Veteran property investor says mortgage lending rule should be eased if Hong Kong home prices drop another 10 per cent

Veteran property investor Jacinto Tong Man-leung, vice chairman of private real estate investment firm Gale Well Group, believes the Hong Kong government could ease cooling measures once property prices fall a further 10 per cent.

The outspoken investor stirred up a heated debate early last year after he warned of a mini-sized flat bubble when there was panic buying for so-called tiny flats at outrageous prices. Such studio flats, with a unit size of about 200 square feet, attracted purchasers who were largely younger buyers seeking loans of up to 90 per cent of the flat value either through developers financing scheme or private financial institutions.

Tong said he thinks relaxation of the mortgage rule should be the primary consideration if home prices plunge a further 10 per cent from where they are now.

The Canadian-educated investor, whose company owns an investment portfolio of assets worth HK$40 billion, expects that the second half of this year may be an appropriate time for the Hong Kong Monetary Authority to relax lending curbs.

Hong Kong home prices have fallen 12.6 per cent from their peak in September last year.

“Home prices are unlikely to rebound as Hong Kong’s new flat supply is set to normalise. With the increasing new supply ready to go on sale, it could cap the price growth,” Tong said. “But now is not the right time to ease the mortgage rule.”

Under current mortgage rules, the maximum loan-to-value ratio for flats worth less than HK$7 million and intended for self-use has been lowered from 70 per cent to 60 per cent.

The maximum loan-to-value ratio under the mortgage insurance programme offered by the Hong Kong Mortgage Corporation has been reduced from 90 per cent to 80 per cent, except for first-time buyers wanting a flat for their own use who also meet the salary requirements.

Tong said it would be extremely difficult for young people to buy their first home under current regulations, even if home prices have fallen. For instance, a two-bedroom flat of 500 square feet in size is currently going for at least HK$5 million, so buyers are required to put down HK$2 million or 40 per cent of the flat value as the initial down payment.

“For anyone who tries very hard to save HK$20,000 a month, it will still take [them] 100 months or more than eight years to save the HK$2 million before buying a flat. But if the loan-to-value ratio is lowered to 80 per cent, it means the initial down payment will come down to 20 per cent or HK$1 million,” he said.