Relaxed mortgage financing causes shift in homebuyers' preference
Homebuyers may shift back to small flats, analysts say.
The easing of mortgage financing schemes has caused a shift in preference amongst house buyers, with small flats gaining more focus.
Under the relaxed mortgage financing schemes, the cap for loan-to-value (LTV) ratios for units with values below HK$8m (previously HK$4m) was set at 90% and 80% for units with values between HK$8m and HK$10m (previously capped at HK$6m) in 2019.
Analysts from JLL said the effect of relaxed lending guidelines has been seen in the price increase of mid-sized residential flats in the past 21 months.
Based on JLL’s Residential Sales Market Monitor, the price of Class B (saleable area between 430 and 752 sq ft) rose to 4.7%, whilst Class C (saleable area between 753 and 1,075 sq ft) climbed to 5.8% following the increased mortgage entitlements for borrowers.
The price growth of mid-zed flats has outperformed not only Class A properties (2.0%), but the overall market (2.9%).
The market share of Class A properties as a proportion of total new supply also fell from 48.5% in 2019 to 28.1% in 2021 due to the policy.
Two years prior to the implementation of the new cap in 2019, Class A units had the highest growth in price at 11%, whilst Class B and C only rose to 9.5% and 8.0%, respectively.
Norry Lee, Senior Director of Projects Strategy and Consultancy Department at JLL in Hong Kong, said the eased lending guidelines will shift homebuyers’ focus to small units “where the lump sums are able to fit into the LTV ratio cap."
“It is healthier for the market if the progressive ladder of LTV ratio is smoothed out, allowing properties above HK$10m a higher LTV ratio of say 70% for HK$10m to HK$12m units and so forth. Facilitating upgrading will eventually help release more units in the secondary market and re-establish the housing ladder," he added.
Aside from buyers’ preference, the lending scheme also ‘significantly changed developers' building strategy, according to Nelson Wong, head of Research at JLL in Greater China.