-man

Standard Chartered Hong Kong does not provide property mortgage loans for confirmor transactions, the bank – one of Hong Kong’s three note-issuing lenders – said in an emailed response to the Post.

“China Citic Bank (International) has been closely monitoring the market situation and the approval of mortgage applications will be determined on a case-by-case basis,” the bank said in a statement on Tuesday.

The HKMA advisory suggests that the government is keen to avoid a repeat of a housing bull run fuelled by a combination of low interest rates and speculative buying that has made Hong Kong the least affordable urban centre globally.

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Confirmor sales for first-hand uncompleted flats continue to be banned after the Lands Department prohibited such sales in August 2010, said Eric Tso Tak-ming, chief vice-president of mortgage broker mReferral. The formal agreement for sale and purchase prescribed by the Lands Department provides that the property can only be transferred to the original buyer, and that it cannot be sub-sold by way of a confirmor sale and it cannot be resold before the developer assigned the property to the purchaser.

The government also introduced the Special Stamp Duty in October the same year, Tso said. “Confirmor sales for residential flats were extinct for at least 14 years because of these provisions,” he added.

Moreover, the removal of property curbs is unlikely to lead to a revival of confirmor sales, as the presence of surplus new home supply and the property market’s ongoing softening are not expected to entice speculators, experts said.

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“The current property market sentiment and the fundamentals are not good,” said Chau Kwong-wing, chair professor and director of the Ronald Coase Centre for Property Rights Research at the University of Hong Kong.

Speculators eyeing confirmor sales at the moment bear the risk of possibly not finding buyers before the execution of the assignment and potentially reselling properties at a loss, Chau added. Confirmor transactions are, therefore, the effect and not the cause of increases in housing prices, he added.

Developers have continued to launch projects at discounts and there is an abundant supply of new homes coming to the market, said Joseph Tsang, chairman of JLL Hong Kong.

“There is no such thing as a confirmor sale in the market nowadays, and it has not existed for at least 27 years,” he said. Such deals “only appeared when the property market was extremely overheated, like the old days before 1997, but these are not our current circumstances”.