Hong Kong expects negative equity influx in Q3

The number of negative equity cases may exceed 10k by the end of September.

Overall residential property price index dropped by 1.1% in July, recording the lowest decline this year. The residential mortgage loans in negative equity cases will likely exceed 10,000 by the end of this month, property expert JLL said.

Overall home prices as of the end of July were 2.6% higher compared to the previous year-end, but this increase is expected to be offset during the current month. Meanwhile, secondary transaction volume in the market reached an all-time low in January 2020. 

As of July 2023, the rental index for class A properties is still 9.0% below the end-2019 level.

Major local banks raised the HIBOR-based mortgage rate cap by 50 bps to 4.125% and reduced cash rebates. More local banks are expected to follow suit due to mounting funding cost pressure.

However, local banks may again be forced to raise the prime rate even higher, as the Fed did not rule out the possibility of rate hikes in the remainder of the year. This may result in a further decrease in property purchase and momentary pressured property costs.

“The median monthly income of private housing households has declined over the years from its peak of HKD 40,800 in 2019 to HKD 36,500 in October 2020, only returning to HKD 40,000 in June 2023. Alongside the rapidly rising interest rates, many borrowers with existing mortgages would not be able to pass stress tests under prevailing circumstances,” said Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong.

Property investors are facing a particularly dire situation due to negative carry. The monthly mortgage interest payment has more than doubled in this rate hike cycle, while rent growth can hardly compensate for this increase.