Hong Kong tighten rules on bank loans for property developers
Hong Kong imposed stricter restrictions on bank lending to developers, warning there was a need to review credit risks posed by property companies in one of the world’s most expensive real estate markets.
Home prices in Hong Kong have more than quadrupled since 2003, according to a government index, while the median monthly household income has risen just 61 % in that time, pushing home ownership out of reach for many.
The Hong Kong Monetary Authority (HKMA), the city’s de facto central bank, said that to strengthen credit risk management with respect to lending to developers, banks can only lend them a maximum 40 percent of a site value instead of 50 percent, effective June 1.
Also, the cap on construction cost financing would be lowered to 80 percent from 100 percent, it said, while the overall lending cap would be reduced to 50 percent of the expected value of a completed property, down from 60 percent.
Mainland Chinese companies have piled into Hong Kong property, outbidding some of the territory’s most powerful developers and helping to propel prices ever higher.
The HKMA said it was common for property developers to offer home buyers mortgage financing with high loan-to-value ratios to promote sales, a trend that was increasing at a rapid pace.
It said lending practices adopted by some developers were inconsistent with the prudent lending practices followed by banks.
Denis Ma, head of research at property consultancy JLL’s Hong Kong office, said the measures announced on Friday were unlikely to have much impact on Hong Kong’s large local developers, who were mostly cash-rich.
The HKMA moves “will affect (mainland Chinese) and smaller local developers the most, as these guys rely more heavily on financing for their projects compared with the local heavyweights,” Ma said.