HK wary of risks from developer mortgages

Buyers in Hong Kong have flocked to new homes as developers enticed them with tax rebates and loan offers, often made through finance subsidiaries. The city's developers such as Sun Hung Kai Properties and Cheung Kong Property are among those offerin
Buyers in Hong Kong have flocked to new homes as developers enticed them with tax rebates and loan offers, often made through finance subsidiaries. The city's developers such as Sun Hung Kai Properties and Cheung Kong Property are among those offering mortgages to home buyers.PHOTO: REUTERS

HONG KONG • The de facto central bank of Hong Kong has expressed concern about the riskiness of mortgages with high loan-to-value ratios issued by developers, as some analysts warn that property prices in the city are unsustainable.

"The accumulation of these high loan-to-value mortgages may change the risk profiles of these property developers to which banks may have exposures," Mr Raymond Chan, executive director for banking supervision at the Hong Kong Monetary Authority (HKMA), said yesterday, in response to queries from Bloomberg.

The HKMA said it may ask banks to take additional steps to manage their exposure to the sector.

Hong Kong's property market, the world's least affordable, has been on a tear in recent months despite attempts by the city's leaders to cool prices last November by imposing additional taxes.

That prompted warnings from analysts, including Mr Cusson Leung at JPMorgan Chase, who said that any external shocks could trigger tighter liquidity in the city's banking system and increase home buyers' borrowing costs.

"If the bubble bursts, buyers will not only lose their own money, they will also lose all of their parents' money," Mr Leung said.

Buyers have been using all of their assets as well as leveraging their parents' existing homes as collateral to help make residential property deposits, he said.

Buyers have flocked to new homes as developers enticed them with tax rebates and loan offers, often made through finance subsidiaries. Hong Kong developers such as Sun Hung Kai Properties and Cheung Kong Property are among those offering mortgages to home buyers.

While bank loans are subject to limits imposed by the monetary authority, builder-arranged mortgages are not covered by the same restrictions. Last year, Sun Hung Kai announced a mortgage offer worth as much as 120 per cent of a home's value at one of its projects.

Regulations restrict traditional bank mortgages on properties costing less than HK$10 million (S$1.8 million) to 60 per cent of their value.

"The HKMA will continue to monitor the situation closely and consider whether there is a need for banks to strengthen their risk management in respect of their lending to property developers," the authority said.

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A version of this article appeared in the print edition of The Straits Times on April 11, 2017, with the headline 'HK wary of risks from developer mortgages'. Print Edition | Subscribe