The transaction volume of Hong Kong mortgages may drop 40 percent over the next two years, as liquidity tightens and banks are required to set aside additional reserves, according to Barclays Capital.
In a Bloomberg report, Tom Quarmby, Head of Regional Banking Research at Barclays, noted that the mortgage value for the mass residential market may decrease 25 to 30 percent.
According to an index compiled by Centaline Property Agency Ltd, home prices in Hong Kong have increased over 70 percent since the start of 2009.
The Hong Kong Monetary Authority (HKMA) may impose new measures to prevent loan defaults and curb credit growth. This may include requiring some banks to set aside more reserves after borrowing surged and mortgage rates advanced.
“The HKMA has made the decision to protect banks from future risks, rather than addressing any immediate problems, but this means some future business opportunities may be missed,” said Quarmby.
“If investors don’t see the potential for strong earnings growth to continue at the Hong Kong banks, this will translate into lower valuations.”
He added that Hang Seng Bank Ltd, HSBC Holdings Plc (HSBA) and Standard Chartered Plc (STAN) can pass on the higher cost of funding.
In addition, Apple Daily reported that the HKMA may ask local banks to make more provisions and set aside some profits as reserves. It also plans to set up a top-up provision ratio based on the banks’ total lending.
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