Hong Kong Clampdown on Home Loans Triggers Sun Hung Kai, Cheung Kong Slump
July 30 (Bloomberg) -- Donald Choi, managing director at Nan Fung Development Ltd., a privately-held developer, talks with Bloomberg's Phillip Yin about the outlook for Hong Kong's real estate market. A private owner has put a building site in the Peak district, one of Hong Kong’s most exclusive residential areas, up for public tender, according to property broker Jones Lang LaSalle Inc. Nan Fung and Wharf (Holdings) Ltd. on July 28 bid HK$10.4 billion for a site on Mt. Nicholson Road in the Peak area, falling short of some surveyors’ estimates. (Source: Bloomberg)
Developers fell in Hong Kong trading after the government tightened mortgage lending rules and said it will increase the supply of land to help cool surging home prices.
Sun Hung Kai Properties Ltd., the world’s biggest builder by market value, dropped 4.1 percent to HK$110 at the 4 p.m. close of trading, its biggest decline since May 25. Cheung Kong Holdings Ltd., controlled by Hong Kong’s richest man Li Ka-shing, declined 2.3 percent.
Property transactions in some of the city’s largest residential complexes slumped by more than half over the weekend, according to Centaline Property Agency Ltd. Financial Secretary John Tsang said the government won’t hesitate to introduce further measures if necessary, after saying on Aug. 13 that home prices are approaching the level of 1997, the height of a previous bubble that was followed by a six-year slump.
The measures “will hurt sentiment on property stocks,” JPMorgan & Chase Co. analysts Raymond Ngai and Ryan Li wrote in a note today. “The market will require a bigger discount for developers on concerns of property bubbles and ongoing policy measures.”
The government has been seeking to rein in home prices that have soared about 45 percent since the beginning of 2009, boosted by mortgage rates at the lowest in two decades and buying by mainland Chinese.
Henderson Land Development Co., the developer controlled by billionaire Lee Shau-kee, declined 3.2 percent to HK$48.45. Sino Land Co. dropped 5.7 percent to HK$13.28, the biggest loser among the seven-member Hang Seng Property Index. The gauge fell 2.6 percent today, bringing its loss this year to 3.9 percent.
Down Payment Raised
Down payments for apartments costing HK$12 million ($1.54 million) or more will rise to 40 percent, from 30 percent, with immediate effect, Hong Kong Monetary Authority Chief Executive Norman Chan said Aug. 13. The government will increase land sales next year, Tsang said.
“The basket of measures will have the effect of stabilizing prices,” said Buggle Lau, chief analyst at property agency Midland Holdings Ltd.
Weekend transactions of used apartments at 10 of Hong Kong’s biggest private residential complexes fell 53.5 percent from a week earlier to 32, Centaline, one of the city’s largest real estate agencies, said in an e-mailed press release.
“The demand-side measures should have an immediate impact on the market,” Mirae Asset Management Ltd. analysts Keith Yeung and Stephanie Lau wrote in a report today. “Speculative activities will come down sharply and developers’ premium pricing capability is likely to be affected.”
Sun Hung Kai, Sino Land
Home prices will fall 10 percent, and Sun Hung Kai and Sino Land are the “most vulnerable” developers because they bought “expensive parcels of land,” according to the Mirae analysts.
Sun Hung Kai on June 8 paid HK$10.9 billion for a residential site in the Ho Man Tin district. The price, which beat a Bloomberg News estimate by 30 percent, is the highest paid in a government auction in urban Hong Kong since the market peaked in 1997.
Sino Land, one of the biggest commercial landlords in the Tsim Sha Tsui district, and K Wah International Holdings Ltd. in December bought two residential sites for HK$10.4 billion in what was then the city’s biggest land auction in almost two years.
Lending Restrictions
Last week’s measures came as Hong Kong’s economy expanded a more-than-estimated 6.5 percent in the second quarter, according to a government report last week, topping the 6.3 percent median forecast of 13 economists in a Bloomberg survey. Hong Kong’s economy will grow between 5 percent and 6 percent for the full year, the government said, revising up a previous forecast.
For properties worth HK$12 million or less, the maximum loan amount will be capped at HK$7.2 million, meaning down payments will increase for any property valued above HK$10.3 million. Luxury homes in the city are defined as those costing at least HK$10 million, or bigger than 1,000 square feet.
Down payments for investment properties will rise to 40 percent from 30 percent, Chan said.
Since the early 1990s, Hong Kong banks have been restricted from lending more than 70 percent of the purchase price of a home, to reduce the risk of loan losses from a market crash. To help the market recover from the 1998 crash, buyers were subsequently allowed to borrow a further 15 percent of their home’s value as long as they obtained mortgage insurance, a move that increased affordability while limiting risk for banks.
Mortgage Approvals
The market has already been cooling, with new mortgage approvals declining to HK$35.4 billion in June, down 6.2 percent from May, according to HKMA data. Some 0.03 percent of mortgage loans were delinquent, while only 310 owners in the city owe more on their homes than their properties are worth.
“Our house view on property developers is ‘cautious’ because the government is determined to curb the overheating real-estate market,” said Steve Tse, a research manager at BEA Union Investment Management. “They don’t want a bubble, and they want to get it under control.”
The average value of new home loans made in June was HK$2.31 million, according to the HKMA.
Hong Kong banks are offering mortgage terms as low as 70 basis points above the one-month Hong Kong interbank offered rate, which is currently at 0.22 percent, according to mortgage broker mReferral Mortgage Brokerage Services.
Land Supply
The government will offer sites for auction next year in the Chai Wan, Hung Hom and Fanling districts, and will work with MTR Corp. and the Urban Renewal Authority to increase land supply, Tsang said. It may also change the purpose of some land to residential, he added. MTR is one of the biggest owners of unoccupied residential sites in Hong Kong.
Most government land sales in recent years have been triggered by developers who promised to pay minimum amounts for sites on a list of available lots under the so-called land application system. Regular government land auctions have been partially resumed this year after they were halted in 2004 to support falling home prices.
Sun Hung Kai has sold about 90 percent of the 715 units at its Larvotto project in the Island South district since sales began in mid-July, Victor Lui, an executive director of the developer’s agency unit, said in an e-mailed statement yesterday. The apartments have been selling for an average of HK$30 million.
Henderson said last week it plans to sell 10 new apartments at its 39 Conduit Road project that are priced at as much as HK$186 million.
Hong Kong raised down payments for flats costing more than HK$20 million to 40 percent from 30 percent in October. The same month the Hong Kong Mortgage Corp. limited home loan insurance to homes of no more than HK$12 million and suspended insurance for homes that aren’t owner occupied. The government also has clamped down on marketing practices it criticized as deceptive.
To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net
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