Raise the cap on property mortgage ratios! The Hong Kong Monetary Authority revises its countercyclical macroprudential measures.

On February 28, the Hong Kong Monetary Authority issued guidelines to banks, revising the countercyclical macroprudential measures applicable to property mortgage loans and other related regulatory requirements. This includes suspending the stress test requirement for property mortgage loans assuming a 200 basis point increase in interest rates. All revisions take effect immediately. The Hong Kong Monetary Authority stated that Hong Kong's property prices have been adjusting recently, with official residential property prices falling by 7% in 2023 and a further 1.6% in January 2024, totaling a decline of over 20% from the peak in 2021. Residential property transactions in Hong Kong have been sluggish, with an average of 3,584 transactions per month in 2023, a decrease of 4.5% year-on-year. The situation in the non-residential property market in Hong Kong is similar, with average office prices falling by about 7% in 2023, and market data showing a vacancy rate of around 16% for Grade A office buildings at the end of last year. After careful analysis, the Hong Kong Monetary Authority believes that there is room to revise the countercyclical macroprudential measures for property mortgage loans and adjust other related regulatory requirements in the real estate sector, while maintaining the stability of the banking system and ensuring proper management of mortgage loan risks. The revisions include: 1. Adjusting the maximum loan-to-value ratio for owner-occupied residential properties valued at HK$30 million or below to 70%; for properties valued at HK$35 million or above, the ratio is adjusted to 60%. To avoid a sudden drop in the loan-to-value ratio, the ratio for properties valued between HK$30 million and HK$35 million will gradually decrease. In addition, the maximum loan-to-value ratio for non-owner-occupied residential properties is increased from 50% to 60%. 2. Increasing the maximum loan-to-value ratio for non-residential properties (including offices, shops, and industrial buildings) from 60% to 70%. 3. Increasing the maximum loan-to-value ratio for property mortgage loans based on "asset level" from 50% to 60%. This revision applies to both residential and non-residential properties. 4. With the recent indication from the Federal Reserve that the interest rate hike cycle in the US may be coming to an end, the Hong Kong Monetary Authority believes that the chance of further increases in mortgage interest rates in Hong Kong is low. Therefore, it is deemed appropriate to suspend the stress test requirement for property mortgage loans assuming a 200 basis point increase in interest rates. 5. In June 2017, the Hong Kong Monetary Authority tightened the financing ratio for property development projects. Given the current property market situation, it is deemed appropriate to restore the relevant ratio limits to the levels before 2017. In other words, the maximum financing ratio for overall property development projects is increased from 50% of the expected value after completion to 60%, with the land cost financing ratio limit increased from 40% to 50% and the construction cost financing ratio limit increased from 80% to 100%. Additionally, the additional capital requirements on banks for providing high ratio mortgage loans to property developers are also removed. All of the above revisions take effect immediately and apply to property transactions concluded today or later under provisional sale and purchase agreements. The Hong Kong Monetary Authority stated that it will continue to closely monitor market developments and introduce appropriate measures to safeguard the stability of the banking system in response to the latest developments in the property market.