Hong Kong’s Financial Secretary, John Tsang, has said that, despite the
controls introduced in the budget in February this year, property prices have
continued to rise due to external factors, and additional measures are therefore
required.
Average flat prices in Hong Kong are now 15% higher than the previous peak
in 2008. Although prices overall are still 16% below those in 1997, flat prices
at some popular housing developments are fast approaching historical highs.
Additionally, he said, the mortgage repayment to household income ratio rose
to 41.5% in the second quarter of this year. Although this is still lower than
the 1989-2008 20-year average of 53%, there is increased risk of a property
bubble forming because interest rates are expected to continue to be very low
for some time to come.
While the supply of flats is to be increased by the release of additional plots
of land, and the government will also look at planning applications, lease modifications,
land exchange, property development along railway lines and urban redevelopment,
the government is also determined to curb speculative property market activities.
The Lands Department will disallow confirmor transactions of first-hand uncompleted
flats which are granted pre-sale consent by the department on or after August 13.
In other words, purchasers of those flats will not be allowed to re-sell, sub-sell
or transfer the benefits of the agreements for sale and purchase before completion
of the transaction. The Department will also require that buyers of those flats forfeit 10%, instead
of the current 5%, of the total purchase price if they cancel the transactions.
Furthermore, so as to prevent excessive expansion in mortgage lending, the
Hong Kong Monetary Authority (HKMA) has been monitoring closely the financial
stability risk relating to the residential mortgage lending portfolio of the
banking sector. It has therefore announced additional measures to ensure that
the risk-management practices adopted by banks in granting residential mortgage
loans will remain prudent and appropriate.
The HKMA has issued a circular to banks in Hong Kong requiring them to apply
a maximum loan-to-value (LTV) ratio of 60% to properties with a value at or
above HKD12m (USD1.5m). For properties valued below HKD12m, the 70% LTV guideline
will continue to apply, but the maximum loan amount will be capped at HKD7.2m.
It has also lowered the maximum LTV ratio for properties which are not intended
to be occupied by the owners to 60%, and standardized the limit on debt servicing
ratios (DSRs) of mortgage applicants to 50%, instead of the current range of
50% to 60%. In addition, banks should stress-test mortgage applicants' repayment
ability assuming an increase in mortgage rates of at least 2%, and limit the
stressed DSR to a cap of 60%.
At the same time, the Hong Kong Mortgage Corporation Limited (HKMC) has announced
revisions to the Mortgage Insurance Programme - suspending applications of mortgage
loans exceeding 90% loan-to-value (LTV) ratio; lowering the maximum amount for
mortgage loans of 90% or below LTV from HKD12m to HKD7.2m; and capping the maximum
DSR at 50% for all income groups.
HKMC’s Executive Director and HKMA’s Deputy Chief Executive, Peter
Pang, said: "Taking into account the current market conditions, these revisions
aim to ensure that the HKMC is taking a prudent approach to risk management
on its exposure to high LTV mortgage lending. Homebuyers are reminded that they
should consider their repayment capability more prudently and avoid overstretching
themselves which could lead to repayment difficulties."
LAWANDTAX-NEWS.COM
