First relaxation of bank mortgage financing policies since 2009
- HKMA relaxed bank mortgage financing policies for the first time since 2009, after the Financial Secretary hinted at a policy fine-tuning two weeks ago.
- We think transactions for flats valued at HK$12m-30m should benefit the most from the revised mortgage financing policies.
- We believe the chance for further policy relaxation still exists, if home prices correct in 2H23F. Our sector top picks: SHKP, CK Asset, Sino Land.
Highlighted Companies
CK Asset Holdings Limited
ADD, TP HK$59.20, HK$42.20 close
Its HK$5bn net cash as at end Dec-22 should help it replenish its land bank and undertake M&As at a low cost amid the slowdown in the global economy; the strong net cash position should also enable flexible capital management action e.g. share buybacks, in our view.
Sino Land Co Ltd
ADD, TP HK$12.20, HK$9.32 close
With end-Dec 22 net cash of US$5.3bn, it has greater flexibility in land bank acquisitions and M&A activities vs. peers, in our view. It also stands to benefit more from higher interest income than its peers
due to its huge net cash position, on the back of rapid interest rate hikes.
Sun Hung Kai Properties Ltd
ADD, TP HK$136.2, HK$93.6 close
Sun Hung Kai Properties (SHKP) is a leader in both development properties (DP) and investment properties (IP) in HK, in our view. Supported by its abundant saleable resources, SHKP has reiterated
its contracted sales target of HK$35bn for HK DP in FY6/23F.
First relaxation of mortgage financing policies since 2009
On 6 Jul 2023, the Hong Kong Monetary Authority (HKMA) announced several measures to reduce the downpayments for property purchases, with immediate effect. The measures include 1) raising the loan-to-value (LTV) ratios for residential mortgage loans (RML) granted by banks in HK that are without a mortgage insurance plan (MIP) from HK Mortgage Corporation (HKMC) – to 70% for flats valued up to HK$15m, and to 60% for flats valued up to HK$30m; 2) raising the LTV ratios for RMLs granted by banks in HK with an MIP from HKMC – to 80% for flats valued up to HK$15m (loan amount up to HK$12m), to 70-80% for flats valued up to HK$17.15m (loan amount up to HK$12m), and to 70% for flats valued up to HK$30m (loan amount up to HK$21m); 3) HKMA to provide first-time homebuyers a special premium concession for flats valued up to HK$15m, by waiving the premium on insurance coverage for the RML portion not more than 5% above the maximum LTV ratio for banks (effectively, zero premium for RML with 70-75% LTV ratio); 4) raising the LTV ratio for non-residential properties from 50% to 60%. Please refer to Figs 2-3 for a summary of policy changes and our calculations on certain changes.
To mildly boost transactions of mid-to-large-sized flats
The measures come after Financial Secretary Paul Chan hinted two weeks ago that there is room to fine-tune HK’s mortgage policies to reduce the financial burden of homebuyers. This is the first reduction of downpayment for residential properties in 14 years, i.e. since 2009. Based on our analysis, as illustrated in Fig 4, flats valued at HK$12m-30m (i.e. midto-large-sized flats) should benefit the most as homebuyers would now pay 40-44% less downpayment than before. Overall, we believe the transaction volume for flats valued within this range should pick up gradually for the rest of 2023F. Meanwhile, Paul Chan stressed that the HK government has no plan to relax the “harsh measures” related to additional stamp duties (e.g. Buyer’s Stamp Duty) in the near term, as these were aimed at curbing non-local or multiple home purchases. Even so, we believe the chance for further policy relaxation still exists, if home prices correct in 2H23F should interest rates stay “higher for longer”. We expect HK’s secondary home prices to rise 0-3% in 2023F, which translates to 2-5% declines in 2H23F after a c.5% increase in 1H23.
Primary home sales of Kerry and HLD could see a boost
Of all the developers we cover, we assess that Kerry and HLD have the highest exposure of unsold flats within the HK$12m-30m range (based on our projection). Hence, we believe the primary transactions of these developers could experience a boost in 2H23F.
Reiterate sector Neutral; top picks: SHKP, CK Asset, Sino Land
We keep our sector Neutral rating for HK property. While we remain relatively positive on the retail and residential segments, we stay cautious on the HK office segment. One of our top picks is SHKP as it has the largest portfolio of development properties readily available for sale among HK developers. We also like CK Asset and Sino Land for their strong balance sheets which would enable them to tap the land market at attractive land costs during a property market downcycle. Key sector downside risks are higher-than-expected interest rates in HK, and lower-than-expected growth in mainland Chinese property buyers. Key sector upside risks: further relaxation of policies for the property market by the HK
government.
Summary of mortgage financing policy changes announced by HKMA on 6 Jul 2023
- For residential mortgage loans (RML) granted by banks in HK without a mortgage insurance plan (MIP) from HK Mortgage Corporation (HKMC) – the loan-to-value (LTV) ratios have been raised to 70% for flats valued up to HK$15m and to 60% for flats valued up to HK$30m.
- For RMLs granted by banks in HK with a MIP from HKMC – the loan-to-value (LTV) ratios have been raised to 80% for flats valued up to HK$15m (loan amount up to HK$12m), to 70-80% for flats valued up to HK$17.15m (loan amount up to HK$12m), and to 70% for flats valued up to HK$30m (loan
amount up to HK$21m). - HKMC will provide first-time homebuyers with a special premium concession for flats valued up to HK$15m, by waiving the premium on the insurance coverage for the RML portion not more than 5% above the maximum LTV ratio for banks (effectively, zero premium for RML with 70-75% LTV ratio).
? Raising LTV ratios for non-residential properties from 50% to 60%.
