(Picture source: Data picture)
The property market has been quiet for a long time, and the decline in property prices has not stopped. Occasionally, there are reports in the market that some buyers who purchased new uncompleted properties during the construction period in the past few years were unable to obtain sufficient loans due to the decline in bank valuations, and had to cancel their reservations. The entire downward trend in property prices has aroused the attention of all sectors of society. Recently, there have been repeated government proposals to "remove the hot spots" and relax measures. Indeed, just by looking at the trend of negative equity cases, you can see whether the current property market is in a "healthy correction" or a "healthy correction". "Alarm sirens are sounding."
The property market can still hold up after falling by 20%, but if it falls further, property owners need to do a good job in risk management to avoid being affected by the legendary call loan wave. In this issue, the author will share with readers some key points to avoid calling loans.
Number of mortgages with negative equity hits 19-year high
Earlier, the Hong Kong Monetary Authority announced that the number of negative equity mortgage cases at the end of the fourth quarter of 2023 reached 25,163, 1.2 times higher than the 11,123 cases in the third quarter, and a new high in 19 years.
When the number of negative assets rose sharply last year, the Hong Kong Monetary Authority explained that many cases came from bank employees because they could take advantage of lower down payments to enter the market, and the situation was considered "normal". However, the latest figures have doubled, showing that the impact of negative equity is no longer limited to bank employees, but also affects general high-multiple mortgage buyers. The Hong Kong Monetary Authority pointed out that 90% of these negative equity cases were users who purchased mortgage insurance to underwrite 90% of the mortgages. The number of negative equity has surged, and the Hong Kong Monetary Authority continues to provide reassurance, saying that users who purchase mortgage insurance to underwrite high-yield mortgages will have a loan delinquency ratio of only 0.02%. Last year, the overall bank mortgage delinquency ratio was 0.08%, which shows that borrowers are able to repay their loans and the risk of bank mortgage business is still very low. In December last year, the Hong Kong Monetary Authority took the initiative to communicate with banks and asked them not to call loans due to falling collateral prices. The meaning is very clear, that is, do not force property owners to repay their loans early because of falling property prices.
Judging from the current economic situation in Hong Kong, as the unemployment rate is not high, the overall income of the people has not seen a significant decrease. Even if property prices fall and interest rates rise, high-volume mortgage owners feel a sense of "air supply", but it is believed that the factors that will induce banks to call loans on a large scale have not yet taken shape. Moreover, the cost of call loan itself is high. Even if the main loan is withdrawn, it is difficult to even sell the main loan. Once the call loan wave starts, it is bound to further push down the real estate market. This will do no harm to the bank, so it seems unlikely that Call Loan will happen for the time being.
The most important thing is to repay on time
However, property ownership is a long road with ups and downs. Owners must consciously manage the following risks. (1) The most important thing is to repay the loan on time. Don’t think it’s okay to pay back a few days late or once or twice late. These bad records will pose risks.
(2) Maintain cumulative endurance. Keep extra savings for mortgage payments in case your financial situation suddenly changes and you don't have enough cash for mortgage payments. (3) If you are a buyer who is about to enter the market, it is best not to "borrow all" and try your best to reduce the mortgage ratio to avoid falling into a deeper level of negative equity. (4) In addition, when buying a property, you should choose a property with a discounted market price to prevent the gap caused by a drop in valuation when property prices fall.