Mixed reaction to latest measures to cool Hong Kong property market

Hong Kong property stocks were mixed on Monday after the government tightened mortgage measures for the second time in a week to cool the overheating market, taking aim at borrowers with multiple loans and whose income sources come from outside the city.

After the markets closed on Friday, the Hong Kong Monetary Authority ordered commercial banks to allocate a larger risk weighting towards their assessment of credit worthiness, while cutting the amount of allowable loans on residential and commercial properties.

The amount of loans allowed for residential property less than HK$10 million in value was also cut to 50 per cent of their value for borrowers with outstanding mortgages from 60 per cent, while lending to homes exceeding HK$10 million was cut to 40 per cent from 50 per cent.

In addition, companies that are buying homes for corporate use had their loan amounts cut to 40 per cent of value, from 50 per cent.

“Tightening property measures by the government have become unexpectedly frequent,” said Hannah Li, strategist at UOB.

“But stocks didn’t drop so sharply as the latest move is aimed at overseas buyers and investors only rather than real users, so the overall impact is not going to be that significant.”

Despite the tighter mortgage measures, the Properties Index on the Hang Seng erased earlier losses and ended Monday little changed as property stocks were mixed.

One of the worst-hit single stocks was Shui On Land, which dropped 1.2 per cent to HK$1.69. New World Development fell 0.7 per cent to HK$9.66 and Sun Hung Kai Properties slipped 0.5 per cent to HK$113.80.

But notable companies bucking the trend included Cheung Kong Property Holdings which was up 0.6 per cent to HK$57.6 and Chinese Estates which rose 0.5 per cent to HK$12.46, in line with an uptrend in Hong Kong’s broader equities market in Monday trade. Hang Lung Properties was flat at HK$19.50.

The city’s de facto central bank has now unveiled eight rounds of tightening measures since 2014 but housing affordability remains one of the gravest issues facing Hong Kong’s incoming chief executive Carrie Lam Cheng Yuet-ngor, who has pledged to take strong measures to address the issue.

The city’s end-March property prices and transactions surpassed a September 2015 peak by 4.5 per cent.

Two residential complexes with almost 1,800 units are due to be released for sale by Cheung Kong Property Holdings in Tsuen Wan and K&K Property in Kai Tak. But the government measures probably may be countered by aggressive tactics by property developers and realtors as they face huge competition for buyers, resulting in limited impact on soaring property prices and sales, analysts say.

As banks tighten lending, many property developers have been offering home loans of up to 80 to 95 per cent of a flat’s value without the need of income proof, allowing buyers to bypass strict bank guidelines. Midland Realty and Centraline Property Agency have also offered “zero down payment” schemes to existing home owners.

“The latest mortgage measure may only affect the secondary market and there is probably still upside [to come] in the primary market,” Li said.