Homes offers tempting, but the risks can’t be ignored

As if thumping their noses at the government’s market cooling measures, Hong Kong’s two largest property agencies have offered prospective homes buyers zero down payment mortgage loans to buy properties.

The move could add fuel to the already red-hot property market and expose borrowers to the dilemma of negative equity at the slightest price correction.

A combination of factors has pushed property prices to levels fewer and fewer people can afford. Indeed, soaring homes prices are a major source of public discontent that’s threatening to tear the social fabric apart.

In response, the government has spared no efforts in trying to increase land supply for property development in both the public and private sectors. In addition, it has introduced a number of measures to discourage speculation and hoarding.

The Hong Kong Monetary Authority — the city’s de facto central bank — has also set the minimum down payment of 30 percent of a property’s value for mortgage loans. This buffer is deemed essential in protecting both the borrower and lender against sudden price adjustments in a market downcycle. But the rule does not apply to non-bank money lenders which are mostly affiliated with developers or property agents.

The property downturn did happen in late 2015 when average prices fell an aggregate 20 percent in less than six months. But, the influx of overseas capital had helped kick off an up-cycle in the middle of last year. Since then, renewed buying interest, fanned by exceptionally low bank interest rates, has pushed prices beyond their previous peak, forcing the government to act.

Homes buyers who are tempted to take up the property agents’ offers will need to consider the risks that have been magnified by anticipated increases in interest rates this year, as well as the large supply of new apartments coming on stream in coming months.

Nobody should be desperate enough to take the risk of 100 percent leverage in buying a property at current prices. There are more pleasurable ways to gamble away your money.

PROVIDED TO CHINA DAILY Various rounds of tough government measures to rein in Hong Kong’s runaway property sector have failed to keep prices in check, with many potential buyers priced out.