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Alex Lo
SCMP Columnist
My Take
by Alex Lo
My Take
by Alex Lo

Hong Kong’s ‘mortgage slaves’ help keep the market afloat

  • Having some negative equity cases on the book are a good thing and, if nothing else, it reminds people to be cautious rather than blindly buying into the property market

Many Hong Kong people seem to think property prices will only go up. That’s why as soon as there are reports of negative equity, alarm bells start ringing.

Well, if you are a speculator, it’s very late in the game and you should panic. But if you just live in the flat you own and can afford your monthly mortgage repayment, there’s nothing to worry about here.

There were 262 cases of negative equity, when a property is worth less than its mortgage loan, in the fourth quarter of last year. Some analysts warn that unless prices start to pick up, the numbers could reach 600 by the summer and 1,000 by year end, which would match the level reached in the second quarter of 2016.

Home values drop below mortgages for first time in two years

But this is a market correction, which is perfectly healthy, rather than a collapse. Just to put things in perspective, the last time we hit rock bottom was in 2003, during the outbreak of severe acute respiratory syndrome, when negative equity peaked at 105,000 households.

But while it took almost a decade and a half for those families to dig themselves out of the hole, the vast majority – remarkably – held on to the mortgages and continued to make payments. Default rates were extraordinarily low, especially when compared with their American counterparts.

Even then, our property market collapse never threatened the banking system as a whole, unlike the subprime crisis in the United States, which triggered the global financial crisis more than a decade ago.

Hong Kong’s bank bosses and regulators like to pat themselves on the back for their financial prudential management in times of crisis. That’s true to an extent. But they should also acknowledge the fortitude of their clients, the mortgage holders, who continued to make their loan payments come hell or high water.

They were so unlike those Americans who were allowed, or rather encouraged, to take on housing loans they couldn’t afford and so naturally walked away as soon as prices fell, thereby helping to trigger the subprime housing crisis.

There is no reason to think that a new generation of local mortgage holders and their families will be any less responsible and hardworking. Having some negative equity cases on the book are a good thing. If nothing else, it reminds people to be cautious rather than blindly buying into the market.

Hong Kong people are not called “mortgage slaves” for nothing.

This article appeared in the South China Morning Post print edition as: ‘Mortgage slaves’ help keep market afloat
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