Hong Kong’s monetary authority eases commercial property mortgage rules for the first time since 2009 as market cracks under recession
- The cap on loan-to-value ratio for non-residential properties will be raised to 50 per cent from 40 per cent from Thursday, HKMA says
- The new measure represents the first time the central bank is rolling back its market-cooling measures introduced during the 2009 market boom
The latest step will only apply to offices, industrial factories and retail premises, which have seen major price corrections as the economy shrank in four straight quarters through June. The city’s gross domestic product contracted 9.1 per cent in the first quarter, the worst on record as the pandemic took its toll, according to government reports. It shrank by 9 per cent last quarter.
“With business confidence continuing to be affected by the Covid-19 pandemic and the rising geopolitical tensions, non-residential property markets are likely to remain under pressure,” chief executive Eddie Yue Wai-man said in the statement.
Prices of such properties have slumped by 10 to 15 per cent between the recent peak in May 2019 and June 2020, the HKMA said. Prices for residential homes, however, have remained relatively stable during the period, depreciating by only by 2.7 per cent.
HSBC and Bank of China (Hong Kong), two of the largest mortgage lenders in the city, said the timely move will help support the economy.
“HSBC welcomes HKMA’s timely measures in response to changes in the non-residential property market cycle,” a spokeswoman said. “The bank will continue to work closely with relevant parties to support businesses in need.” Bank of China said the higher loan caps will lift confidence in the industry.
The HKMA decision, however, has drawn a mixed response from property market analysts amid the economic gloom.
“Currently, the sentiment remains poor as most business activities are disrupted by the social distancing measures,” said Eric Ong, chief operating officer and director of the commercial department at Midland Realty. “Not a single transaction in the office market was done so far this month. It is the worst since the Sars [severe acute respiratory syndrome] in 2003.”
Ivy Wong, managing director of Centaline Mortgage Broker, said sales of retail properties are unlikely to benefit from the higher financing limits because “we have seen more empty shops in the street as the sector is hardest hit by the pandemic.”
While businesses in Hong Kong have turned slightly upbeat for the third quarter as social unrest dissipated, owners in certain sectors of the economy are still fearing for the worst, according to the latest business sentiment report published by the statistics bureau, which surveyed 447 establishments. In particular, significantly more respondents in the real estate sector expect their business situation to be worse compared with the second quarter, it added.
The HKMA said since both private consumption expenditure and investment spending have shrunk markedly, “it is time to adjust the policies for non-residential properties mortgage loans,” deputy chief executive Arthur Yuen said in a media briefing. “The political tensions between China and the US have also affected business confidence.”
The new measure applies to transactions where the provisional sale and purchase agreement is signed on August 20 or after that date, according to the HKMA statement. Apart from those commercial properties, the easing also cover standalone car park. There are no changes to the other countercyclical macroprudential measures.
The measures are not intended to apply to credit facilities secured by properties for the purpose of financing the business operation of companies, the HKMA cautioned. These credit facilities are subject to a set of comprehensive credit underwriting standards and regular credit reviews by authorised institutions, it added.
Additional reporting by Sandy Li
