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FINANCIAL SERVICES | Staff Reporter, Hong Kong
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Why the latest cooling measures will have marginal impact on the market

Only around 20% of borrowers have pre-existing mortgages.

According to UOB Kayhian, the Hong Kong Monetary Authority (HKMA) issued guidelines to banks on 19 May in its latest move to rein in the domestic property prices.

This follows the announcement a week earlier (12 May) on the tightening of limit on bank loans to property developers (effective from 1 June). In November 2016, the government had also increased buyer’s stamp duty to target investment demand and in April closed a loophole that allowed investors to buy multiple units in one contract in order to avoid additional stamp duties.

Here's more from UOB Kayhian:

Measures announced last Friday (19 May) which are effective immediately include: (1) raising the risk-weight floor from 15% to 25% for new residential mortgage loans, (2) lowering by 10% point the applicable loan-to-value ratio (LTV) cap for borrowers with pre-existing mortgages; and (3) lowering by 10% point the applicable debt-servicing ratio limit for property mortgage loans extended to borrowers whose income is mainly derived from outside of Hong Kong.

Under the new rules, the LTV for property valued at more than HK$10 mn will be reduced to 40% for applicants who have other outstanding mortgages from 50% previously and 30% for those with outstanding mortgages and income derived from outside Hong Kong. Debt-servicingratio for those with outstanding mortgages will be reduced to 30% from 40%.

The slew of macroprudential measures indicates worries over the property “price bubble” and banks’ exposure to the real estate sector.

Despite the recent measures, demand continued unabated with Hong Kong’s residential property price hitting fresh record high in March, up around 4.0% since the start of the year and on the back of a pick-up in transaction volume. Property prices have risen month-on-month for the 12th consecutive month, recording a gain of 17.8% over the period.

Market expects marginal impact from the latest cooling measures as only around 20% of borrowers have pre-existing mortgages while borrowers whose income is derived from outside Hong Kong only accounts for around 2% of applicants. Housing demand is expected to outstrip supply even with a record 96,000 units of private housing planned over the next 3-4 years, which will likely keep prices supported.

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