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Property News Weekly Digest
2018/9/29
〈Taipei Times, September 29, 2018〉Hong Kong is the place most at risk of a property bubble, according to a ranking from UBS Group AG. Munich, Toronto, Vancouver, Amsterdam and London are the next most vulnerable in the bank’s Global Real Estate Bubble Index of 20 major centers for this year.

Prices rising at an average of 35 percent in major cities over the past five years have contributed to a "crisis of affordability," the bank said. "Most households can no longer afford to buy property in the top financial centers without a substantial inheritance."

Still, the risks are more contained than in the run-up to the global financial crisis, since mortgages are growing more slowly than during that period, and there is no evidence of "simultaneous excesses" in lending and construction, the bank said.

Investors "should remain selective within housing markets in bubble-risk territories such as Hong Kong, Toronto and London," UBS Global Wealth Management chief investment officer Mark Haefele said in a statement.

The first cracks in the global housing boom have appeared, the report said, citing price declines in four of the eight cities listed as bubble risks last year: Sydney, Stockholm, London and Toronto.

〈ET News, Sptember 29, 2018〉 S&P Global Ratings today said that the end of excess liquidity in Hong Kong will likely be the turning point for the property market. The credit rating agency anticipates prices could drop 5%-10% over the next 12 months, from the peak in the third quarter of 2018.

Rated developers should have ample buffers to withstand weakened buyer affordability anddebt serviceability, which will almost inevitably follow a hike in interest rates. But some mainland Chinese companies and other developers that paid high prices for Hong Kong land in the past one to two years could face negative surprises on margins.

"We believe the solid financial positions and diverse business models of large rated developers in Hong Kong will provide some protection against a slight market downturn," said S&P Global Ratings analyst Cindy Huang. "But not all companies have such strong footings. The most affected are likely to have high project concentration or be new marketentrants that incurred steep land costs."

As monetary conditions tighten, interest rates will likely continue to rise. This follows the first hike in 12 years in prime lending rates by major banks on 27 September 2018, by an eighth of a percent.

"Abundant liquidity has been a key factor driving up property prices in Hong Kong, but this support is now receding. While an interest hike has long been anticipated and the increase is marginal, it suggests that the decade long ultra-loose monetary conditions areover," said Huang.

A quick decline in deposit growth stretched the Hong Kong dollar (HK$) loan-to-deposit ratio to 85% in July 2018 from 77% at the end of 2016. Hong Kong banks are therefore facing higher funding costs to attract deposits.

〈The Standard, September 28, 2018〉Three of Hong Kong’s biggest banks yesterday raised their lending rates for the first time in 12 years, ending an age of cheap cash that could hit the territory’s famously red-hot property market.

The announcement sparked a government warning about the effects on borrowers in the city, while the de facto central bank warned of "uncertainties."

The moves by HSBC Holdings PLC, Standard Chartered PLC and Hang Seng Bank Ltd came after the Hong Kong Monetary Authority lifted its borrowing costs following an increase by the US Federal Reserve.

The authority is required to lift rates in line with the Fed owing to the US dollar peg.

HSBC and Hang Seng each boosted their lending rate 12.5 basis points to 5.125 percent, while Standard Chartered lifted its rate from 5.25 percent to 5.375 percent.

"Today’s change in rates marks the start of the normalization cycle for local interest rates and we believe Hong Kong is well prepared for the change," said Diana Cesar, HSBC’s chief executive officer in Hong Kong.

More of the territory’s commercial banks are expected to hike their prime rate, meaning higher mortgage payments for loans that are linked to it.

"The super-low interest rate environment in Hong Kong probably will finish. Going forward, interest rates will go up," Hong Kong Financial Secretary Paul Chan said.

"Higher interest rates will add to the burden of homeowners with mortgages," Chan added, urging investors to "exercise caution in managing their investment and risks."

Prior to the rates hike Chan had written on his blog that the property market had shown signs of cooling in recent weeks.

〈The Standard, September 27, 2018〉Home mortgage costs will rise following the increase in the prime rate by nine major banks yesterday, and Hong Kong faces the biggest risk of a property bubble.

The monthly payment of a HK$1 million mortgage will increase HK$63 for a 25-year loan period, representing a 1.4 percent increase in interest expense, said Centaline Mortgage Broker managing director Ivy Wong Mei-fung.

The increase in the prime rate requires a higher household income for buyers to pass the stress test, Wong said, adding a 30-year mortgage loan will become mainstream as costs increase.

If the interest rate rises 75 basis points, with median household income remaining unchanged, the housing affordability ratio will worsen to 70 percent, the highest in 20 years, said Sharmaine Lau Yuen-yuen, mReferral's chief economic analyst.

Ricacorp Mortgage Agency said it expects banks will further boost the prime rate to 3.25 percent by the end of next year, which represents a 14 percent increase in mortgage costs.

For instance, the monthly payment on an 80 percent mortgage loan for a HK$4.25 million flat will increase from HK$13,000 to HK$14,800 for a 30-year repayment period. That would also mean the interest expense will amount to HK$650,000 for the whole period, 50 percent more than before the rate increase.

Buyers with household income of less than HK$36,600 won't be able to pass the mortgage stress test if the prime rate is to increase 100 basis points from 2.25 percent to 3.25 percent, Ricacorp Mortgage Agency managing director Wong Wing-yan said.

〈Asian Post, September 26, 2018〉Hongkongers flocked to get a look at the city's first batch of half-priced affordable housing yesterday, with the cost of flats starting from HK$1.18 million.

Applications for the 4,431 affordable flats, to be sold at half the market rate, open from October 3 to 16. The flats range from 278 sq ft to 631 sq ft, with prices between HK$1.18 million and HK$4.68 million.

They will be in three government-subsidised housing estates - Hoi Lok Court in southwest Kowloon, Kai Long Court in Kai Tak, and Yu Tai Court in Tung Chung.

About 20 people were already queuing up before the Housing Authority's customer service centre in Lok Fu opened at 8am yesterday to collect application forms and look at show flats. The authority is the city's largest public-sector housing provider.

"I came because these flats are cheaper than the previous subsidised flats," 34-year-old housewife Gloria Chau Lei-man said.

"I've been living with my husband, my son and my sister. Now my sister's getting married, we want to move out so we don't have two families living in the same home."

The batch of flats previously opened for applications in March and April, at 30 per cent off the market prices. But Chief Executive Carrie Lam Cheng Yuet-ngor announced a new pricing system for subsidised flats in June that would further slash prices to half of market rates.