Blessing or Curse?

Lowering the mortgage loan ratio for local first-time homebuyers has boosted the price of low-to-middle-cost flats before proving the policy is helping local youths

Daniel and his girlfriend recently made one of the biggest decisions of their life: buying a house. “We’ve thought about this for a while, believing it’s high time to do so now: if we opt for buying later we may not be able to afford one in this crazy [property] market,” said Daniel, now is in his early thirties. 

Securing a flat worth MOP5 million (US$625,000) in Taipa in March, Daniel and his fiancee forked out some MOP1 million down payment, supported by their savings and loans from their families. The money they needed for down payment was about MOP500,000 less than a few weeks ago, after the government lowered the mortgage loan ratios for young residents who buy homes for the first time. 

“It’s difficult to say whether this measure helps us,” said Daniel, an office worker. “Although we pay less down payment, the price of our apartment is, like, about MOP300,000 more expensive than before.” 

The case of Daniel is not an isolated one in the market. While the jury is still out on whether the controversial mortgage rule does help more local youngsters secure a home in the red-hot property market or adds to their financial risks amid rising interest rates, the measure has increased the price of low-cost and mid-range homes by up to 10 per cent, say market insiders. 

On February 8, the Monetary Authority of Macau unveiled new mortgage loan ratios for first-time buyers who are residents aged between 21 and 44 years old in a bid to help the young buy their own home. The de facto central bank allows lenders to grant mortgage loans of up to 90 per cent of the value of properties priced at no more than MOP3.3 million for eligible applicants, while the ratio is 80 per cent for units worth between MOP3.3 million to MOP8 million. Before, local first-time buyers could only borrow between 60 per cent and 80 per cent of the value of flats priced at no more than MOP8 million.  

Cautious buyers 

“First-time buyers account for nearly 70 per cent of residential transactions and flat viewing in recent weeks since the launch of the measure,” said Nestor Ng, president of real estate agency Anzac Group Co. Ltd., adding that flats priced below MOP8 million have been in particular demand by buyers. 

“First-time buyers usually take more time and look at more flats before making a decision as they lack experience [in buying homes],” he noted. “Their purchase is for end-use so they are naturally more cautious than investors.” 

Given the surging demand for low-to-mid-range flats, prices have risen by 5-8 per cent in the past few weeks, he acknowledged. For instance, landlords may ask for some MOP6 million for a 700-plus square metre unit in a 20-year-old housing project in Taipa now vis-a-vis the top range of MOP5 million just weeks ago. 

Figures from the Financial Services Bureau reveal that local first-time buyers accounted for 82.7 per cent of total transactions in March compared to only 23.2 per cent in the first two months of 2017. But the larger proportion of first-time buyers in the market is also due to the fact that other buyers are meanwhile kept at bay.  

Mixed signals 

“The sales of units [worth] over MOP8 million have been pretty bleak following the implementation of the extra stamp duty, as buyers are taking time to get used to the new rules,” said Mr. Ng. Local first-time buyers transacted 469 homes in March, with 98 transactions for other buyers, government data show – this compared with a monthly average of 435.5 transactions for local first-time buyers and 1,161 transactions for other buyers in the January-February period. 

On the day of lowering the mortgage ratio for local youngsters, the authorities also imposed a new stamp duty of 5 per cent on buyers acquiring a second residential unit and of 10 per cent on those buying a third or more properties in a bid to rein in soaring home prices. In rolling out these two measures the authorities have sent mixed signals to the market: do they want to cool the market down or do they want provide support for the market by encouraging youngsters to purchase houses now? 

Franco Liu, Managing Director of Savills Macau and South West China, said that although there has been more flat viewing since the new mortgage rules it had not had any impact upon boosting the number of home transactions for the time being.  

“But it has enhanced the willingness of home acquisitions among [some] buyers… and the transactions for flats priced below MOP8 million will gradually increase,” he said, anticipating home prices could rise by up to 10 per cent this year following a 17.1 per cent surge last year. 

Home prices in the city averaged MOP99,543 per square metre in March, down 9.7 per cent from MOP110,243 per square metre in February when some developers rushed to clear their inventory before the additional stamp duty – but they were still up by 8.4 per cent from a year earlier, according to government figures. Home sales in March totalled 567 transactions, down by more than half from 1,207 in February and nearly half of the 1,120 of a year earlier, the data reveals. 

