Surging developer mortgages draw Hong Kong central bank scrutiny

[HONG KONG] The Hong Kong Monetary Authority has urged greater vigilance among the city's banks that provide financing to property companies, as developers have become more aggressive in offering mortgages to attract home buyers.

"Developers providing mortgages to home buyers will indirectly increase banks' potential credit risks," HKMA Deputy Chief Executive Arthur Yuen wrote in an article posted Monday on the group's website. "We have been in communication with banks to study whether we will need appropriate measures to strengthen risk management over banks financing developers that provide high mortgage lending." Sun Hung Kai Properties Ltd, Hong Kong's largest developer by property value, is offering mortgages worth as much as 120 per cent of a home's value at one of its projects. The developer joins other rivals trying to attract buyers in a market that has seen a correction of more than 13 per cent since prices peaked in September. Henderson Land Development Co, Kowloon Development Co and Cheung Kong Property Holdings Ltd started offering financing of up to 90 per cent last year as prices started to decline.

Property developers in Hong Kong are not subject to the same constraints in lending as banks, which fall under the purview of the HKMA. Developers have been able to circumvent government cooling measures which restrict traditional bank mortgages on properties costing less than HK$10 million (about US$1.3 million) to 60 per cent of their value.

BLOOMBERG