HK’s mortgage loans drop 40% in October

Source : Business Times - 27 Nov 2008

Hong Kong mortgage loans fell for a third month in October as banks tightened lending amid an economic slowdown and a freeze in global credit.

Banks in Hong Kong approved some HK$13.7 billion (S$2.7 billion) of new mortgage loans last month - 40 per cent less than a year earlier, figures from the Hong Kong Monetary Authority (HKMA) show. Loans fell 5.9 per cent from September, the central bank said yesterday.

Hong Kong home prices have slumped at least 22 per cent from their March peaks, according to Centaline Property Agency, and the number of people whose homes are worth less than their outstanding mortgages more than doubled in the third quarter. The collapse of Lehman Brothers in September deepened the global credit crunch, pushing the Hong Kong interbank lending rate to its highest in almost a year on Oct 13.

‘Rising unemployment will spread to other industries in Hong Kong, dealing a bigger blow to the economy and the property sector,’ Citigroup analysts Tony Tsang and Marco Sze said in a Nov 18 report.

The outlook for mortgage lending may worsen as unemployment rises. HSBC Holdings, which has the biggest bank network in the city, this month cut 500 jobs in Asia and said that most of these would be in Hong Kong as the economy slows.

The proportion of new loans approved at more than 2.5 per cent below the best lending rate almost halved to 51.7 per cent in October, from 94 per cent a year earlier and 83.1 per cent in September, HKMA figures show.

The so-called best lending rate is 5 per cent at HSBC, Hang Seng Bank and BOC Hong Kong (Holdings). The benchmark lending rate at Standard Chartered and Bank of East Asia is 5.25 per cent.

Hong Kong’s economy this month entered its first recession since the outbreak of the deadly Sars epidemic in 2003 as the global financial crisis cut exports and spending cooled, forcing the government to lower its full-year growth forecast.

Gross domestic product shrank a seasonally adjusted 0.5 per cent in the third quarter from the previous three months, the government said on Nov 14. The measure fell 1.4 per cent in the second quarter. The decline was more than the median estimate of a 0.2 per cent drop in a Bloomberg News survey of six economists.

The number of homeowners with apartments worth less than the mortgages they borrowed - negative equity - almost doubled in the third quarter to an estimated 2,568 cases worth HK$6 billion, the HKMA said.

The number of negative equity loans is still about 98 per cent less than the peak of 106,000 cases at the end of June 2003, when the city’s economy was battling the effects of the severe acute respiratory syndrome outbreak.

Still, not all the news is gloomy. Hong Kong existing home sales posted a fourth consecutive weekly gain last week as falling prices lured buyers who have previously shunned the city’s property market.

Transactions at 10 of Hong Kong’s biggest private apartment projects rose to 44 in the week ended Nov 23, from 39 a week earlier, according to figures compiled by Centaline, one of the city’s biggest real estate agencies. Home prices have fallen 22.4 per cent since reaching a near 10 year-high in March, according to Centaline figures.