Hong Kong eases mortgage rules to address property slump

Hong Kong has introduced new measures to alleviate its prolonged property market slump by easing mortgage rules.

The city will raise the loan-to-value (LTV) ratio for all residential properties to 70%, up from 60%, effectively reducing the required downpayment for homes valued at over HK$35 million ($4.5 million).

Chief Executive John Lee announced the changes in his policy address on Wednesday, noting that the LTV ratio for company-held properties will also be increased to 70%.

These new measures are aimed at stimulating the city’s sluggish property market, which has been under pressure from high borrowing costs, an oversupply of housing inventory, and a weakening economy.

The adjustments take effect immediately, according to a statement from the Hong Kong Monetary Authority (HKMA).

Eased mortgage rules in response to softening property market

In its statement, the HKMA cited the recent softening of the property market as a factor behind the decision to ease mortgage rules.

“There is room to further adjust,” the authority said, pointing to the downward trend in home prices over recent months.

The changes are expected to provide some relief to homebuyers who have struggled with high downpayment requirements amid the city’s ongoing economic challenges.

In addition to the mortgage rule adjustments, the government is expanding its New Capital Investment Entrant Scheme to include real estate investments.

Under the new regulations, investments in homes valued at HK$50 million or above will qualify for the scheme, with the amount of real estate investment counted toward the total capital investment capped at HK$10 million.

Positive market reaction, but limited long-term impact expected

Following the announcement of these measures, the Hang Seng Property Index, which tracks the performance of major real estate companies in the city, rose as much as 3.9%, outperforming the broader Hang Seng Index.

However, market analysts caution that the impact of these changes on the overall residential market will be limited.

Thomas Chak, head of capital markets and investment services at Colliers International, noted that while the expanded home investment policy may attract high-net-worth individuals to the city and boost luxury property transactions, it is unlikely to have a significant impact on the general housing market.

"The focus on high-end properties does not address the broader affordability issues faced by most residents," Chak added.

Challenges remain despite easing measures

Hong Kong’s real estate market has been struggling in recent months, facing multiple headwinds, including high interest rates, weak economic growth, and a glut of unsold homes.

Even with a recent reduction in interest rates, the market has not experienced the rebound that many had hoped for.

Developers continue to price new projects modestly to absorb demand, but with used-home values falling below pre-rate cut levels, residential prices are expected to remain under pressure.

According to Bank of America Corp., the backlog of unsold residential properties in Hong Kong has reached a 20-year high.

Outlook for the property market

While the government’s latest measures may provide a temporary boost, long-term challenges persist.

The oversupply of housing, coupled with modest demand, suggests that residential prices will likely remain subdued in the near term.

Without significant economic recovery or further government intervention, the city's property market may continue to face a bumpy road ahead.