Residential properties in negative equity have made a comeback in Hong Kong for the first time in two years as home prices suffered a correction amid the trade war between China and the United States.
The Hong Kong Monetary Authority (HKMA) said on Thursday its survey found 262 cases of residential mortgage loans (RMLs) in negative equity – the value of the property fell below the outstanding balance of the mortgage used to buy the property – in the fourth quarter of last year.
That’s the first time the surveyed institutions have reported negative equity cases since the end of December 2016, the HKMA said.
The combined value of the RMLs reached HK$1.189 billion as of the end of last year, with the unsecured portion of the loans amounting to HK$58 million, the Hong Kong Economic Journal reported.
The HKMA said most of the cases involved bank staff housing loans and those under the mortgage insurance program, which have higher loan-to-value (LTV) ratios.
The Hong Kong Mortgage Corp. said there were 60 negative equity cases connected to the insurance program it offers. All of them had an LTV ratio of 90 percent and their combined outstanding amount was HK$200 million, which accounted for 0.18 percent of the amount that has not been paid back to the program.
Some industry insiders estimated that the actual number of negative equity cases could be higher than that unveiled by the HKMA, which only covered first mortgage loans but and did not include second mortgages.
Some financing companies and developers have also offered mortgages with high loan-to-value ratios and some of the deals that have turned negative cases might have not been taken into account, industry insiders said.
According to mReferral Mortgage Brokerage Services, Hong Kong’s property market has been under pressure since the start of the Sino-US trade war, and the price correction has intensified since the third quarter of last year.
Sharmaine Lau Yuen-yuen, chief vice president of the company, predicted that the number of new negative equity cases this quarter is likely to reach 1,000, which was last seen in the first and second quarters of 2016.
Ivy Wong Mei-fung, managing director of Centaline Mortgage Broker, was a little more optimistic, saying that most of the mortgages with high LTV ratios in the past one to two years have an LTV ratio of 80 percent.
A surge in negative equity cases may not necessarily materialize unless home prices fall over 20 percent, Wong said.
Meanwhile, data from the HKMA showed that the number of mortgage applications in December fell by 21.2 percent to 7,435 from a month earlier, while the value of mortgage loans approved in the same month declined by 20.7 percent to HK$23.5 billion.
Wong expected the number of mortgage applications to have increased again in January. although the value of the loans may remain weak.
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