SHKP offers 120pc mortgages to upgradersTop News | Dominique Nguy 16 Jun 2016
Sun Hung Kai Properties yesterday launched the highest ever leverage mortgage plan that allows buyers to borrow 120 percent of the property value for its new project Park Yoho Venezia in Yuen Long.
The 120 percent mortgage plan will be offered to buyers who already own a flat that is worth at least 70 percent of the value of the new flat.
To acquire a new flat at Park Yoho Venezia, buyers will first have to make a 5 percent downpayment. The remaining 95 percent of the purchase price can be made by mortgaging the buyer's existing property to SHKP's financial company.
Similar arrangements have previously been adopted by other developers. But in this case, SHKP will additionally lend a sum equivalent to 25 percent of the price of the new flat to enable buyers to repay the mortgages on their existing properties.
There were a few cases of mortgages that exceeded 100 percent in the 90's, but they have not appeared again in the past 10 years," Midland Realty residential chief executive Sammy Po Siu- ming said.
"This might be the first time I've seen a 120 percent mortgage plan."
The mortgage plan is initially for three years and buyers are not required to pass an income test.
The interest rate for the first three years will be P minus 2.8 percent (P at 5 percent) and buyers will only have to make interest payments in the first 12 months. For the second and third years, buyers will have to make principal and interest payments, with a monthly payment of about HK$22,000 for the lowest-priced flat valued at HK$4.33 million.
After the first three years, buyers can apply to extend the repayment period of the mortgage to up to 25 years with the developer's financial company - but the interest rate will increase to P minus 1 percent, which would increase the monthly payment to about HK$24,000.
However, buyers applying for the extension will have to pass an income test, with their monthly income having to surpass HK$48,000. The plan gives buyers more time to save and pay the mortgage - but it could also be understood to be postponing the risk for three years.
If home prices are on a downward trend by that time and buyers are unable to repay their mortgages in full within three years or take up mortgages from banks, they will have to extend their repayment period with the developer's financial company and make repayments with a higher interest rate.
SHKP deputy managing director Victor Lui Ting said the 120 percent mortgage plan aims to help improve the living environment for homeowners who want to upgrade flats but lack sufficient downpayments.
SHKP is not the only developer offering high loan-to-value ratio mortgage plans. Henderson Land Development offered 95 percent mortgage plans to buyers of its Wellesley project in Mid-Levels.
In February 2015, Hong Kong Monetary Authority lowered the maximum loan-to-value ratio on mortgage loans offered by banks for residential properties valued below HK$7 million from 70 percent to 60 percent.
The counter-cyclical measures are aimed at strengthening the resilience of banks and borrowers to cope with any impact if property prices fall. But Andy Kwan Cheuk-chiu, director of the ACE Centre for Business and Economic Research, said "certain financial companies are not subject to HKMA's regulation."
And he warned: "With mortgage plans going up to 120 percent, buyers run the risk of negative equity if there is a recession."
The Sales of First-hand Residential Properties Authority said that, according to the residential properties (first- hand sales) ordinance, vendors must set out the terms of payment, discounts and financial advantages in the price lists.
An HKMA spokesman said "[as a bank regulator], we do not comment on mortgage loan offered by individual developers." The Estate Agents Authority said it does not regulate property developers.