Hong Kong Mortgage Rates Close to Bottom

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Hong Kong’s mortgage rates, at the lowest in at least 19 years, are getting close to the bottom and can rise “quickly,” said Peter Wong, head of the local unit of HSBC Holdings Plc, the city’s biggest bank by deposits. “If the rate rebounds, it can rebound pretty quickly,” Wong said in an interview. “I would caution people to calculate their cash flow more carefully.” Banks cut home-loan rates in the city by as much as 40 basis points in May to an average 2.08 percent as they sought to offset a drop in demand for other types of credit during the city’s worst recession in a decade. Mortgage rates are at the lowest since records began in 1990, data compiled by Hong Kong- based mReferral Mortgage Brokerage Services show. Average net interest margins, or the difference between what the banks charge for loans and the cost to fund them, will narrow by as much as half a percentage point this year for the city’s banks, according to estimates by Lee Yuk-kei, an analyst at Core-Pacific Yamaichi International Ltd. in Hong Kong. Still, the mortgage business remains profitable for banks even with the spread between mortgage rates falling to an average of between 2.2 percent and 2.3 percent, Wong said. “If you look at cost of funding, it’s still close to zero, so there’s still a 2 percent margin,” he said. “If it goes down any further there may be no money to be made, depending on how efficient your organization is.” Public Housing Glut Hong Kong home prices dropped by as much as two-thirds in 1997 amid the Asian financial crisis and a glut of public housing, leaving many homeowners in negative equity for years. Prices began to rebound in 2005 and have nearly doubled since. The value of mortgage loans approved by Hong Kong banks in May rose to HK$28.1 billion ($3.63 billion), the highest since January 2008, according to figures released by the Hong Kong Monetary Authority last month. The decline in Hong Kong mortgage rates has spurred a recovery in the housing market, with home sales rising 42 percent by volume in May, the biggest increase since February 2008, according to data compiled by the government’s Land Registry. To contact the reporter on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net This e-mail address is being protected from spambots. You need JavaScript enabled to view it Comments Please login to post comments or replies.