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Hong Kong may lower home down-payment levels, BofA's Ngai says

[HONG KONG] The Hong Kong Monetary Authority will probably relax restrictions on down payments for home buyers this year if prices continue to drop, according to a Bank of America Corp property analyst.

"It's likely to happen," Raymond Ngai, head of Greater China property research at Bank of America's Merrill Lynch unit, said at a news briefing Tuesday. "Prices have fallen 8 per cent since September and with another 5 to 10 per cent drop you may see the HKMA relax restrictions."

That would signal an unwinding of macro-prudential measures on loan-to-value ratios that the monetary authority started implementing in 2009. Analysts including Alfred Lau at Bocom International Holdings Co. are predicting home prices could fall as much as 30 per cent this year as the supply of properties increases and speculative pressure on the Hong Kong dollar pushes up short-term interest rates.

The most recent tightening by the HKMA was in February last year, when it increased the minimum down payment on properties valued at less than HK$7 million (US$900,000) to 40 per cent from 30 per cent. It also required buyers of homes worth more than HK$10 million to put down 50 per cent, up from 40 per cent.

"I don't think we need to pay a 40 or 50 per cent down payment if prices correct 10 or 15 per cent," said Ngai. "Banks are very safe with loan-to-value ratios," he said, predicting required down payments could fall to the 30 per cent to 40 per cent band.

The one-month Hong Kong interbank offered rate jumped to a three-year high of 0.277 per cent Tuesday. That means potentially higher borrowing costs to home owners, as more than 80 per cent of new mortgages in Hong Kong are tied to Hibor.

Other measures to manage demand, including stamp duties that can add as much as 23 per cent to the cost of buying a luxury apartment by foreigners, will remain in place for some time, Bank of America's Ngai said.

BLOOMBERG