Hongkongers not under pressure to sell property to repay loans even though household debt is at record high, analysts say

Hong Kong’s household debt-to-GDP ratio rose to a record 90.2 per cent as of the end of 2020, compared with 80.4 per cent a year earlier
Panic selling seen during Sars crisis won’t be repeated, mReferral chief vice-president says

Hong Kong property

Enoch Yiu

Published: 7:30am, 13 Apr 2021

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Analysts have played down any pressure on Hongkongers to sell their properties to repay loans after household debt hit a record high last year.

A low interest rate environment, better mortgage terms, as well as many relief measures provided by banks, had provided borrowers with support, they said.

“There was panic selling in the last health crisis in 2003, but it will not be repeated this time, even where household debts are high,” said Eric Tso, chief vice-president at mReferral Mortgage Brokerage Services.

Following a year of economic devastation caused by the Covid-19 pandemic, Hong Kong’s household debt-to-gross domestic product (GDP) ratio rose to a record 90.2 per cent as of the end of 2020, compared with 80.4 per cent a year earlier, according to a report released by the Hong Kong Monetary Authority (HKMA) last month. A decade ago, the ratio only stood at about 50 per cent.

Of this debt, mortgages made up a major component, representing 68 per cent of the total. Total outstanding mortgages stood at HK$1.59 trillion (US$204.4 billion) as of the end of February this year, with most families spending about half of their incomes to repay these loans.

Between 2003 – when Hong Kong was hit by an outbreak of the Severe Acute Respiratory Syndrome (Sars) – and 1997, home prices dropped 68 per cent, while the household debt-to-GDP ratio rose by more than 10 percentage points. This forced some homeowners to sell their properties after losing their jobs. The city’s unemployment rate hit a record high of 8.5 per cent in June 2003 due to an abrupt fall-off in economic activity amid the outbreak.

Currently, however, interest rates are at a record low level, with mortgage interest rates hovering just above 1 per cent compared with the more than 11 per cent in 1998, said mReferral’s Tso.

“In addition, many banks have offered relief measures to help mortgage borrowers, [something that was] not seen in 2003,” he added. These measures include the extension of mortgage repayments to up to 30 years from about 20 years, so that borrowers have to repay less every month. Many banks such as HSBC, Hang Seng Bank and Bank of China (Hong Kong) have also offered repayment holidays during which borrowers only need to repay the interest and not the principal.

“In the face of the pandemic, Bank of China Hong Kong has taken the lead in launching a series of financial support and relief initiatives,” a bank spokeswoman said. The lender is allowing mortgage borrowers to apply for mortgage repayment holiday until October this year.

The number of owners with negative equity – when the value of a property falls below the outstanding balance of the mortgage used to purchase it – also stood at only 185 currently, compared with a peak of 106,000 in June 2003, said Derek Lai Kar-yan, vice-chairman of Deloitte China.

HKMA, the city’s de facto central bank, has also played down any worries around high household debt.

Hong Kong home mortgages expected to drop to four-year low in 2020

A major reason for the high ratio was Hong Kong’s worst recession on record. The city’s economy contracted by 6.1 per cent last year, so loan growth was not really that high, Edmond Lau Ying-pan, the authority’s deputy chief executive, said in an article last month.

He said residential mortgages had grown by 1.6 times since 2009 until the end of last year, slower than a 2.5 times increase in property prices. Most importantly, while Hong Kong households’ debt had increased, so had their wealth. The city’s household net worth-to-liabilities ratio remained high at 11.2 times in 2019, much better off than households in Britain, where the ratio stood at five times, the United States, where it stood at seven times, and Japan, where it stood at eight times, Lau said.

“We consider that the credit quality of local household debt has held up well and the overall financial position of the household sector remains robust,” Lau said.

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The number of multimillionaires in Hong Kong, defined as those with HK$10 million each in total assets, hit a record high of 515,000 last year, up from 413,000 in 2019, according to a Citibank survey.

And people with disposable incomes were still buying property, said analysts. Some said they expected home prices to rise by about 5 per cent this year.

“We have seen many new property projects sell out quickly. It is expected that property prices will go up by another 5 per cent this year. Many people still have the ability to buy [real estate],” said mReferral’s Tso.