Against a backdrop of rising property prices and general economic wellbeing in the territory, Hong Kong’s banks have been warned against a relaxation of lending rules as a way of cashing in on the recent real estate boom, according to an Associated Press report.
While current Hong Kong Monetary Authority guidelines ask lending institutions not to approve mortgages for more than 70% of the value of a property, it has emerged that many schemes have sprung up enabling lenders to effectively bypass these recommendations through third party ‘credit enhancement’ agreements with mortgage insurers and finance companies.
These agreements may allow an individual to purchase a piece of real estate without putting any cash up front – a situation that Joseph Yam, chief executive of the Hong Kong Monetary Authority warns could be storing up problems for the future.
“The competitive environment may cause banks to take risks we don't want them to take," Yam told lawmakers recently.
The International Monetary Fund has also urged Hong Kong’s lenders to exercise restraint in the mortgage market, recommending “continued vigilance” over the banks’ lending to the real estate sector.
"While property loans have not proven riskier than other loans, their share in total loans has increased and this concentration could represent a more significant source of risk in the future," the IMF has observed.
However, according to some industry participants, the territory’s mortgage lenders are unlikely to heed these calls for restraint, as the property market forms a major component of the Hong Kong economy.
"What drives the Hong Kong economy at end of the day is property, property, and property,” Leland Sun, chief executive of Pan Asian Mortgage Corp, told the AP in an interview.
"I think it's a fact of life now. Banks (in Hong Kong) don't have any other business to do,” he added.
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