Rate hike 

Despite the mounting upward pressure on local interest rates, Mr. Liu believes this will not keep end users away from the market. “I think most residents have heard about a [possible] interest rate hike for, like, three years and they are prepared for it,” he said. “If each increment is only about 25 basis points, this won’t have a big impact on the [monthly] mortgage payments of residents.” 

In the wake of six rate hikes in the U.S. since December 2015, commercial banks in Macau and Hong Kong have so far kept their rates unchanged – despite the city’s indirect currency peg to the greenback via the Hong Kong dollar – due to ample liquidity. However, this might end soon.  

Hong Kong’s de facto central bank had to buy at least HK$33.7 billion Hong Kong dollars from the foreign exchange market to defend the currency against the U.S. dollar in April as at the time this magazine went to print, the first market intervention since 2015, signalling cash outflow from the Asian financial centre.  

Ip Sio Kai, chairman of the Macau Association of Banks, recently remarked on a public occasion that there is “a very high probability” that Macau banks will raise rates this year. The frequency and increment of the local rate hike depends upon the liquidity of the Hong Kong market, he added. 

With most local banks now offering a prime rate of 5.25 per cent for residential mortgage loans (monthly mortgage rates are priced at prime minus 3.1 per cent), the monthly payment for a MOP4 million loan for a 30-year tenure is about MOP15,086.6. If interest rates rise 25 basis points the monthly payment will increase by MOP511.1, or 3.39 per cent.  

Panic buying 

Ms. Lei and her fiancé, both in their late twenties, are now looking for a flat with a budget of about MOP4.5-5 million as they prepare to marry early next year. “If we didn’t plan to get married, we wouldn’t buy a home now,” said Ms. Lei, who has recently viewed more than 10 apartments. 

Nonetheless, it is not the prospect of rising interest rates that deters her from owning a home. “The price now is absurdly high: some flats of more than 30 years old can ask for MOP3-4 million [each],” she lamented. “While we can pay less down payment [since the loan ratio has been lowered] we still have to pay the same amount after all, or even more as [low-to-middle-range] flats are more costly now.” 

“If the government is really determined to help youngsters resolve their housing needs, it should roll out more measures to curb soaring home prices,” she added.  

Her summation is not uncommon, and has been reiterated by many in society in recent years. Pointing out that there is “panic buying” among some residents in the market, legislator Ella Lei Cheng I noted: “Many residents are worried that if they don’t buy now the price might go up further next month, further away from their purchasing power.”  

“Lowering the mortgage ratio encourages youngsters to buy homes at such a high price,” she said. “[I’m worried that] their mortgage burdens will become heavier in the future as it’s only the beginning of a cycle of rising interest rates.” 

Timetable 

She believes that public housing supply holds the key to resolving the housing problems of local youngsters and skyrocketing property prices. A public housing demand report commissioned by the authorities illustrates  a shortage of 21,974 public homes by 2021 but that supply could outstrip demand by 2026. Chief Executive Fernando Chui Sai On said in a legislative session in April that there would be a supply of 16,500 public homes in the near future, including 7,000 flats of the 28,000 public homes in the newly reclaimed Plot A, and 6,500 units planned for the land plot opposite Macau International Airport on Avenida Wai Long.  

The authorities should have a concrete construction timetable of public housing projects rather than simply stating the number of public homes supply available in an undefined future in order to relieve the worries of residents, she noted, adding: “The government should clearly state, for example, that it can build 15,000 public homes in the next three years,” 

The legislator believes that the government has land resources to make pledges on building public homes within a certain timeframe, given the number of idle plots it has retrieved, with more at the end of judicial process.  

“The government always say it attaches great importance to the housing needs of locals – but it doesn’t want to commit to anything,” she complained. 


How does an interest rate hike affect mortgage repayments? 

  Now  +0.25%  +1%  +2% 
Lending rate (Prime – 3.1%)  2.15%  2.40%  3.15%  4.15% 
Loan amount (MOP)  4,000,000  4,000,000  4,000,000  4,000,000 
Tenure (Years)  30  30  30  30 
Monthly payment (MOP)  15,086.6  15,597.7  17,189.5  19,444.1 
Total interest paid (MOP)  1,431,183.6  1,615,155.7  2,188,211.1  2,999,887.9 

 

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