Hong Kong eases mortgage rules for commercial property

[HONG KONG] Hong Kong's banking regulator said on Wednesday it would relax commercial property mortgage rules, in a move to boost liquidity in a market that has been hit hard by US-China trade tensions, violent street protests last year and the coronavirus crisis.

The change lifts the cap on the loan-to-value ratio for banks providing mortgages for non-residential properties to 50 per cent from 40 per cent, effective Thursday.

Hong Kong Monetary Authority (HKMA) deputy chief executive Arthur Yuen told a press conference the change was designed to make it easier for the commercial sector to obtain mortgages.

Hong Kong's commercial property market, the most expensive in the world, saw a drop in transactions in the first half, with prices of offices and retail premises dropping 15 per cent and 10 per cent respectively from the second half of 2019, and the pressure is likely to remain, according to HKMA.

"This will have a big psychological impact on the market," said Dennis Cheng, senior sales director at Ricacorp (CIR) Properties, of the rule change.

He expects a 20-30 per cent rise in transactions in the next month because investors will not be required to put forward as much cash. However, he did not see a rise in prices, because of low rental yield expectations.

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The HKMA tightened rules on mortgage loans several times after the financial crisis in 2009, amid a property price boom.

Alex Leung, a senior director of CHFT Advisory & Appraisal, said the relaxation would enable banks to rearrange loans to avoid the liquidation of some property owners, especially smaller investors.

REUTERS