Loan growth poised to crash as home prices falter

Analysts expect the momentum to slow from 16.1% to 14% in 2018.

Hong Kong’s commercial banking sector is set for slowdown in 2018 as various cooling measures are finally taking effect in the city’s heated housing markets, effectively slashing demand for mortgage lending, according to BMI Research.

Analysts forecast loan growth to slow down from 16.1% to 14% in 2018 as the exponential growth of housing prices are starting to lose steam after coming in at 16% in February versus a record high of 21.6% in June and April 2017.

Also read: Hong Kong loans grew 16% in 2017 amidst soaring property prices

“Softening housing demand is likely to weigh on residential mortgage lending, which is starting to top out. According to the Hong Kong Monetary Authority (HKMA), lending for purchasing residential properties came in at 7.8% y-o-y in January from a high of 8.4% y-o-y in September 2017,” the report added.

Loan growth for residential development and investment also fell to 14.1% YoY in December compared to a peak of 24.8% in the previous quarter.

Further loan expansion is expected to decelerate as Mainland China’s economy slows amidst a series of initiatives to curb systemic financial and environmental risks being undertaken by Beijing.

Also read: GDP growth may fall to 3% in 2018 amidst Mainland economic slowdown

As Hong Kong acts as a key source of funding for Chinese investors, mainland-related lending is forecasted to cool over the coming months. “The aim of reining in the financial excesses that the Chinese economy has built up over the past couple of years suggests that the rapid credit expansion is set to wind down over the coming quarters, particularly for highly indebted state-owned enterprises (SOE),” BMI added.