Non-bank lenders in HK charging up to 20pct as mortgage demand soars

Hong Kong’s non-bank lenders are thriving as regulators place curbs on banks, adding to the risks in the city’s hot housing market.
Homebuyers are flocking to companies like Hong Kong Finance Group Ltd., which has seen a 15 percent surge in mortgage inquiries after bank loans were capped Feb. 27. Developers also are teaming with finance companies to fund buyers faced with soaring home prices and smaller loans from traditional lenders.
Non-bank lenders in Hong Kong have been booming since regulators began restricting bank mortgages in 2009. Last month, the Hong Kong Monetary Authority capped loans at 60 percent of the value of a property costing less than HKD7 million (USD900,000), down from 70 percent. Non-banks, which charge interest rates eight times higher than traditional lenders and offer 90 percent financing, are seizing the opportunity created by mortgage rules.
“In the past, a 70 percent loan was more than enough,” said Sharmaine Lau, chief economic analyst at mReferral Mortgage Brokerage Services. “But with higher prices today and tightened policies, homebuyers have to find a solution.”
Hong Kong has the least affordable market in the world, with the median home price climbing to 17 times household income, according to an annual study by consultancy Demographia. Homebuyers in the former British colony have taken on more debt as prices surged 13 percent to a record last year, driven by gains in smaller properties.
The number of new mortgages approved during December surged 56 percent to 7,606 from a year earlier, according to monetary authority data, as low interest rates and record rents fuel demand. Mortgage rates have been falling since 2011, averaging 1.95 percent in January, according to mReferral data.
Non-banks, whose lending isn’t regulated by the monetary authority, have been proliferating. There are about 1,352 such lenders in the city of 7.3 million people compared with 784 about four years ago.
Business has been brisk for Hong Kong Finance Group. Its mortgage portfolio expanded 53 percent to HK$501.9 million last year through September despite its high interest rates. The lender charges about 10 percent to 15 percent for new loans and as much as 20 percent for second mortgages, its chief executive officer Dickson Tse said in an interview.
“Money lenders have traditionally been focused on personal lending, instead of mortgage loans,” Tse said. But “over the past six years, Hong Kong’s mortgage measures have been giving us business opportunities.”
At mReferral, home loans for 80 percent to 90 percent of a property’s value rose to 15 percent of all mortgages, up from 9.6 percent in 2008. The mortgage broker is a joint venture between realtor Midland Holdings Ltd. and Cheung Kong Holdings Ltd., the developer controlled by the city’s richest man, Li Ka-shing.
The broker is offering 90 percent financing for the first 30 homebuyers at Cheung Kong’s newest project. The loans come with an interest rate of only 2.2 percent in the first year and increases incrementally to 3.75 percent.
Apartments at the La Lumiere, one of the most recent developments to go on sale, are about 430 square feet and start at HK$5.8 million, after a 15 percent discount. Winchesto Finance Co., which is owned by Cheung Kong, is also providing mortgages for La Lumiere of up to 80 percent of the property price.
Cheung Kong sold all 108 apartments it offered for sale at La Lumiere on Saturday, according to its website.
On a recent Sunday morning, Matthew Wong said developer financing appeals to him as he waited to look at a La Lumiere display flat. Tired of paying a big chunk of his income on rent – HK$15,000 a month for a 420 square-foot apartment – he and his partner are looking for their first home for HK$6 million or less.
“We would want to do the 90 percent loan plan if it makes sense,” said Wong, who is in his late twenties. Monthly mortgage payments ideally would be not much more than their rent, he said.
Loans from developers typically come with incentives, such as an interest-free period, said Ivy Wong, managing director at Centaline Mortgage Broker.
“It’s essentially a project discount,” Wong said. Developers have always offered financing, “but as policy measures build up, they’re becoming more popular.” Michelle Yun and Alfred Liu, Bloomberg