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262 Cases of Negative Asset; The First Time in Two Years.

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2019-02-01-(Fri)
【28Hse.com】  
Rating and Valuation Department (RVD) Index has fallen for 5 months by 9.2% from the peak.

Hong Kong Wen Wei Po (By Yan Lunle)

The latest RVD index in last December had fallen for 5 months by 9.2% from the peak in last July, and the index in last month was down 2.4% comparing with the previous one. Negative asset cases appear again after a long time, along with the falling of property price. 262 cases of negative asset were registered in the fourth quarter of 2018 including HKD 1.189 billion, which was firstly show after the fourth quarter of 2016, Hong Kong Monetary Authority announced yesterday. The industry insider estimated the negative asset may up to 10 thousand cases if the property price falls back by 10%.

Recently, some flat prices have fallen by 15%, resulting in a small number of bank staff using 90% mortgages become negative asset, and some mortgage agencies estimated that newly negative asset cases challenges 1,000 cases in the first quarter of this year, returning to the level of the first two quarters of 2016, due to the fact that many prospective buyers used high-percentage mortgages when buying first hand property last year leading them become "high-risk negative asset", industry pointed. Historically, the most negative asset appeared in 2003, when property prices fell 70% from high level in 1997, with the negative asset cases were as high as 105,700 cases involving over HKD 165 billion of outstanding loans.

Negative asset are mainly bank staff borrowing loan.

The 262 negative asset cases recorded in the fourth quarter of last year amounted to HKD1.189 billion, or an average of about HKD 4.538 million per case, which broke zero for the first time in seven quarters, and the previous term appeared negative asset was the fourth quarter of 2016, when the newly negative asset were 4 cases. Many of the newly negative cases involved bank staff’s mortgage loan or mortgage insurance scheme loan, the mortgage rate of which kind of loan is generally higher, the authority pointed.

Hong Kong's stock and property markets have come under significant pressure since last year's sino-us trade war, and the property market down further in the third quarter, resulting in a recurrence of negative asset cases in the fourth quarter of last year, the Chief Vice President of mReferral Mortgage Brokerage, Liu Yuanyuan expressed. It is worth noting that the negative asset number released by the HKMA only refer to the first mortgage loans provided by Banks and do not include secondary residential mortgage loans, so the current number may not reflect negative asset cases in the whole Hong Kong.

Tang wenliang: Negative assets rise to 10 thousand cases if property price down another 10%.

Current over 200 cases are legal negative equity, while more are hiding in finance companies and real estate developers, the Senior Investor, Tang Wenliang expressed. Theoretically, the situation that negative asset appeared when property price only falls slightly under countercyclical measure, but in fact many people used high percentage mortgage, leading the actual negative asset will exceed 10 thousand cases at any moment if property price down more 10%, he pointed.

In the first eight months of last year, property prices rose more than expected, and many developers launched new projects with high percentage mortgage schemes, offering loans of up to 90% or even 100%, also users of such schemes are at high risk in cases of negative asset, Liu Yuanyuan reminded. Although Hong Kong property market transaction volume has recovered, but there is still no obvious rise in property prices, and it is believed that the new negative asset cases in the next quarter will challenge 1,000 cases, returning to the level in the first two quarters of 2016, Liu predicted.

In fact, in recent years, many developers have offered high percentage mortgages to attract prospective buyers, such as Upper East in Hung Hom which had provided mortgage up to 95% in three years ago. In recent years, many developers and financial companies launched mortgage in 80% or above. Like Mayfair By The Sea 8 being put on sale in this January and The Carmel in Tuen Mun all supply 80% for the first mortgage, and The Regent in Tai Po supplies 85% for first and secondary mortgage, furthermore, there was new project in last year provided up to 100% for mortgage.

High percentage mortgage cases are high-risk of becoming negative asset.

This kind of high-percentage mortgage can indeed save the first installment of the expenditure, but the interest expense will be high in the future, and borrower can resell or change mortgage if the property market rises. However, it is impossible to get away by changing mortgage if unfortunately come across the falling cycle, so borrower can only sell unit, or undertake the high interest.

The appearance of negative asset mainly involved the bank staff using high percentage mortgage and a small number cases using mortgage insurance scheme loan, because decline of some units are up to 15%, the Managing Director of Centaline Mortgage Broker, Wang Meifeng expressed. The property market is stable recently, so she believed the rising of negative asset in the first quarter this year will just slightly. Moreover, in recent years, buyers who have taken high-percentage mortgages are mainly take 80% mortgages. Basically, property prices need to fall by more than 20% before they are likely to become negative assets.
Translated by 28Hse.com . All right reserved.