* Financing business, developers providing 90 pct-plus
home loans * No authorities data tracking financing business’ property
loans * HK repossessions rise, unfavorable equity escalates * China slowdown, stock exchange plunge contributing aspects * Ratings company raised concern of danger with HK central
bank By Clare Baldwin HONG KONG, June 17 House repossessions in Hong
Kong have been increasing and are most likely to get speed as more
owners default on high-interest loans from unregulated loan providers
in a weak economy, according to specialists in distressed
building. The area’s authorities do not officially track
repossessions however data from the de-facto central bank, the Hong
Kong Monetary Authority, shows that there are a growing number
of houses that are worth less than the quantity paid for them. The
variety of homes undersea reached a five-year high of 1,432 at
completion of March, and the $4.9 billion ($ 631 million) of
properties worried is the highest because the global monetary
crisis in 2009. At the end of December, there were simply 95 cases
worth HK$ 418 million. Non-bank finance business have seen an increase in
overdue loans since the 4th quarter of in 2014 and
repossessions are also now getting. Members of the Hong Kong
Home Finance Association (HKPFA) now have about 10
delinquencies per 100 loans made, compared with 5-6 in 2014,
and foreclosures are performing at around 4 per 100, up from 2-3 in
2015, according to its Chairman Alfred Lam. For a graphic on negative home equity in Hong Kong, please
see: tmsnrt.rs/ 1WMjtTZ For a city that counts on property-related companies for
about a fifth of its economy, any significant distress in the
home market would be a body blow. Hong Kong’s gross
domestic product contracted 0.4 percent in the very first quarter
from the last quarter of 2015, struck by falling exports and weak
customer spending as a faltering Chinese economy took a toll. It might likewise set off concerns about whether the HKMA
should get a tighter grip on non-bank financing. Banks are heavily managed in the Chinese territory. Seven
rounds of home sector cooling measures introduced by the
HKMA because 2009 have actually cut the main loan-to-value ratio on
homes – the optimum amount a bank is permitted to
lend on a building – to a maximum 60 percent, and as low as 40
percent in some circumstances.
But the exact same does not apply to fund firms and realty
designers. And purchasers have in current years got around the bank
rules by getting loans from these other sources and borrowing
up to 90 or 95 percent of the value of the building. In some
cases they are even being offered the possibility to borrow more than
One Hundred Percent of the value. That is great when costs are rising however it does not take much
of a decline to put these borrowers under water – which has actually been
occurring as the Hong Kong economy has had a hard time and house costs
have dropped 11 percent from a September 2015 high. Hong Kong
home debt is likewise at a record high of nearly 70 percent,
according to the Bank for International Settlements. COLLATERAL CONCERNS The scenario is worsened by the repeated usage of
houses for security in other uncontrolled transactions,
including loans for stock trading. “More people (are) using their properties as collateral,”
stated AA Building Solutions Handling Director Tsang Kit-chun, who
auctions foreclosed buildings. “Those who suffer a loss from
the stock exchange are unable to pay back the home mortgages.” AA has auctioned about 80 foreclosed homes
this year and is anticipating to auction more than 200 by year end,
Tsang said There were just about 100 such auctions last year.
Another major Hong Kong auction home, CS Auctioneers, likewise said.
it expected foreclosures to increase with a worsening economy.
Hong Kong real estate investor Jacinto Tong, whose business
Wind Well Group has more than HK$ 35 billion purchased the
property and industrial home markets, stated high interest
rates demanded by finance companies was a major threat. Tong, who
released a book on the stresses in Hong Kong’s domestic
building market in 2014, stated there were currently about 1,000
properties where purchasers had actually missed out on payments and lenders had the
right to foreclose. The distress is progressively quickly, he states. Tong alerts
that by the end of the year, there could be missed out on payments on
15,000 buildings, with financing business foreclosing on about
10,000. His quote is based upon the variety of buildings that
home loan firms have actually informed him are pending transfer to other
finance business – which he said frequently implies the borrowers
can’t make the original payments. LITTLE OPENNESS The financing business generally charge between 10 and 30
percent interest compared with 2 percent from banks, and their
loans normally last 1-5 years instead of banks’ 20 or 30
years. They typically offer home mortgages to people who banks have
turned away since they do not have a stable earnings or can’t.
prove it. A few of those analysing the issue state they do not rely on the.
official information to provide a complete picture of the leverage in the.
home loans sector. The HKMA information is likewise 17 months old – the.
last time it determined financing companies’ bank loans remained in.
December 2014, prior to the worst of mainland China’s economic.
downturn and the marketplace crash that cleaned a 3rd off the value.
of its stock markets.
” I don’t think there’s a great deal of transparency. It is a.
issue,” stated Moody’s Investors Service Elder Expert Sonny.
Hsu, who called financing business a “blind spot” and just recently.
raised the problem with the Hong Kong Monetary Authority (HKMA).
and a variety of banks, who he said offered him spoken assurances it.
wasn’t a systemic issue. In its most recent released statements on the concern in the.
spring of 2015, HKMA minimized the danger postured by financing.
companies in the home sector. It said the overall value of banks’ credit centers to.
financing companies was less than 0.4 percent of overall loans and.
that the overall value of loans with building as security was.
HK$ 9.2 billion, representing no more than 1 percent of.
exceptional residential mortgages. However, it likewise acknowledged the data left out “a large.
variety of other finance companies” that do not have relationships.
with banks. When requested for updated information, an HKMA representative said in a.
written reply that the bank did not control financing business.
however neither did such business have a “systemic ramification”. The representative likewise said that the HKMA had actually recommended banks.
last year to cut line of credit to fund business providing above.
HKMA standards and to lower debt servicing ratios for customers.
who went beyond certain leverage thresholds. PULLING BACK As much as 10 percent of the market might be operating outside.
of the HKMA guidelines, according to brokerage Ricacorp. 5 years.
earlier, there were simply over 800 registered financing business,.
according to the Companies Computer registry. Now there are more than.
1,600. The situation is extreme enough making finance business.
relieve back, stated HKPFA official Lam. “Nowadays I seldom see financing business finance as much as 70.
percent of the property value since 70 percent today next.
month is perhaps already 75 percent and 3 months later on is 80.
percent,” Lam stated. Still, a few of the greatest building developers seem less.
scared. One, Henderson Land Advancement Co Ltd,.
just recently began promoting novice home mortgages of as much as 95.
percent in collaboration with an unnamed financing business. Another,.
Sun Hung Kai Properties Ltd, has begun advertising.
loans worth 120 percent of the home value.
( Reporting by Clare Baldwin; Additional reporting by Teenie Ho,.
Saikat Chatterjee, Tris Pan and Sharon Shi; Modifying by Martin.