Aspiring homebuyers need to assess the risk
- The real estate market is recovering slowly, but a big rebound is a distant hope with the Hong Kong Monetary Authority warning rates may stay high
Home mortgage holders hoping for relief from high interest payments have been disappointed. The Hong Kong Monetary Authority has warned rates may stay high for longer.
The US Federal Reserve, whose benchmark rates are tracked by Hong Kong through the US dollar peg, no longer sounds hawkish.
However, it has pointed to higher labour costs and persistent inflation so it may hold rates at current levels longer before any cut.
The Hong Kong real estate market is recovering slowly, but a big rebound in the short term is a distant hope.
The number of homeowners in negative equity – meaning their mortgage loans are worth more than the market prices of their homes – stood at 32,073 in the first quarter, the most since about 40,000 cases were recorded in the first quarter of 2004.
The total value of such loans rose to HK$165.3 billion (US$21.1 billion), compared with HK$131.3 billion at the end of December.
A bit of good news is that local property prices rose slightly by 1.06 per cent in March, the first increase in 11 months following the removal of all cooling measures in the government budget.
But prices are still 13.2 per cent lower than almost a year ago and 23 per cent down from an all-time high in September 2019. So far this year, they have slipped by 1.8 per cent.
Homebuyers who took out a high loan relative to the value of their property in recent years are especially exposed to negative equity.
Meanwhile, a backlog of new home supplies means developers have continued to sell them at lower prices. That has put pressure on the second-hand property market and kept lenders cautious in their valuations.
Hong Kong homeowners, though, are legendary at being steadfast in keeping up mortgage payments. Overall delinquency ratio at the end of March was just 0.09 per cent and that for negative equity at 0.06 per cent.
That devotion to homeownership is a big psychological factor that helps to maintain the local market.
But in this difficult-to-predict interest rates environment, aspiring homebuyers need to carefully assess and manage the relevant risks in making any purchase with an affordable mortgage.
