Hong Kong banks are becoming more cautious in their mortgage lending, particularly for incomplete projects built by smaller developers.
HSBC, Bank of China (Hong Kong), Hang Seng Bank, Bank of East Asia (BEA) and Standard Chartered are among lenders that have stayed away from mortgages for uncompleted units at Kwai Hung Group’s Mangrove development, according to sources familiar with the matter. All 130 units at the development in Hung Hom will be up for sale this Saturday.
Mortgages for “incomplete units are not being approved. If you choose the [45 days] Cash Payment Plan [for incomplete units], that probably will not be approved”, said a staffer handling phone enquiries for Mangrove.
“When the bank processes mortgage applications for new projects, it will depend on different factors such as the closing period and market conditions,” a Hang Seng spokesman said in an email.
BEA said it would not offer mortgages for incomplete flats at Mangrove. “Mortgage applications for uncompleted flats take time to process,” a spokesperson said. “As a result, we do not offer this type of mortgages for the Mangrove, as [that of] this project is to be completed in 45 days.” However, the bank said it “do provide mortgages for this project on a legal charge basis”, which are those drawn down when the flats are completed.
The city’s overall number of mortgages for completed homes in the first eight months of this year jumped 23.3 per cent year on year to 64,777, according to mReferral Mortgage Brokerage Services. That of incomplete units, however, sank 22.9 per cent year on year to 3,900.
“This is the first time in Hong Kong’s history that large banks have refused to take mortgages for cash payment plans [applicable to incomplete units] at the same time,” said Raymond Chong, founder and CEO of mortgage broker StarPro Agency. “It is believed to be due to the recent cases of abnormal delays in the delivery of a number of new properties, and even the cancellation of a presale consent of an incomplete project.”
A presale consent is needed from the government before a developer can start selling a project before its completion. Grand Homm, a luxury residential project developed by a unit wholly-owned by the Chinese tycoon Pan Sutong in the Ho Man Tin residential area of Kowloon district, had its presale consent cancelled on August 27.
The delivery of China Evergrande’s Emerald Bay Phase 2 in Tuen Mun was delayed from mid-August to mid this month. Some banks reportedly stopped providing new mortgages to buyers of incomplete flats in this project and The Vertex in Cheung Sha Wan in July.
A Hong Kong Monetary Authority spokesperson said on Thursday that it does not comment on individual cases, and whether a bank provides mortgage services with respect to a property project was a commercial decision of the bank’s.
As there is no existing property to be used as collateral for mortgages of incomplete units, for banks the risk of such mortgages is higher than those for completed units, said Ivy Wong, managing director of Centaline Mortgage Broker. Banks always evaluate the conditions of a project and check whether a developer is on the approved list before taking mortgages for uncompleted units, she added.
“I believe it is because they did not fully grasp the conditions of certain small and medium-sized developers,” Wong said. “Therefore, in the process of credit risk assessment, they chose to only accept more secure mortgages for completed units.”
In Mangrove’s case, the banks are not familiar with Kwai Hung, according to mReferral. The company has not offered a new housing project for sale since 2002.
“As far as [we] know, most banks are willing to provide mortgages for completed units, which are, mortgages for the stage payment plan,” a Kwai Hung spokeswoman said. “The developer has been liaising closely with banks to coordinate mortgage and financial arrangements.”
Buyers can ask the developer to shift their payment method after signing the formal sale and purchase agreement, which will be free of charge, the spokeswoman added.
Mangrove had received more than 8,000 registrations of intent for units that range from 186 sq ft to 334 sq ft, as of Thursday evening. The project is due to be completed on June 30, 2022, meaning buyers can only apply for a mortgage when the flats are due for delivery next year.
Additional reporting by Chad BrayInternet Explorer Channel Network