- Government-backed agency will relax the ceiling on mortgage financing schemes for first-home buyers
- Urban Renewal Authority also given new mission of building more subsidised housing, including starter homes
First-time homebuyers in Hong Kong can now set their sights on more expensive flats under a new measure to relax mortgage rules announced in the policy address on Wednesday, sparking concerns people may take on too much risk in a downward market.
But the city's leader, Carrie Lam Cheng Yuet-ngor, who also announced a new mission for the Urban Renewal Authority to build affordable flats, was quick to dismiss concerns that the move would drive up property prices and put buyers in a difficult financial situation.
Under the new measure, the government-backed Hong Kong Mortgage Corporation will relax the ceiling on mortgage financing schemes for first-home buyers. Purchasers will be able to borrow up to 90 per cent of a property's value to a maximum of HK$8 million (US$1 million), from HK$4 million previously.
"It is an initiative to help those first-time homebuyers who have sufficient income to support a property but do not have enough money to pay for the first lump sum," Lam said at a press conference after her policy address. "I do not feel this is pressurising people to buy and hence that they will be caught in a difficult financial situation."
The stock prices of developers rose immediately after the policy address announcement. New World Development was the top gainer, climbing 4 per cent to HK$10.76. Sun Hung Kai Properties rose 2.9 per cent to HK$115.20 while Henderson Land gained 2.8 per cent to HK$38.25.
Under the new measure, which applies to completed flats only, the lending cap for those who are qualified to borrow up to 90 per cent of the property's value will rise from HK$4 million to HK$8 million. The cap on the value of flats eligible for mortgages of up to 80 per cent will also be raised from HK$6 million to HK$10 million.
General homebuyers can spend up to half of their monthly income on mortgage repayments and have to pass stress tests set by banks. First-time homebuyers can be excluded from the stress test and be eligible for up to 90 per cent loans, subject to an additional 15 per cent premium for mortgage insurance.
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For a buyer taking on an HK$8 million home with a 90 per cent mortgage, the initial down payment will fall to HK$800,000 (US$102,000), compared with HK$2.4 million previously. But the monthly repayment will rise from HK$19,279 (US$2,500) to more than HK$28,900 (US$3,700), based on an effective mortgage rate of 2.625 per cent on a 30-year loan.
Lawmaker Andrew Wan Siu-kin, the Democratic Party's spokesman on housing policy, criticised Lam for misguiding people to become "property slaves".
"Even if people can pay the down payment, how can they afford the repayment each month? And allowing a pass on the mortgage even if a buyer fails the stress test is another poor decision," he said.
But the Real Estate Developers Association welcomed the measure. "It is good as (potential homebuyers) need not to put in a 40 to 50 per cent initial deposit," executive committee chairman Stewart Leung Chi-kin said.
Leung, also chairman of Wheelock Properties, believed home prices would not rebound sharply in the medium to long term if the government offered sufficient land supply.
Joseph Tsang, chairman of property consultancy JLL, said: "Housing prices will be largely affected by the local economy, social movement and global economy in the short-run. These particular factors currently remain in the negative and will offset the positive impact the relaxation of mortgage restrictions should have. Property prices will continue to drop."
To boost the supply of affordable flats, Lam also announced that the government-backed Urban Renewal Authority would take on a new role: building more subsidised housing, including starter homes.
Starter homes target the so-called sandwich class who are overqualified for cheaper subsidised housing but are unable to get into the private property market.
A government source said the authority, which has a budget surplus of HK$40 billion, would be given sufficient resources to carry out its new mission, including land support.
An authority source said it was looking into possible sites in Sham Shui Po, Tai Kok Tsui and To Kwa Wan for building starter homes.
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The authority has been accused of a lack of social responsibility for building mostly unaffordable luxury homes in partnership with private developers, after taking back old sites for redevelopment.
The authority said in a statement it welcomed the new housing initiatives and would start relevant research. The authority would also bring in more resources to implement the measures, it added.
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