More young buyers turning to parents for home loans, putting Hong Kong at risk of bubble

Hong Kong home prices have surged 21 per cent in the 12 months through June 30, the second-biggest gain globally after Iceland, according to a report.
Hong Kong home prices have surged 21 per cent in the 12 months through June 30, the second-biggest gain globally after Iceland, according to a report.PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Hong Kong's de facto central bank is keeping a close eye on a trend that has become increasingly apparent as home prices have soared in the world's least affordable market: More young buyers are turning to their parents for funds.

"Recent developments in new sources of home financing deserve careful monitoring as they could have implications when viewed from a broader financial stability perspective," the Hong Kong Monetary Authority (HKMA) wrote in its half-yearly financial stability report on Thursday (Sept 28).

"Anecdotal evidence suggests that support to young homebuyers from parents has become more popular."

In particular, officials observe that some young buyers are financing home purchases using proceeds from "remortgages or top-up mortgages" of their parents' properties.

No official data exists on such borrowings, although a rising number of owner-occupied properties without mortgages might be one indication that young buyers are turning to their families rather than banks, HKMA data show.

While that could reduce risks faced by banks in the event of a sharp property downturn, the stakes have gotten much higher for households if the market turns. Fear of missing out on capital gains has fuelled investor demand and put the city at risk of a bubble, UBS Group said in a report on global housing values.

Hong Kong home prices have surged 21 per cent in the 12 months through June 30, the second-biggest gain globally after Iceland, according to a report from broker Knight Frank.

The city's Financial Secretary Paul Chan had warned in June that Hong Kong's property market is in a "dangerous situation" and is vulnerable to a correction.