Prudential Measures for Property Mortgage Loans and Other Related Supervisory Requirements

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Authored by: Simon Deane and Kelly Poon

The Hong Kong Monetary Authority (“HKMA”) has made adjustments to the countercyclical macroprudential measures for property mortgage loans and related supervisory requirements in response to a recent decline in property prices in Hong Kong. These adjustments aim to maintain banking stability and ensure proper risk management of property lending by authorized institutions (“AIs”).

The adjustments to property mortgage loans are as follows:-

(i) Residential properties for self-occupation:

(a) Maximum loan-to-value (“LTV”) ratios adjusted to 70% for properties valued at HK$30 million or below.

(b) Maximum LTV ratio adjusted to 60% for properties valued at HK$35 million or above.

(c) Gradual downward adjustment of LTV ratios for properties valued between HK$30 million and HK$35 million.

(d) For non-self-use residential properties, maximum LTV ratio adjusted from 50% to 60%.

(ii) Non-residential properties (including offices, retail shops, and industrial buildings):

(a) Maximum LTV ratio adjusted from 60% to 70%.

(iii) Mortgage loans based on the net worth of applicants:

(a) Maximum LTV ratio adjusted from 50% to 60% for both residential and non-residential properties

The HKMA has also suspended the interest rate stress testing requirement for property mortgage loans due to the US Federal Reserve’s indication of a possible end to rate hikes, which reduces the likelihood of further mortgage rate increases in Hong Kong.

In addition, the HKMA will increase the financing caps for lending to property developers to pre-2017 levels. The overall financing cap will rise from 50% to 60% of the expected value of completed properties. The financing cap for property site value will increase from 40% to 50%, and the financing cap for construction costs will rise from 80% to 100%. The requirement for additional capital for exposures to property developers offering high LTV mortgages will also be lifted.

Connected with these adjustments, the Government has also recently reduced stamp duty on property transactions, a measure implemented to boost the property market. The abolition of the longstanding property cooling measures included removal of Buyer’s Stamp Duty targeting non-permanent residents of Hong Kong, New Residential Stamp Duty applicable to second-time purchasers, and Special Stamp Duty aimed at homeowners who resold their properties within a two-year period. By adjusting the LTV ratios and suspending the interest rate stress testing requirement, the HKMA aims to support property transactions and provide greater access to financing for potential homebuyers and property developers.

For more detailed information, please refer to the relevant HKMA circular by clicking here.

Key Contacts

Simon Deane

Consultant | Banking and Finance

Email or call +852 2825 9209