Tighter rules on mortgage lending have pushed Hongkongers to get financing from cash-rich developers instead of banks. 

Hongkongers are getting priced out of the pre-owned home market so more are buying smaller but more expensive new apartments. Since they are unable to get sufficient mortgage from banks, they have turned to developers who provide loans amounting to as much as 90 percent of a property’s value, despite the higher cost of the loans.

«These sweet deals come with a cost – a higher price. Developers have total control over prices because no matter how high they set them, buyers have to come to them as they cannot afford down payments in the secondary market,» said Joseph Tsang, JLL Hong Kong’s managing director and head of capital markets, who was quoted in the «South China Morning Post».

Developers Gain Market Share

The proportion of loans for new homes offered by non-banking financial companies - mainly cash-rich developers’ finance companies - jumped to 21.7 percent of the total in 2018, up from 14.6 percent in 2017. In comparison, mortgage loans for new homes provided by banks crawled up by just 1.5 percent in 2018 to HK$84.9 billion.

A large proportion of young people and newly-wedded couples are attracted by these developers' offers of financing since their salaries could finance the mortgage but not necessarily the high down payments required. Based on a university student's take-home pay of HK$19,917 a month - the average for a fresh graduate in the city - it will take him or her 12 years to save up for the down payment for an old 430 sq ft home in Kowloon, which costs an average of HK$6.14 million.

A Slew Of Tightening Measures

Since February 2008, the Hong Kong Monetary Authority lowered the mortgage cap for all homes worth more than HK$20 million to 60 percent from 70 percent. It has since issued eight rounds of mortgage tightening measures, including lowering loan-to-value ratios, cap of debt servicing ratio for a property mortgage, and new stress tests.

Developers typically attract buyers with financing plans that cover more of a property’s value than the maximum 60 percent offered by banks for apartments worth HK$6 million to HK$10 million. The amount of mortgage available for flats valued at HK$4-6 million is capped at 80 percent, while those valued at less than HK$4 million is capped at 90 percent, according to the Hong Kong Mortgage Corporation. Mortgages for properties worth more than HK$10 million are capped at 50 percent.