HONG KONG • Home foreclosures in Hong Kong have been rising and are likely to pick up pace as more owners default on high-interest loans from unregulated lenders in a weak economy, according to specialists in distressed property.
The territory's authorities do not officially track foreclosures but data from the de facto central bank, the Hong Kong Monetary Authority (HKMA), shows that there is a growing number of homes worth less than the amount paid for them.
The number of homes under water reached a five-year high of 1,432 at the end of March, and the HK$4.9 billion (S$852.5 million) of properties concerned is the highest since the global financial crisis in 2009.
At the end of December, there were just 95 cases worth HK$418 million.
Non-bank finance companies have seen an increase in delinquent loans since the fourth quarter of last year and foreclosures are also now picking up.
Members of the Hong Kong Property Finance Association now have about 10 delinquencies per 100 loans made, compared with five to six last year, and foreclosures are running at around four per 100, up from two to three in 2015, according to its chairman Alfred Lam.
For a city that relies on property- related businesses for about a fifth of its economy, any major distress in the apartment market would be a body blow. It could also trigger questions about whether the HKMA should get a tighter grip on non- bank financing.
Banks are heavily regulated in the Chinese territory. Seven rounds of property sector cooling measures introduced by the HKMA since 2009 have cut the official loan-to- value ratio on residential properties - the maximum amount a bank is allowed to lend on a property - to a maximum 60 per cent, and as low as 40 per cent in some circumstances.
But the same does not apply to finance firms and real estate developers. And buyers have, in recent years, got around the bank rules by taking loans from these other sources and borrowing up to 90 or 95 per cent of the value of the property.
A decline in house prices puts these borrowers under water - which has been happening as the Hong Kong economy has struggled and home prices have dropped 11 per cent from a September 2015 high. Hong Kong household debt is also at a record high of nearly 70 per cent, according to the Bank for International Settlements.
The situation is made worse by the repeated use of apartments for collateral in other unregulated transactions, including loans for stock trading.
The finance companies typically charge between 10 and 30 per cent interest compared with 2 per cent from banks, and their loans typically last one to five years rather than banks' 20 or 30 years. As much as 10 per cent of the market may be operating outside of HKMA rules, according to brokerage Ricacorp.