HK property cooling moves set to fail as lenders fill the gap
HONG KONG: Hong Kong’s latest attempt at cooling home prices in one of the world’s most expensive property markets is expected to send buyers scouring for loans in the unregulated shadow banking industry, spreading risk across the financial sector.
Home prices in Hong Kong, where a nano-apartment of less than 200 square feet can cost as much as US$500,000, have surged more than 137 per cent since the financial crisis in 2008, propelled by a supply shortage, low interest rates, and big flows of money from mainland Chinese investors.
They now pose a huge challenge for the territory’s incoming leader, Carrie Lam.
The cost of accommodation in the financial hub, where home ownership is a distant dream for many, was among the triggers for mass protests in late 2014.
Authorities have failed to rein in prices despite eight rounds of mortgage tightening by the Hong Kong Monetary Authority (HKMA) since 2009, on top of a series of tax and regulatory policies imposed by the government.
As those measures have curbed bank lending, finance companies have leapt into the gap.
They funded 8.7 per cent of mortgages for new apartments completed in 2016, according to Centaline Property Agency.
For flats that have a completion date in 2017, the figure surges to 15.5 per cent and is expected to rise further, it said.
Few expect the authorities to take extreme measures – such as imposing punitive taxes on mainland buyers – for fear of triggering a collapse in prices in a real estate industry that accounts for 10 per cent of Hong Kong’s economic output.
Revenue from properties and related investments is estimated to have more than doubled in the fiscal year ended March 2017 from the previous year, and is the second biggest income generator for the
The major concern to the government is that lower land prices would greatly affect the government’s revenue, which has been very volatile as a large part of that is from land premiums. Pascal Siu, Natixis economist
government.
But there is a danger that if the non-bank lenders overstretch they could also hurt confidence in the real estate market.
In Canada, recent problems at the nation’s biggest non-bank lender, Home Capital Group Inc, have helped to drive some buyers away from the hot Toronto residential market.
Controlling the flood of capital flowing across the border is a huge challenge for the government – cash- rich mainland Chinese accounted for about 21 per cent of buyers of new homes last year, according to Centaline.
“The major concern to the government is that lower land prices would greatly affect the government’s revenue, which has been very volatile as a large part of that is from land premiums,” said Pascal Siu, an economist at Natixis.
The latest cooling steps announced 10 days ago – mainly making it costly for bank to make mortgage loans – were not aimed at targeting property prices but at strengthening lenders’ risk management, a spokesperson for HKMA told Reuters.
“The focus of the regulators is to ensure that the bubble in the property market doesn’t dent the bank balance sheets,” said an executive at a foreign bank with mortgage business in Hong Kong.
“They don’t want to rock the boat and make the property prices correct by 10 to 20 per cent in a short span.”