Joint-ventures in land bidding is expected to increase in Hong Kong
According to JLL's latest Hong Kong Residential Sales Market Report, the Hong Kong Monetary Authority's (HKMA) two-way squeeze to control an overheating property market is unlikely to have any material effect on still-upbeat sentiment for residential properties in Hong Kong.
Under the first squeeze, authorized institutions are required to more prudently assess credit risk, while prospective borrowers already with one or more pre-existing mortgages will face a lowered loan-to-value (LTV) ratio and lowered applicable debt-servicing ratio (DSR) limit. Given the increased difficulty in obtaining mortgage financing, home seekers should continue to have a preference for properties in the primary market, where financing options and other incentives are being offered.
However, the ability of developers to provide secondary mortgages could be constrained by the second squeeze, as the HKMA strengthens credit risk management of authorized institutions and lowers the LTV for site acquisition and construction financing to property developers.
Henry Mok, Regional Director of Capital Markets at JLL said, "This time round, the HKMA introduced measures targeting construction financing to developers in view of bids flying higher in the land sales market and financing being offered in the primary sales market. These measures will affect PRC and smaller local developers the most given that they rely more heavily on financing for their projects compared with local heavyweights. In order to tackle the higher credit risk assessment barriers and maintain luring strategies, we could potentially see more joint-ventures being formed between small-to-medium sized local and PRC developers going forward."
Ingrid Cheh, Senior Manager of Research Department at JLL said, "With mass residential prices already up 7.1% so far this year, the HKMA stepped in yet again with new measures on property mortgage lending to borrowers with one or more existing mortgages. Notwithstanding, we believe that the market will still remain supported by strong pent-up demand, largely from first-time buyers. Using latest information available on DSDs, we estimate approx