Tighter bank credit means business for money lenders
As banks tightened credit to developers, money lenders have found themselves a new business opportunity in filling the gap to help homebuyers in financing down payments
The Hong Kong banking regulator’s move to dampen developers from providing generous mortgage schemes has created new business opportunities for non-banking institutions and money lenders.
Ego Finance, one of the major finance companies in Hong Kong, said the new measures would generate more business opportunities for money lenders. With nearly 2,000 new units to come on stream for pre-sale, there is without doubt, a demand for loans.
“Home seekers still need to source financing when they come to buy properties,” said chief executive Victor Wong. But he believes only the small mainland developers who rely more on bank lending to finance developments and land acquisitions in Hong Kong, would be affected.
“It is still too early to access the impact,” he added.
Nevertheless, the firm saw a strong demand for home loan as its mortgage lending business posted a 30 per cent year-on-year growth in the first quarter.
The Hong Kong Monetary Authority (HKMA) on May 12 ordered all banks to tighten their property lending to developers to guard lenders from risks from June 1.
Under the new measures, the maximum limit allowed on bank loans to buy a plot of land will be cut to 40 per cent of the value of the site, down from the current 50 per cent. The cap on loans for construction costs will drop to 80 per cent from the current level of 100 per cent. And the overall cap on bank financing for the whole project will be reduced to 50 per cent of the expected value of the completed properties, down from 60 per cent.
The HKMA hopes that by cutting the amount of financing available to the homebuilder, it will discourage the developers from offering generous mortgages to buyers.
Wong said his firm is focused on buyers purchasing mass homes, which cost HK$4 to HK$7 million.
Together with the bank’s first mortgage, he said the firm would not extend loans to applicants who ask for more than 80 per cent of the flat’s value.
As most buyers would have secured 50 per cent loan-to-value ratio from banks or developers, he said Ego Finance would offer the 30 per cent on top of the first mortgage.
Interest rates would be 10 per cent to 12 per cent per year, compared standard bank charge of 2.2 per cent, he said.
He expects the market to be a promising one as more new flats become available for pre-sale.
Upcoming projects that would put on sale in the coming weeks include 970-unit Ocean Pride in Tsuen Wan by Cheung Kong Property (Holdings), and K&K Property’s 822-unit Victoria Skye in Kai Tak area.
Buyers are tapping financing alternatives as standard bank loans are capped at 60 per cent of the value of homes below HK$10 million, and 50 per cent for homes above HK$10 million.