Negative equity hammers over 40,000 households

Caroline Zheng

The number of residential mortgages in negative equity - where the loan is bigger than the value of the home - rose 34.4 percent quarter-on-quarter and past the 40,000 mark at the end of September, the highest level in nearly 21 years.

However, experts believe the number may come down thanks to a series of supportive measures to boost the property market from the latest policy address as the rate-cut cycle kicks off.

At the close of the third quarter, an estimated 40,713 cases of negative equity were reported - the highest since December 2003 - data from the Hong Kong Monetary Authority showed yesterday.

This was up from 30,288 cases at the end of June, an increase of more than 10,000 in just three months and 2.6 times more compared to a year ago.

The aggregate value of these loans also jumped to HK$207.5 billion in September from HK$155 billion in June.

Negative-equity loans accounted for 11.06 percent of the total value of outstanding mortgage loans as of September, with the unsecured portion of the debts increasing to HK$15.8 billion from HK$10 billion in June.

These cases were related to bank staff housing loans or loans under mortgage insurance programs, which generally have a higher loan-to-value ratio, the HKMA said.

Private home prices have slumped by 7.5 percent so far this year and are about 28 percent below the all-time high in September 2021.

First-time homebuyers can borrow up to 90 percent of the price of a property with a cap of HK$10 million. This means if prices drop by more than 10 percent, owners will be in negative equity, or owing more on a mortgage than the value of their home.

Home prices are expected to stabilize by year-end, potentially helping reduce negative equity cases, said Eric Tso Tak-ming, chief vice president of mReferral Mortgage Brokerage Services.

Though such cases jumped last quarter, credit risks from it will remain under control given the still low delinquency ratio, an HKMA spokesperson said.

The three-month delinquency ratio of these loans edged up to 0.13 percent at the end of September from 0.11 percent three months earlier. The HKMA also said mortgage loans approved in September sank 20.6 percent to HK$17.3 billion compared with August, as the number of applications declined by 15.9 percent to 4,977.

This came as the Hong Kong government recorded a deficit of HK$226 billion for the six months that ended September.

Separate data from the HKMA showed that Hong Kong dollar deposits climbed by 0.9 percent in September, with yuan deposits in the city rising by 0.2 percent during the period.

In addition, the Exchange Fund - the war chest used to defend the local currency - saw total assets grow 3.8 percent to HK$4.13 trillion by the end of September from a month ago.