Bloomberg News

Hong Kong Homes Face Rising ‘Negative Equity,’ Barclays Says

October 31, 2011

(Updates to close property index level in fifth paragraph.)

Oct. 31 (Bloomberg) -- The rising number of Hong Kong homeowners with apartments worth less than their mortgages may further hurt sentiment already damped by the global equity rout and government curbs, according to Barclays Capital Research.

The estimated number of mortgages in “negative equity” jumped to 1,653 at the end of the third quarter from 48 three months earlier, with the value of those loans rising to HK$4.1 billion ($528 million) from HK$58 million, the Hong Kong Monetary Authority said Oct. 28. An index tracking the city’s developers fell today.

The number “provides the first clear evidence of the on- going decline in Hong Kong property prices,” Barclays’ Hong Kong-based analysts Andrew Lawrence and Vivien Chan wrote in a report today. “Further price falls are expected to follow.”

The threat of a global economic slowdown is intensifying risks in Hong Kong’s home market and the government will monitor housing policies designed to curb prices, Financial Secretary John Tsang said Oct. 27. Home transactions fell for a ninth straight month in September, while prices declined 3 percent from June to August, government statistics show.

The Hang Seng Property Index, which tracks the city’s seven-biggest developers, fell 1.6 percent at the close in Hong Kong, the biggest decline among the four industry groups in the benchmark Hang Seng Index. It declined 16 percent this year, compared with the 14 percent drop in the benchmark gauge.

Bank Valuation

Sun Hung Kai Properties Ltd., the world’s biggest developer, fell 1.1 percent to HK$108.40. Cheung Kong Holdings Ltd., the builder controlled by Hong Kong’s richest man, Li Ka-shing, slid 0.4 percent to HK$97.80.

Rising negative equity “suggests that bank valuations for mortgages are falling quickly,” wrote Lawrence, who forecast home prices may drop as much as 30 percent by 2013 in an earlier report. “Homebuyers will either need to use more equity to fund their home purchases or negotiate lower prices.”

The number of negative equity loans last quarter is at the highest since the second quarter of 2009. The figure reached a peak of 106,000 at the end of June 2003, when Hong Kong’s home prices ended a six-year slump that wiped about two-thirds off values on average.

Hong Kong’s Chief Executive Donald Tsang promised to provide more affordable homes and signaled greater government intervention in narrowing social inequality in his Oct. 12 policy address, responding to a public outcry over the more-than 70 percent surge in home prices since early 2009.

The government has in the past year raised minimum down- payment requirements on some home mortgage loans and increased land sales in an effort to curb soaring prices fueled by record low mortgage rates, a shortage of new apartment supply and an influx of buyers from other parts of China. Banks in Hong Kong have raised mortgage rates five times since March.

--Editors: Andreea Papuc, Linus Chua

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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