Hong Kong property

Sun Hung Kai Properties offering loans worth 120pc of flat value to boost sales of Yuen Long project

PUBLISHED : Wednesday, 15 June, 2016, 9:59pm
UPDATED : Wednesday, 15 June, 2016, 10:26pm

Sun Hung Kai Properties (SHKP) surprised the market on Wednesday by offering an unprecedented home loan worth as much as 120 per cent of the flat value without the need to submit income proof in order to woo buyers for its new project in Yuen Long.

Buyers of SHKP’s Park Yoho Venezia who opt for the “King’s Key 120” scheme will receive a three-year financing loan up to 120 per cent of the flat’s value, much higher than the standard bank mortgage ceiling of 60 per cent for flats below HK$10 million, and 50 per cent for those more than HK$10 million.

The offer only applies to buyers who already own an apartment with value no less than 70 per cent of the would-be purchase price of the Park Yoho Venezia flat. The loans would be provided by SHKP’s finance company which is not subject to regulatory supervision by the Hong Kong Monetary Authority (HKMA). Buyers are only required to pay interest in the first year but must begin repaying interest and principal from the second year.

“Developers are basically lending money to buyers to purchase their units. It is an obvious sign that developers want to speed up sales. If they do not act fast now, they may have to sell at a price lower than today,” said Nicole Wong, CLSA regional head of property research.

She said other developers with projects in nearby areas would be forced to follow suit to provide similar home loan packages in a fight to secure buyers.

“It is the most aggressive plan I’ve ever seen in the market,” said Sammy Po, chief executive at Midland Realty’s residential department. “During the last market doldrums more than 10 years ago, developers provided home loan of 110 per cent of the flat value, even to first home buyers.”

If they bet on the wrong side, they will lose and the winner will be the developer who has divested the market risk to the purchasers
Louis Chan Wing-kit, Centaline Property Agency

However, the new plan offered by SHKP is limited to those who already own a flat.

For instance, buyers would only need to put down 5 per cent, or HK$250,000, for a flat costing HK$5 million at Park Yoho Venezia but receive a loan amounting to HK$6 million.

In this case, the 120 per cent loan is equivalent to 95 per cent of the flat value, or HK$4.75 million, and the other 25 per cent, or HK$1.25 million, is to repay the outstanding balance of the bank mortgage loan on the buyers existing home.

Without the supplementary financing potential buyers would need to fork out HK$2 million for an initial deposit, according to standard bank mortgage lending policies.

SHKP said the plan aims to help buyers clear the mortgage on their existing home so they can have a longer period to sell their existing flat before trading up for a new one.

The developer released the price list for 100 units at Park Yoho Venezia, which is expected to be completed in October, at a discount of 11 per cent with an average of HK$10,238 per square foot. Units at Yoho Town in Yuen Long immediately came under selling pressure with one 422-square-foot unit sold for HK$4.45 million, or 20 per cent lower than six months ago.

Louis Chan Wing-kit, Centaline Property Agency’s managing director for residential, said buyers opting for this financing scheme would gamble that home prices improve within three years.

“If they bet on the wrong side, they will lose and the winner will be the developer who has divested the market risk to the purchasers,” he said.

Market watchers widely expect home prices to head for a downward adjustment, with some forecasting flat values to plunge by as much as 30 per cent by 2017. Hong Kong home prices have fallen 12 per cent from their peak in September last year.

In a written reply to the South China Morning Post the HKMA said; “As a bank regulator, the HKMA has the responsibility for supervising banks to safeguard banking stability in Hong Kong. We do not comment on mortgage loans offered by individual developers.”

Legislator Albert Ho Chun-yan, however, said such excessive lending could increase the number of negative equity owners once home prices fell more than 5 per cent.

He said developers that provided bigger home loans through their finance companies would dilute the influence of HKMA’s tightening on mortgage lending to reduce the risk of a property bubble.

“What developers are doing is not breaching the law. But if the Lands Department intends to support the government to rein in home prices, it can hold back developers’ applications for pre-sale consent if they provide excessive lending,” he said. “We need time to study (SHKP) plan before taken any action.”