HK mortgage relief fails to revive commercial property
HKMA has raised loan-to-value ratio cap, allowing buyers to borrow more money to purchase office and retail space
Hong Kong
THE Hong Kong Monetary Authority's (HKMA) move to relax loan rules for the first time in more than a decade is unlikely to provide a significant boost for a commercial property market battered by the pandemic and a deep recession.
On Wednesday, Hong Kong's central bank raised the loan-to-value ratio cap for commercial properties to 50 per cent from 40 per cent, allowing buyers to borrow more money to purchase office and retail space. The move went into effect on Thursday.
The uncertainties in the real estate market, including the pandemic and escalating China-US tensions, have prompted banks to be conservative in commercial mortgage lending and have even raised rates recently, said Ivy Wong, the managing director of Centaline Mortgage Broker.
"The measure will not turn the market around" although it will provide some support, she added. "Borrowers are still subject to restrictions like stress tests, and many investors are looking for recovery signs before they make purchases."
The last time the monetary authority lifted the loan limit was in 2009 after the global financial crisis. It was later lowered to 40 per cent in 2013 when the property market was deemed overheated.
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"With business confidence continuing to be affected by the Covid-19 pandemic and the rising geopolitical tensions, non-residential property markets are likely to remain under pressure," the Hong Kong Monetary Authority (HKMA) said in a statement.
It is appropriate to ease the mortgage measures for non-residential properties in the current environment, the central bank added.
The decision is aimed at relieving pressure for property owners who are struggling to repay mortgages as rental income declines, said Thomas Lam, an executive director at Knight Frank.
The relaxation is unlikely to lead to an explosion of loans or a booming property market, Centaline's Ms Wong said.
Unlike the residential market that has been largely resilient thanks to pent-up demand, commercial real estate has taken a hit.
Office and retail space transaction value and volume slumped by 55 per cent and 41 per cent respectively in the first half of 2020 from a year earlier, Savills, a global real estate services provider said.
Prolonged social unrest and travel restrictions due to the pandemic have deterred many overseas investors.
Mainland Chinese buyers, who were the main source of inbound real estate investment over the past decade, were absent in the first quarter, the first time since 2009.
Hong Kong's landlords, who traditionally benefit from their welllocated shopping malls, are also suffering from the effects of Covid-19.
Wharf Real Estate Investment this month recorded a HK$7.4 billion (S$1.31 billion) loss in its portfolio value, and the stock has plunged 35 per cent this year.
The government last week revised its 2020 forecast for the economy to shrink by a record 6 per cent to 8 per cent because of the coronavirus and rising trade tensions. The city has been in recession since the second half of 2019 as a result of sustained protests before the pandemic.
The index tracking Hong Kong's biggest developers fell 2 per cent on Thursday, compared with the 1.8 per cent decline in the city's benchmark Hang Seng Index. BLOOMBERG
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