Easing mortgage caps is dangerous

Editorial | Mary Ma Jan 10, 2018
It's worrisome to hear senior financial officials talking about the possibility of easing mortgage restrictions.

First, it was Hong Kong Monetary Authority chief executive Norman Chan Tak-lam. Now, it's Financial Secretary Paul Chan Mo-po telling lawmakers that the government is waiting for the right opportunity to raise the mortgage caps.

Obviously, it's only a matter of time before the current mortgage curbs are relaxed to conform with Chief Executive Carrie Lam Cheng Yuet-ngor's wish - as laid out in her maiden policy speech - to let more cash-strapped homebuyers climb on the housing ladder.

The intention is appreciated, but the timing isn't. If it's done now or in the near future, the result can be horrendous.

Under the current caps, homebuyers may borrow, with the help of a mortgage insurance scheme, up to 90 percent to acquire properties priced at HK$4 million or less, and up to 80 percent for flats of between HK$4 million and HK$6 million.

The financial secretary stopped short of saying how much the limit would be relaxed when he spoke at the Legislative Council, but some market players are calling for the caps to be boosted to HK$5 million and HK$10 million, respectively.

Perhaps both Chans were aware of the risk involved, and therefore spoke of their support for a relaxation - with hints of reservations.

The idea is scary indeed, for this can be a very wrong signal to be sent out at a very inopportune time.

As Paul Chan indicated, home prices are now double their 1997 levels. While this is common knowledge, what he didn't say is that prices are about five times their 2003 trough, according to the Centa-City Leading Index.

Neither did he mention the average monthly salary during the period rose only about 50 percent, from HK$10,382 in 2003, to HK$15,702 in 2017.

That amount of personal income increase couldn't have spurred the five-fold spike in the housing market. It's all because of seemingly endless capital from elsewhere - primarily from the mainland.

Elevating the mortgage caps may enable cash-strapped homebuyers to get onto the ladder, but increased demand will also jack up home prices at the bottom rung, meaning buyers will end up paying more for nothing extra.

Worse still, developers will supply more cubicles - even smaller than the notorious micro-studios - to suit the mortgage caps. Is this the situation the government wants?

If top policymakers insist on relaxing the mortgage curbs, they should at the same time specify in land leases that developers cannot build units more miniscule than a certain size.

The ultimate solution rests in the north. Can the government convince Beijing to raise the drawbridge on capital flight?

Otherwise, no matter how much new housing supply there will be in Hong Kong over the next few years, the units will be snapped up as soon as they're put on the market.

Easing the mortgage caps without insulating the local sector from gigantic external influence will expose cash-tight prospective homebuyers to even greater danger.

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September 2018