HONG KONG • The Hong Kong Monetary Authority's (HKMA) move to relax loan rules for the first time in more than a decade is unlikely to provide a significant boost for a commercial property market battered by the coronavirus pandemic and a deep recession.
Hong Kong's central bank late on Wednesday raised the loan-to-value ratio cap for commercial properties to 50 per cent from 40 per cent, allowing buyers to borrow more money to purchase office and retail space. The move went into effect yesterday.
The uncertainties in the real estate market, including the pandemic and escalating tensions between China and the United States, have prompted banks to be conservative in commercial mortgage lending and have even raised rates recently, according to Centaline Mortgage Broker managing director Ivy Wong.
"The measure won't turn the market around," though it will provide some support, Ms Wong said. "Borrowers are still subject to restrictions like stress tests, and many investors are looking for recovery signs before they make purchases."
The last time the monetary authority lifted the loan limit was in 2009, after the global financial crisis. It was later lowered to 40 per cent in 2013 when the property market was deemed overheated.
"With business confidence continuing to be affected by the Covid-19 pandemic and rising geopolitical tensions, non-residential property markets are likely to remain under pressure," HKMA said. It is appropriate to ease the mortgage measures for non-residential properties in the current environment, it added.
This is aimed at relieving pressure for property owners struggling to repay mortgages as rental income declines, said Knight Frank executive director Thomas Lam. The relaxation is unlikely to lead to an explosion of loans or a booming property market, Ms Wong said.
Unlike the residential market, which has been largely resilient thanks to pent-up demand, commercial real estate has taken a hit. Office and retail space transaction value and volume fell by 55 per cent and 41 per cent, respectively, in the first half of the year from a year earlier, according to Savills.
Prolonged social unrest and travel restrictions have deterred many overseas investors. Mainland Chinese buyers, who were the main source of inbound real estate investment over the past decade, were absent in the first quarter, the first time since 2009.
Hong Kong's landlords, who traditionally benefit from their well-located shopping malls, are also suffering from the effects of the pandemic. Wharf Real Estate Investment this month recorded a HK$7.4 billion (S$1.3 billion) loss in its portfolio value, and the stock plunged 35 per cent this year.
The government last week revised its 2020 forecast for the economy to shrink a record 6 per cent to 8 per cent from an earlier estimate of 4 per cent to 7 per cent because of the coronavirus and rising trade tensions.
BLOOMBERG
