Hong Kong Says Loans to Mortgage Firms May Undermine Curbs

Hong Kong banks’ support for mortgage lending by finance companies may reduce the effectiveness of home-lending controls and should be discouraged, the city’s watchdog said.

“If banks provide loans to finance companies to support their mortgage business and these finance companies do not follow the Hong Kong Monetary Authority’s guidelines on property mortgage lending, this may undermine the effectiveness of the prudential measures,” the regulator said in an e-mailed reply to questions. The HKMA “does not encourage banks to provide loans to these finance companies,” it said.

Hong Kong’s government is trying to curb property prices in the world’s most expensive housing market after low mortgage costs, a shortage of real estate and an influx of buyers from mainland China prompted house prices to more than double since the beginning of 2009.

The HKMA asked lenders for information on financing provided to companies that offer mortgages, the Oriental Daily newspaper reported yesterday, citing unidentified people.

Hang Seng Property Index rose 2.2 percent as of the noon trading break in Hong Kong, narrowing its decline this year to 7.1 percent.

Stamp Duty

Hong Kong Chief Executive Leung Chun-ying in February doubled stamp duty on all property transactions higher than HK$2 million ($257,800) and the HKMA tightened mortgage terms for commercial properties and parking spaces.

The regulator also required banks to lower the maximum mortgage loan-to-value ratio on commercial properties by 10 percentage points. It limited the maximum mortgage for parking spaces to 40 percent of the value, with a 15 year-cap on the length of the loan.

Property transactions in the city plunged to a two-decade low in the second quarter as the measures took effect, prompting thousands of real estate agents and industry workers to march in a protest this month, calling on the government to lift the controls.

The regulator “requires banks to submit not only regular statutory returns, but also additional information as and when the situation warrants, so as to enable the HKMA to accurately assess the risks associated with banks’ different lines of businesses,” it said in yesterday’s e-mail.

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