Hong Kong SAR Government responds to S&P report: Residential supply not excessive, property development and real estate investment related credit risks are controllable.

Media reports Standard & Poor's on Hong Kong banks and property markets published yesterday, March 5th. In response, a spokesperson for the Hong Kong SAR government stated that in the residential sector, they disagree with the view of oversupply of residential properties. Data reflects a strong demand for housing, and it is expected that the residential property market will stabilize and develop steadily this year. In the non-residential property sector, the government will not sell commercial land next year, allowing the market space to absorb existing supply. The government agrees with Standard & Poor's view that Hong Kong banks are capable of dealing with the pressure brought by commercial real estate. Overall, local property development and related property investment credit risks are manageable, banks do not have excessive concentration on any single borrower, and they have taken credit risk mitigation measures in response. At the end of last year, the vacancy rate for private residential units was 4.5%, the same as the long-term average over the past 20 years (from 2004 to 2023). Rental prices have also been steadily rising, reflecting a strong demand for housing. Due to lower interest rates, continued economic growth, and an influx of talent to the city, the residential property market is expected to develop steadily this year. The government will continue to closely monitor market changes and work towards maintaining a stable and healthy development of the residential property market. As for non-residential properties, the government has implemented measures to stabilize the market. The government will consider changing some commercial land originally intended for future sale into residential use, and provide more flexibility in land usage. The total amount of real estate loans in the Hong Kong banking system stood at HK$3.4 trillion (as of the end of December 2024), accounting for approximately one-third of total loans, with 56% of real estate loans being residential mortgages and the remaining 44% for local property development and property investment loans. The Hong Kong Monetary Authority has been closely monitoring the stable development of Hong Kong banks, ensuring credit quality and manageable risks even in the face of global economic uncertainties. Regarding residential mortgages, as of the end of January 2025, the overall delinquency ratio for mortgage loans was only 0.12%, with the delinquency ratio for negative equity cases at 0.15% as of the end of December 2024, reflecting that the majority of mortgage loan borrowers can make repayments on time. Under the Hong Kong Monetary Authority's countercyclical macroprudential supervision measures, the mortgage ratio in the Hong Kong property market remains stable, with an average loan-to-value ratio of 60% and a loan-to-income ratio at a low level of 40%. With the Federal Reserve cutting interest rates, major banks in Hong Kong have successively lowered their prime rates by 0.625% over the past year, resulting in a decrease in mortgage rates. There are signs of stabilization in residential property prices in recent months, and the Standard & Poor's report published on March 5, 2025, also predicts stable property prices in Hong Kong this year. Regarding local property development and property investment loans, the government agrees with Standard & Poor's view that Hong Kong banks are capable of coping with the pressure from commercial real estate: The risk exposure of Hong Kong banks to local property development and investment loans is mainly directed towards financially sound large enterprises. As for the risk exposure of local small and medium-sized property developers and investors, including some with weaker financial conditions or higher debt-to-asset ratios, banks have implemented credit risk mitigation measures early on, with most loans being collateralized. Although the specific loan classification ratio of the banking system is slowly returning to the long-term average level of around 2%, the overall asset quality risk of banks is manageable, with sufficient provisions in place. As of the end of December 2024, the banking credit provision coverage ratio (the ratio of general and special reserves to bad debt balances) is around 65%, and if the realized value of collaterals is deducted from bad debt balances, the banking credit provision coverage ratio is around 145%. Regarding the small and medium-sized banks specifically mentioned in the Standard & Poor's report, they have always followed the HKMA's guidance to adopt appropriate credit risk mitigation measures, including collateral. In addition, Hong Kong banks have ample capital (total capital ratio was 21.8% at the end o...