Hong Kong mortgage relief won't revive weak property market

HONG KONG (BLOOMBERG) – The Hong Kong Monetary Authority’s move to relax loan rules for the first time in more than a decade is unlikely to provide a significant boost for a commercial property market battered by the coronavirus pandemic and a deep recession.

Hong Kong’s central bank late on Wednesday (Aug 19) raised the loan-to-value ratio cap for commercial properties to 50 per cent from 40 per cent, allowing buyers to borrow more money to purchase office and retail space. The move goes into effect on Thursday.

The uncertainties in the real estate market, including the pandemic and escalating China-US tensions, have prompted banks to be conservative in commercial mortgage lending and have even raised rates recently, according to Ivy Wong, managing director at Centaline Mortgage Broker.

“The measure won’t turn the market around,” though it will provide some support, Ms Wong said. “Borrowers are still subject to restrictions like stress tests, and many investors are looking for recovery signs before they make purchases.”

The last time the monetary authority lifted the loan limit was in 2009 after the global financial crisis. It was later lowered to 40 per cent in 2013 when the property market was deemed overheated.

“With business confidence continuing to be affected by the Covid-19 pandemic and the rising geopolitical tensions, non-residential property markets are likely to remain under pressure,” HKMA said in a statement. It’s appropriate to ease the mortgage measures for non-residential properties in the current environment, it added.

The decision is aimed at relieving pressure for property owners who are struggling to repay mortgages as rental income declines, said Thomas Lam, an executive director at Knight Frank. The relaxation is unlikely to lead to an explosion of loans or a booming property market, Ms Wong said.

Unlike the residential market that’s been largely resilient thanks to pent-up demand, commercial real estate has taken a hit. Office and retail space transaction value and volume slumped by 55 per cent and 41 per cent respectively in the first half of 2020 from a year earlier, according to Savills.

Prolonged social unrest and travel restrictions due to the pandemic have deterred many overseas investors. Mainland Chinese buyers, who were the main source of inbound real estate investment over the past decade, were absent in the first quarter, the first time since 2009.

Hong Kong’s landlords, who traditionally benefit from their well-located shopping malls, are also suffering from the effects of Covid-19. Wharf Real Estate Investment Co this month recorded a HK$7.4 billion (S$1.3 billion) loss in its portfolio value, and the stock has plunged 35 per cent this year.

The government last week revised its 2020 forecast for the economy to shrink a record 6 to 8 per cent because of the coronavirus and rising trade tensions. The city has been in recession since the second half of 2019 as a result of sustained protests before the pandemic.

The index tracking Hong Kong’s biggest developers fell 2 per cent on Thursday, compared with the 1.8 per cent decline in the city’s benchmark Hang Seng Index.

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