Select high lump sum projects to benefit from Hong Kong’s relaxation of mortgage rules

Hong Kong raised the LTV ratio cap to 70% for self-use properties worth less than $15m.

Projects such as Kai Tak and Wong Chuk Hang will likely see better sell-through following Hong Kong's relaxation of the loan-to-value (LTV) ratios for residential properties, according to Jefferies.

In a report, Jefferies explained that whilst residential projects priced between $12m to $30m could see an LTV uplift of 15% to 20%, "stretching the LTV for large lump-sum units would require a high-income level to support the monthly instalment under the 50 debt service ratio constraint."

Jefferies underscored that only 8% of the total households in Hong Kong who make more than $100,000 a month can potentially participate in the expanded LTV schemes set by the Hong Kong Monetary Authority (HKMA).

To add, these households are likely already homeowners.

Unlike select high lump-sum projects, enter-level projects will not benefit directly from LTV, said Jefferies; however, the expert said the lower insurance premium should reduce the transaction costs and help alleviate homebuyers' pressure in a rising rate environment.

Looking ahead, Jefferies said home prices will be "largely stable" in 2H23.

"The new measure should have limited impact on unleashing demand given the high monthly instalment hurdle," the expert said.

The monthly instalment for an 80% LTV mortgage on a property worth $12m reaches $43,000 assuming a 3.5% mortgage rate and 30yr loan tenure, said Jefferies.

"Developers will likely continue to prioritize destocking over aggressive pricing. Home prices should see more positive signs in 2024, with rates peaking, immigration supporting demand and supply normalising," the expert added.