Hong Kong house prices to see pullback, but no sharp correction, analysts say

PUBLISHED : Wednesday, 04 March, 2015, 6:00am
UPDATED : Wednesday, 04 March, 2015, 6:00am

Hong Kong's housing sector is seeing a slow pullback due to an unclear outlook, given the possibility of further tightening measures from the government. But a sharp correction is unlikely, agents and analysts say.

Some homeowners have started cutting asking prices and developers are expected to trigger a mild correction to entice buyers after the Hong Kong Monetary Authority imposed its seventh round of tighter lending policies on Friday.

Smith Tang, a sales manager at Centaline Property Agency's Kwai Tsing branch, said a flat owner sold a unit at the Apex in Kwai Chung at the weekend for HK$4.86 million after cutting the price by HK$140,000.

"Overall sentiment is very quiet," Tang said.

Agents said the impact of the measures would be better reflected in the coming weeks.

The HKMA announced three measures on Friday, including capping the loan-value ratio for residential properties less than HK$7 million at 60 per cent, down from a range of 60 to 70 per cent, which will raise buyers' required down payments.

Homebuyers will find it more difficult to borrow as the measures, which took immediate effect, also lowered the maximum debt-service ratio, the monthly repayments of the borrower as a percentage of monthly income, from 50 per cent to 40 per cent.

Overall, those measures will suppress the demand for homes valued less than HK$7 million
Thomas Lam, Knight Frank head of valuation and consultancy

Buyers of all non-self-use properties including residential, commercial and industrial also saw their debt-service ratio cut to 40 per cent from 50 per cent.

On Monday, the authority further tightened the lending rules on additional mortgage finance. It now requires that the maximum debt-service ratio be applied not only to mortgage loans but to the total liability of the applicants, including any additional mortgage finance, from whatever sources. That came after Cheung Kong (Holdings), together with mortgage broker mReferral, announced it would provide up to 90 per cent of each flat's value for buyers at its La Lumiere project in Hung Hom.

"The additional measures target developers' second-mortgage arrangements," said Thomas Lam, the head of valuation and consultancy at Knight Frank. "Overall, those measures will suppress the demand for homes valued less than HK$7 million."

Jefferies analysts Venant Chiang and Michael He said in a research report that they did not think the new measures were enough to spark a price collapse, "although a mild correction is likely, probably led by developers".

With no restrictions applied to unauthorised institutions, marginal buyers can resort to them at the expense of high interest rates on personal loans by mortgaging assets. If asset prices continued to rise, this hidden risk would only intensify, according to Jefferies.

It said home price needed to fall more than 30 per cent to get back to a fair level - last seen in 2011 when private housing affordability was 40 per cent.