Developers saddled with HK$1.3 billion in mortgage receivables following home loan push

Hong Kong developers have added an estimated HK$1.3 billion in mortgage receivables to their accounts by providing first and second mortgages for the first time in a decade to help boost sales, according to analysts.

Facing fierce competition amid a tightening of mortgage policies, a growing number of developers have been skirting bank regulations by providing home loans of up to 95 per cent of the purchase price through wholly owned financial institutions to lure buyers.

“Nowadays most projects launched come with a first or second mortgage option funded by developers themselves. The range of loan-to-value (LTV) ratio on offer has increased to 80 to 95 per cent,” Barclays property analyst Paul Louie wrote in a research report.

They began offering mortgage loans after the maximum loan-to-value (LTV) ratio for bank mortgages for self-use residential properties with a value below HK$7 million was lowered from 70 per cent to 60 per cent in February last year. That meant home buyers needed to make a 40 per cent initial down payment, up from 30 per cent, when purchasing an apartment.

Among the five project launch sales studied by Barclays, it noted 22 to 90 cases of homebuyers taking up developers’ mortgage offers at Kerry Properties’ Bloomsway in Tuen Mun, Henderson Land’s Zutten in To Kwa Wan, Cheung Kong’s Yuccie Square in Yuen Long and Wheelock’s Capri in Tseung Kwan O.

Henderson Land’s Eltanin Square Mile in Mong Kok, however, recorded 118 cases, or 42 per cent of the 279 units sold.

“This averages out to 18 per cent taking up developers’ mortgages in each project,” Louie said.

Sun Hung Kai Properties’ (SHKP) Park Vista in Kam Tin and King’s Hill in Sai Ying Pun did not reveal the number of buyers taking up developer’s mortgage offers.

Assuming an 18 per cent take-up rate, Louie estimated Cheung Kong’s Yuccie Square would contribute the most in loan receivables at HK$696 million, followed by Wheelock’s HK$417 million from Capri and an estimated HK$380 million from Henderson Land’s Eltanin Square Mile.

Louie said loan receivables for major developers such as Henderson Land, SHKP and Cheung Kong Property would not exceed HK$1 billion in total, while less than HK$300 million would be recorded for New World Development, Kerry Properties and Sino Land.

He said loan receivables accounted for between 0.83 per cent and 0.55 per cent of developers’ equity and asset bases as of June last year.

“We believe these mortgage offers are not yet an issue for developers,” Louie said.

Home buying interest has been subdued after prices started to fall in the fourth quarter of last year.

Centaline said its Centa-City Leading Index, which tracks secondary home prices at 100 housing estates, dropped to 135.89 point for the last week in December .

The index has fallen 7 per cent from the peak in September.

“Home prices will drop faster once there is no improvement over the next several weeks,” said Wong Leung-sing, an associate director of research at Centaline Property Agency.