The Devil is in the Details: Easing Mortgage Restrictions


As Carrie Lam emphasised homeownership issues in her 2017 Policy Address, various financial officers have changed their tone to join the chorus. Last month, Financial Secretary Paul Chan, for the first time, publicly expressed that he would consider getting the Hong Kong Mortgage Corporation onboard to allow Hongkongers to buy homes with smaller down payments.

However, Chan is caught in a big dilemma. Despite seven years of cooling measures, home prices have continued to soar. In the past, the down payment ratio for properties under HK$4 million was 10%, and 20% for homes valued at HK$4.5 million, however, it is now virtually impossible to find starter homes under this value. As more expensive homes require higher down payments - a major obstacle for homeseekers - there has been a lot of talk about loosening mortgage restrictions. Moreover, the increased property supply still does not remotely meet the demand and so the severe imbalance persists. Therefore, easing mortgage restrictions could mean skyrocketing prices and create an even more out of control situation.

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It’s no secret that the core problem is supply. Part of increased land supply comes from land reclamation, which typically takes at least a decade, and this isn’t including objections from environmentalists. In the short-term, what the government can do is to release secondary home supply and facilitate the process of home ownership. For example, the government should offer a discount on stamp duty and a high mortgage ratio of up to 80% for those who currently own one property and are looking to switch homes.

The more benefits the government can offer, the more effective this kind of easing can be. Homeowners will take advantage of the favourable policies and trade off their small units for bigger ones, and an increase number of small units will lead to a healthier property market overall.

On the other hand, certain tax benefits should be tightened and only offered to genuine first-time homebuyers. There have been reports of corporate bosses, who previously purchased all their properties under their companies’ names, buying billion-dollar homes at The Peak, posing as first-time homebuyers, thus saving millions of tax dollars. Obviously, a loophole exists and needs to be fixed.

The above suggestions are just some of my humble thoughts. I would love to see government officials tackle the problem from all possible angles to lead us out of this real estate conundrum. If the government simply loosens the price cap of homes valued at HK$4 million to HK$5 million, though it seems easy and direct, it’ll inevitably send out a message of lifting the stringent cooling measures.

With two varying suggestions, one which focuses on loosening and the other on tightening, however, their end common goal is to restructure the homeownership process to make homes accessible and affordable for those who really need them, echoing Lam’s governance philosophy in investing in homeownership policies.

>> Previous issue: Real Estate Market Outlook 2018