Editorial﹕Easing of loan-to-value ratios might lead to misconception

【明報專訊】FOR two consecutive days Paul Chan, the Financial Secretary, has mentioned contemplating relaxing the loan-to-value (LTV) ratio, giving rise to widespread speculation. To many prospective buyers who can afford the mortgage payments but struggle to come up with the down payment, the relaxation of the LTV ratio will be a piece of good news. However, such measures will definitely have the effect of "propping up the market". They are two inseparable sides of the same coin.

Amid falling private property prices in Hong Kong in recent months, some people in the real estate industry have been making incessant calls for the government to relax LTV ratios and withdraw the "tough measures". Paul Chan says that the government does not intend to relax the three "tough measures" — the special stamp duty, buyers' stamp duty and double stamp duty, while the easing of LTV ratios is negotiable. He explains that, in view of the fact that some young people have the ability to pay the mortgage but do not have enough savings for the down payment, the government will study the possibility of relaxing the LTV ratio "under appropriate circumstances" based on four criteria if two prerequisites — that the measure will not add to the risks faced by the banking system and that the property market will not be fuelled by the move — are met.

Over the past ten years, the government has introduced a number of measures to regulate the property market with different emphases. The three tough measures are mainly aimed at curbing speculative activities by increasing the cost of speculation and investment in the property market, while the HKMA's countercyclical measures — including the tightening of LTV ratios — are mainly about strengthening the management of credit risks to prevent overly high loan ratios on the part of buyers. These measures limit the risks faced by the banking system within a manageable scope even when the market fluctuates. However, the HKMA's tightening of LTV ratios also has the effect of reducing citizens' demand for housing. Currently banks only lend 50% to 60% of the property's value at most. Having difficulty saving up for the down payment, young people often have to count on either their parents or the second mortgage offered by the developers of new flats to get on the property ladder. Some believe that the government can bring back the basic LTV ratio to the 2015 level, which will mean revising the ratio upwards from 60% to 70% for property worth less than $10 million so as to help first-time buyers and real users.

Hong Kong banks are facing much lower mortgage risks than in 1997. According to government statistics, more than a million families in Hong Kong are flat owners, more than 65% of whom have paid off the mortgage. This percentage is at an all-time high. From the perspective of credit risks, there is indeed room for easing the LTV ratio requirements. But the government must also carefully consider whether such a move will fuel the property market. The drop in property prices in recent months is to a large extent attributable to external circumstances. Given the serious shortfall in the supply of land in the short to medium term and the lowering of the ratio of private housing in the government's Long Term Housing Strategy, the supply of private apartments is set to reduce. If the unfavourable external circumstances cease to exist, the property market can pick up steam easily.

The government's premature talk of relaxing countercyclical measures can lead to unreasonable expectations by the market. It can give the public the impression that the government is anxious to come to the property market's rescue — it will prop up the market at the slightest fall of property prices. This will reinforce the misconception that "property prices will only go upwards but not downwards".

明報社評2019.01.08﹕放寬按揭成數 易生托市疑惑







misconception﹕a belief or an idea that is not based on correct information, or that is not understood by people

prospective﹕expected to do sth or to become sth

reinforce﹕to make a feeling, an idea, etc. stronger

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