Moody's Says Rebound in HK's Property Market Negative for its Bank
October 6, 2016
Moody's Investors Service says that the rebound in Hong Kong's property market is a negative development for the territory's bank, despite the strengthening impact it will bring to existing collateral buffers and developers' credit profiles.
"Banks will face even higher latent risks in future mortgage underwriting, as their valuations catch up with market trends, and as competition continues to pressure loan pricing," says Sherry Zhang, Moody's Analyst.
"Despite the brief housing correction between September 2015 and March 2016, which saw average prices fall 11%, most fundamental indicators still show property prices at historically high levels, with affordability -- expressed in the price-to -income ratio -- as already highly stretched." Zhang wrote.
"The price-to-income ratio remains higher than its previous peak in 1997, and transactions have also rebounded strongly in recent weeks, increasing the prospect that new mortgages originated under these conditions could be substantial," adds Zhang. "Nevertheless, banks' current direct property exposures, which include mainly their mortgage loans and loans
to property developers, should remain resilient."
Another risk from further property price appreciation is that it would prompt more buyers to turn to non-bank credit channels, such as finance companies or developers, to circumvent the loan-to-value (LTV) caps on their mortgages, the rating agency said.
The current market revival will likely stop developers from offering gimmicky schemes to attract buyers, as some did during the lull earlier this year. Yet, it could also accelerate the already rising use of remortgages/second mortgages from finance companies, which runs the risk of pushing effective leverage for some buyers to well above current bank guidance.
By staff writer, AsiaPropertyMarketReview News
Article Published on : October 7, 8:00 am GMT+800
Article Last Updated : October 5, 10:10 am GMT+800