HONG KONG: Home foreclosures in Hong Kong have been rising and are likely to pick up pace as more owners default on high-interest loans from unregulated lenders in a weak economy, according to specialists in distressed property.
The territory´s authorities don´t officially track foreclosures but data from the de-facto central bank, the Hong Kong Monetary Authority, shows that there are a growing number of homes that are worth less than the amount paid for them.
The number of homes underwater reached a five-year high of 1,432 at the end of March, and the $4.9 billion ($631 million) of properties concerned is the highest since the global financial crisis in 2009. At the end of December, there were just 95 cases worth HK$418 million.
Non-bank finance companies have seen an increase in delinquent loans since the fourth quarter of last year and foreclosures are also now picking up.
Members of the Hong Kong Property Finance Association (HKPFA) now have about 10 delinquencies per 100 loans made, compared with 5-6 last year, and foreclosures are running at around 4 per 100, up from 2-3 in 2015, according to its Chairman Alfred Lam.
For a city that relies on property-related businesses for about a fifth of its economy, any major distress in the apartment market would be a body blow.
Hong Kong´s gross domestic product contracted 0.4 percent in the first quarter from the last quarter of 2015, hit by falling exports and weak consumer spending as a faltering Chinese economy took a toll.
It could also trigger questions about whether the HKMA should get a tighter grip on non-bank financing.
Banks are heavily regulated in the Chinese territory. Seven rounds of property sector cooling measures introduced by the HKMA since 2009 have cut the official loan-to-value ratio on residential properties - the maximum amount a bank is allowed to lend on a property - to a maximum 60 percent, and as low as 40 percent in some circumstances. But the same does not apply to finance firms and real estate developers.