Market Watch

Back to index

Mortgage matters

Whether you want to buy real estate in Hong Kong right now or are waiting for house prices to drop further, the big banks are vying for your financial commitment with numerous attractive packages, says Helen Dalley

‘‘Like many other banks based in the city, the maximum mortgage loan amount at HSBC is capped at 95 percent subject to the mortgage loan type’’

With one of the most sophisticated mortgage markets in Asia, obtaining finances to purchase real estate from Hong Kong banks has always been a straightforward business, and this still holds true despite the global downturn. Even though a number of lenders - including HSBC and ICBC - raised their mortgage rates by 50 basis points in September, taking the mortgage rate from 2.7 percent to 2.9 percent, the Hong Kong Monetary Authority (HKMA) followed by cutting the base rate by 50 basis points (equivalent to 0.5 percent), with the clear aim to boost the financial market.

Hong Kong added HK$7.754 billion to the money system at the end of October to prevent the city’s currency from strengthening beyond its fixed exchange rate, and to control inflation.

More specifically, with so many banks still offering attractive mortgage packages, there is something of a price war waging as lenders seek to offer prospective customers the most competitive deals. So who should you trust, if you are on the look out for a loan?

As a global banking giant, HSBC naturally offers a comprehensive range of mortgages. In addition to the standard loan, it offers Deposit-linked Mortgages (preferential interest rate equivalent to the mortgage loan interest rate for a specified number of deposits), HighAdvance Mortgages (to minimise the deposit amount) and Investor Mortgages, which count rentals and assets as sources of income. The bank also provides a Trading Up service, which provides buyers with a bridging loan, so that they can put down a deposit on their new home before closing the sale of their current home.

Like many other banks based in the city, the maximum mortgage loan amount at HSBC is capped at 95 percent subject to the mortgage loan type. Pricing for standard mortgages is currently P-2 percent with a 0.5 percent cash rebate for loans under HK$1.5 million and P-1.75 percent with a 0.2 percent cash rebate for loans over HK$1.5 million.

In a further bid to attract would-be homeowners, HSBC is now offering a waiver of six months’ premiums on HSBC’s HomeSurance, Fire Insurance and Mortgage Protection Plan. Existing clients can also benefit, as they can top up their mortgage by as much as 70 percent of the property’s current value.

Like HSBC, Singaporean bank DBS also offers several attractive mortgage plans, including the HIBOR (Hong Kong Interbank Offered Rate) Mortgage Plan, and the 95% Mortgage Plan. The lender is also giving young investors a leg-up on the property ladder with a plan called Mortgage 1-2-3, which offers lower repayments for first-time buyers aged 30 or under and an interest rate of P-3 percent per annum. This plan can help reduce repayments by up to 17 percent, says the bank.

The Bank of China is also offering the 95% Mortgage Plan - a permanently popular choice in Hong Kong where deposits are considerable due to the high price of property - as well as a Preferential Mortgage Plan, which provides competitive interest rates. For added flexibility, the bank has devised the All You Want Mortgage Plan, which enables you to make extra payments whenever you like. The Smart Mortgage Plan, meanwhile, helps mortgagers yield higher wealth returns through a deposit account with the same interest rate as that applied to their mortgage account. The Bank of China is also promoting its Government Housing Scheme Mortgage Plan, and offering lending packages via its Home Ownership and Tenant Purchase Scheme.

Wing Hang Credit, meanwhile, remains a popular choice with local mortgage hunters. Notoriously practical about buying property in Hong Kong, it recommends that buyers don’t rule out aging properties. Like many other banks, it provides a free telephone valuation service.

Despite the recent economic woes, including a 12.7 percent drop on the Hang Seng at the end of October, the Hong Kong property market remains in relatively good shape. It’s largely unaffected by the stock market, as 93 percent of buyers are not investors but end users. According to HSBC’s latest figures, for example, favourably located properties such as Taikoo Shing and City Garden in North Point continue to hold their value. From August to September 2008, properties here went up from HK$6,879 per square foot to HK$7,422 per square foot and HK$5,812 per square foot to HK$7,230 per square foot respectively.

Over the same period, however, prices at Heng Fa Chuen in the eastern district, and South Horizons in Ap Lei Chau dropped (HK$6,428 per square foot to 5,764 square foot and HK$5,659 square foot to HK$5,448 square foot respectively), proving that, as many experts predict, house prices are set to fall over the coming months.

Prices for mainstream residences may fall by about 20 percent next year, and in the luxury sector by as much as 30 percent, asserted Nicole Wong, Head of Hong Kong and China Property Research at the Credit Agricole SA unit, at a recent briefing in the city.

As 71 of the largest banks in the world have an operation in Hong Kong, from local firms such as Hang Seng to UK multinational Standard Chartered, there are certainly no shortage of lenders to approach if you are in the market for a mortgage. With the stock market looking unstable, buying property seems like an increasingly sound investment, particularly as Hong Kong house prices are predicted to fall in both the luxury and mainstream sector. In such uncertain economic times, however, be aware that lenders may further increase their mortgage rates.