BT : HK property stocks hit by tighter mortgage lending rules

Business Times - 17 Aug 2010

HK property stocks hit by tighter mortgage lending rules

(HONG KONG) Developers fell in Hong Kong trading after the government tightened mortgage lending rules and said it will increase the supply of land to help cool surging home prices.

Sun Hung Kai Properties Ltd, the world's biggest builder by market value, dropped 4.1 per cent to HK$110 at the 4pm close of trading, its biggest decline since May 25. Cheung Kong Holdings Ltd, controlled by Hong Kong's richest man Li Ka-shing, declined 2.3 per cent.

Property transactions in some of the city's largest residential complexes slumped by more than half over the weekend, according to Centaline Property Agency Ltd. Financial Secretary John Tsang said the government won't hesitate to introduce further measures if necessary, after saying on Aug 13 that home prices are approaching the level of 1997, the height of a previous bubble that was followed by a six-year slump.

The measures 'will hurt sentiment on property stocks,' JPMorgan & Chase Co analysts Raymond Ngai and Ryan Li wrote in a note yesterday. 'The market will require a bigger discount for developers on concerns of property bubbles and ongoing policy measures.'

The government has been seeking to rein in home prices that have soared about 45 per cent since the beginning of 2009, boosted by mortgage rates at the lowest in two decades and buying by mainland Chinese.

Henderson Land Development Co, the developer controlled by billionaire Lee Shau-kee, declined 3.2 per cent to HK$48.45. Sino Land Co dropped 5.7 per cent to HK$13.28, the biggest loser among the seven-member Hang Seng Property Index. The gauge fell 2.6 per cent yesterday, bringing its loss this year to 3.9 per cent.

Down payments for apartments costing HK$12 million (S$2.1 million) or more will rise to 40 per cent, from 30 per cent, with immediate effect, Hong Kong Monetary Authority chief executive Norman Chan said on Friday. The government will increase land sales next year, Mr Tsang said.

'The basket of measures will have the effect of stabilising prices,' said Buggle Lau, chief analyst at property agency Midland Holdings Ltd.

Weekend transactions of used apartments at 10 of Hong Kong's biggest private residential complexes fell 53.5 per cent from a week earlier to 32, Centaline, one of the city's largest real estate agencies, said.

'The demand-side measures should have an immediate impact on the market,' Mirae Asset Management Ltd analysts Keith Yeung and Stephanie Lau wrote in a report. 'Speculative activities will come down sharply and developers' premium pricing capability is likely to be affected.' Home prices will fall 10 per cent, and Sun Hung Kai and Sino Land are the 'most vulnerable' developers because they bought 'expensive parcels of land,' according to the Mirae analysts.

Sun Hung Kai on June 8 paid HK$10.9 billion for a residential site in the Ho Man Tin district. The price, which beat a Bloomberg News estimate by 30 per cent, is the highest paid in a government auction in urban Hong Kong since the market peaked in 1997.

Sino Land, one of the biggest commercial landlords in the Tsim Sha Tsui district, and K Wah International Holdings Ltd in December bought two residential sites for HK$10.4 billion in what was then the city's biggest land auction in almost two years.

Last week's measures came as Hong Kong's economy expanded a more-than-estimated 6.5 per cent in the second quarter, according to a government report last week, topping the 6.3 per cent median forecast of 13 economists in a Bloomberg survey. Hong Kong's economy will grow between 5 per cent and 6 per cent for the full year, the government said, revising up a previous forecast.

For properties worth HK$12 million or less, the maximum loan amount will be capped at HK$7.2 million, meaning down payments will increase for any property valued above HK$10.3 million. Luxury homes in the city are defined as those costing at least HK$10 million, or bigger than 1,000 square feet.

Down payments for investment properties will rise to 40 per cent from 30 per cent, Mr Chan said.

Since the early 1990s, Hong Kong banks have been restricted from lending more than 70 per cent of the purchase price of a home, to reduce the risk of loan losses from a market crash. To help the market recover from the 1998 crash, buyers were subsequently allowed to borrow a further 15 per cent of their home's value as long as they obtained mortgage insurance, a move that increased affordability while limiting risk for banks.

The market has already been cooling, with new mortgage approvals declining to HK$35.4 billion in June, down 6.2 per cent from May, according to HKMA data. Some 0.03 per cent of mortgage loans were delinquent, while only 310 owners in the city owe more on their homes than their properties are worth.

'Our house view on property developers is 'cautious' because the government is determined to curb the overheating real-estate market,' said Steve Tse, a research manager at BEA Union Investment Management. 'They don't want a bubble, and they want to get it under control.' - Bloomberg

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