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  • Hong Kong Housing Woes

    Hong Kong Housing Woes

    Number of Mortgages in Negative Equity Has Grown, Data Show


    more in Real Estate Main ยป

    HONG KONG -- The number of Hong Kong home mortgages in negative equity jumped to 2,568 cases between June and September as tumbling property prices took a toll on homebuyers.
    According to statistics from the Hong Kong Monetary Authority, the city's banking regulator, the aggregate value of the outstanding mortgages in negative equity jumped to six billion Hong Kong dollars (US$774.1 million) at the end of September, from HK$1.7 billion three months earlier, when there were 936 such cases.
    The increases come as brokers and analysts forecast further declines in home prices here, as the once-buoyant economy is hit by layoffs in the banking, retail and tourism sectors. HSBC Holdings PLC said last week it would lay off 450 of its Hong Kong employees. Hong Kong's government announced Nov. 14 that the city had entered a recession, complete with a rising jobless rate and the looming prospect of deflation.
    The number of mortgages that are "underwater" -- homes that are now worth less than the money owed on them -- is still a far cry from the peak of about 106,000 cases during Hong Kong's 2003 recession, triggered by the outbreak of severe acute respiratory syndrome.
    There was some good news: the HKMA pointed out that the loan-to-value ratio of the home loans in negative equity dropped to 107%, from 112% at the end of June, while the percentage of delinquent borrowers fell to 0.08%, from 0.61% at the end of June.
    However, that percentage could increase as home values continue to fall. Hong Kong home prices surged some 40% toward the end of 2007 as buyers, enticed by low mortgage rates of about 3%, piled into the market. Now, with the stock market draining investor wealth and banks increasingly reluctant to lend in the face of a tight interbank loan market, property brokers say homebuyers have disappeared from the market.
    "This is a very sentiment-driven market, and I don't think we've seen the worst," said K.K. Fung, managing director at broker Jones Lang LaSalle in Hong Kong, who predicts prices will fall an additional 35% next year and will only begin to rebound in the second half of 2010. "Anything before the end of 2009 is very optimistic, in our view," Mr. Fung said.
    Leland Sun, chairman of Hong Kong-based Pan Asian Mortgage Co., predicted the number of underwater mortgages would continue to rise as property prices continue to fall.
    Still, the prospect of widespread defaults is slim, as Hong Kong homebuyers typically put down at least 30% of their home values to secure their loans. Also, analysts point out that many of the conditions in Hong Kong these days are fundamentally different from those during the Asian financial crisis of 1997-1998, when a flood of new housing supply hit the market, and home prices fell as much as 70%.
    This time around, the pain will be more limited, with mortgage rates near historic lows, households assuming less leverage on their mortgages and a dearth of new housing supply on the market.
    "People will usually pay their mortgage off first, and default on their credit cards and other unsecured loans," Mr. Sun said. "For most Hong Kong people, they still need a place to live, and so usually property will be the last thing they will miss a payment on."
    Friday's statistics were drawn from a quarterly HKMA survey of home lenders that represents about 98% of the industry total, though it omits those with co-financed home loan programs.

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