HKMA Introduces 80% Mortgage for Pre-Sale Buyers
On December 4, the Hong Kong Monetary Authority (HKMA) announced a one-time special measure aimed at helping buyers of pre-sale residential properties who opted for construction-period payment plans between 2021 and 2023. The new policy allows banks to provide up to 80% mortgage loans and raises the debt-to-income ratio cap to 60%, offering flexibility to buyers struggling with financing due to falling property valuations.
Over the past three years, Hong Kong's residential property prices have dropped by more than 25% from their peak. Many buyers of pre-sale properties during this period are now facing situations where the appraised value of their property is lower than the transaction price. This has caused difficulties in securing adequate mortgage loans, forcing buyers to cover larger-than-expected down payments.
For example, a buyer who purchased a property for HK$10 million during the market's peak might now see its value drop to HK$7.5 million. Under the new measure, buyers can secure a mortgage of up to 80% of the appraised value, which would amount to HK$6 million. However, without the policy, buyers would face significant shortfalls in their financing.
Mortgage industry insiders note that while this policy offers relief to buyers, it comes with caveats. Some banks may adopt more aggressive property valuations to facilitate loans, which could benefit buyers but lead to higher interest rates. For instance, if a bank values a property at HK$9 million, it could lend up to HK$7.2 million (80% of the valuation). However, if the loan exceeds the property's current market value, buyers may immediately fall into negative equity.
According to Centaline Mortgage, the new measure reduces the burden on buyers with pre-sale properties who might otherwise face large shortfalls in down payments. She highlighted that the raised mortgage cap helps prevent contract defaults, which would have destabilised the market. For example, a buyer purchasing a property for HK$15 million, now valued at HK$12.75 million, would typically need to cover a HK$1.575 million shortfall. With the new policy, they can borrow up to HK$10.2 million, significantly easing their financial strain.
Mortgage broker mReferral acknowledged the policy’s potential to prevent widespread defaults, which could have caused severe disruption to the property market. He noted that while some buyers may fall into negative equity, the ability to secure financing and continue making payments is preferable to losing deposits or facing lawsuits from developers for defaulting on contracts.
The HKMA’s special arrangement intends to provide support for pre-sale property buyers facing valuation challenges, ensuring smoother transactions and preventing large-scale defaults. While it may lead to risks such as negative equity for some buyers, experts believe the measure is a necessary step to stabilise Hong Kong’s property market amid economic uncertainty.