Moody’s Says Hong Kong Property Rebound Adds to Banking Risks

  • Hong Kong home sales rose to 15-month high in September
  • Competition continues to pressure mortgage loan pricing

Hong Kong’s property market rebound creates potential risks for the mortgage books of the city’s banks, according to Moody’s Investors Service.

“Banks will face even higher latent risks in future mortgage underwriting, as their valuations catch up with market trends, and as competition continues to pressure loan pricing,” Moody’s analysts led by Sherry Zhang wrote in a report dated Oct. 6. “Despite the brief housing correction between September 2015 and March 2016, which saw average prices fall 11%, most fundamental indicators still show property prices at historically high levels, with affordability low.”

Hong Kong home sales rose to the highest level in at least 15 months in September, government figures released Tuesday show. The number of homes sold reached 7,826 with a value of HK$56 billion ($7.2 billion), according to figures on the Hong Kong Land Registry’s website. That’s up from the 5,821 units that changed hands in August, with a value of HK$40.6 billion.

Demand from buyers has slowly recovered since home sales fell to a 25-year low in February, spurred by aggressive discounts offered by Hong Kong developers. They are also providing mortgages worth as much as 120 percent of a property’s value.

“The residential property market has stabilized since the second quarter, but the outlook has become more uncertain in the face of the increase in new housing supply and the uncertain global financial environment,” the Hong Kong Monetary Authority said in a report last month. The authority said housing affordability remained stretched, with the housing price-to-income ratio stayed close to the peak in 1997.

The low affordability combined with the rebound in transactions increases "the prospect that new mortgages originated under these conditions could be substantial," the Moody’s analysts said.

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