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Web-only Exclusives
November 30, 2000

From Our Correspondent: Hirohito and the War
A conversation with biographer Herbert Bix

From Our Correspondent: A Rough Road Ahead
Bad news for the Philippines - and some others

From Our Correspondent: Making Enemies
Indonesia needs friends. So why is it picking fights?

Asiaweek Time Asia Now Asiaweek story

PROPERTY

The Mortgage War


WHEN HONG KONG BANKER Yuen and her partner Jim, a businessman, saw the 110-sq-meter flat, they just had to have it. With two bedrooms, a sizable kitchen and a spacious terrace, the apartment in a prime district was exactly what they wanted. At $558,000 the price was right. In April they signed a preliminary agreement and put down a deposit.

Now for the complicated part: finding a mortgage. It used to be a simple matter in Hong Kong: the home buyer's bank took care of it for the standard interest rate of 1.75 percentage points over prime. Until the mortgage war broke out. Late last year some banks and finance companies began offering lower rates and more liberal terms.

Since peaking in April 1994, home prices have dropped by about 30%, hit by government measures against speculation. But this year signs of a tentative recovery spurred competition for new mortgages. Among the most aggressive is the Hongkong Chinese Bank, part of Indonesia's Lippo Group. It charges some borrowers just the prime rate for the first three years before raising interest by only 1.25 points. Many current home owners are considering renegotiating their mortgages.

Jim and Yuen were the kind of clients everybody is after. The first-time buyers could afford a 50% downpayment, but needed funds for renovation. With the flat over 30 years old, they were unsure about getting more generous financing. After doing the rounds, they got a pleasant surprise: 70% funding at 9.25% interest over nine years. Two banks offered the same terms, plus sweeteners like a loan for renovation and furniture purchases and overdraft credit. The couple went with the bank that let them use a shelf company to buy the apartment.

What is heating up Hong Kong's residential market just a year before it reverts to China? Some analysts point to a normal cyclical upswing. The fall in prices has attracted buyers. There is also the expectation that more mainlanders and foreigners will move into Hong Kong to work. That could boost housing demand -- and prices -- going into 1998.

On the sellers' side, people leaving Hong Kong before the July 1, 1997, transition are disposing of their flats at attractive prices. There are also home owners like Anthony Suen and his wife who want to move from their large 1960s apartment to a newer, smaller home which they could sell or rent out more easily if they decide to quit Hong Kong.

Michael Green, executive director of Nomura Research Institute in the city, believes housing prices will go up steadily in the next few years: 10% this year and next, over 15% in 1998, and as much as 25% in 1999. But some worry about rising U.S. interest rates, which usually pull up Hong Kong's. Says Bank of East Asia CEO David Li Kwok Po: "The property market is slowly recovering but it is still not strong." His bank competes aggressively for mortgages.

Another spark for the lending war may be a government plan to set up a mortgage corporation. Officials say it is needed to bridge an expected shortfall of about $100 billion in housing loans by 2005. Banks are wary of the scheme, questioning the projected lack of financing and fighting for business even now. Home buyers could well be the winners -- unless easier money pumps up prices to crazy heights again.

-- By Alejandro Reyes / Hong Kong

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