Developers' tempting mortgage offers attract 18% of buyers

Developers have stepped up their game.

In the past month, it has been noted that developers have stepped up in terms of mortgage offers.

According to a research note from Barclays, major developers such as CKP, SHKP, HLD, NWD, Sino and Kerry now all offer their own first or second mortgages. LTV increased to a range of 80-95% from 80-90% and the effective entry interest rate has decreased to 2.5-3% from 3.0%.

Although these plans are now more commonly offered, the take-up of these plans is not as common as one would think, the report said. Based on available data and excluding one outlier, on average 18% of primary homebuyers have taken up these plans.

If this current low rate were to continue, Barclays estimates that despite the additions in 2H15, mortgage receivables would still account for less than 1% of developers’ equity and asset bases. Barclays therefore concludes that these mortgage offers are not yet an issue for developers’ balance sheets.

Here's more from Barclays:

We found that there were 22-90 cases of homebuyers taking up the developers’ mortgage among Kerry Properties’ Bloomsway, Henderson Land’s Zutten, Cheung Kong’s Yuccie Square and Wheelock’s Capri. Against units sold to date, developer mortgages accounted for only 7-28% of the total transactions. This averages to 18% taking up the developers’ mortgage in each project.

Henderson Land’s Eltanin Square Mile was an outlier however. There were 118 developer mortgages, representing 42% of the 279 units sold. For SHKP’s Park Vista and King’s Hill, the number of homebuyers taking up the developer’s mortgage was not revealed.

For investors worried about a potential rapid deterioration in developers’ balance sheets, the current low take-up may be reassuring. The low 18% take-up can be explained by a higher than market interest rate that developers usually charge, which would discourage buyers who are eligible to go through the normal bank or HKMC mortgage channel from taking up the developer’s mortgage option.