HK negative equity cases double, reach 19-year high

This week, despite stagnant property prices, Hong Kong's number of negative equity cases has continued to climb, reaching 25,163 in the fourth quarter of 2023 and hitting a new high in nearly 20 years.

According to data, there were about 11,120 cases in the third quarter of 2023, rising to 25,163 cases in the fourth quarter, a quarterly increase of 126 per cent. The total mortgage amount more than doubled, rising from HK$59.2 billion to about HK$131.3 billion. Meanwhile, the unsecured portion of these loans rose threefold, to HK$7.3 billion.

According to Eddie Yue, chief executive of the Hong Kong Monetary Authority, the delinquency ratio of the Mortgage Insurance Programme currently sits at just 0.02 per cent. In other words, only one out of every 5,000 loan cases are negative equity cases; suggesting the risk is controllable. Yue added that the Authority would review market conditions and make adjustments where necessary. However, it’s expected that housing prices will continue to fall in the first half of the year, and that the number of negative equity cases will exceed 30,000.

Meanwhile, the potential supply of first-hand flats has reached a record high. According to the Housing Bureau, the anticipated supply of new units over the next three to four years is 109,000.

As of the end of December last year, the number of completed flats reached 20,000 units, and there were 71,000 unsold flats under construction, with both figures recording record highs. Additionally, there were 18,000 flats awaiting the start of construction.

Next, the property market has seen a mix of trends, skewing slightly towards the negative. US Federal Reserve Chair Jerome Powell stated that interest rate cuts may not occur until after March.

However, industry experts have pointed out that even if the U.S. reverses course and cuts interest rates this year, Hong Kong may not necessarily follow. The rationale is that during the current cycle of interest rate hikes, Hong Kong's prime rate has only risen by 0.875%, which is significantly less than the 5.25% increase in US interest rates. Therefore, there may not be an immediate need for Hong Kong to match US rate cuts.

Turning to the second-hand market now, with less than a week until Chinese New Year, many have been preparing to wind down for the holiday, leading to fewer property viewings and quiet second-hand trading.

Over the weekend, loss-making transactions continued to dominate the market. We then review three transactions that illustrate this trend.