New mortgage loan scheme for rehabilitated buildings

Seven Hong Kong banks have joined hands with the Urban Renewal Authority (URA) in a new initiative to provide better mortgage services to owners of rehabilitated residential old buildings.

At a press conference today (Friday), the Managing Director of the URA, Mr Billy Lam, described this as an important measure to motivate owners of old buildings in rehabilitation by improving the liquidity potential of their flats.

Participating in the initiative are the Bank of East Asia, HSBC, Liu Chong Hing Bank, Nanyang Commercial Bank, Standard Chartered Bank, Wing Hang Bank and Wing Lung Bank. Mr. Lam said he believed that more banks would join in later.

The banks will offer mortgage loans up to 70% of the property value at an interest rate of 2% less than the premium rate or better. More importantly, the repayment period and building age together will be extended to 50 or 55 years, which means that borrowers will enjoy a longer repayment period, depending on the age of the building.

"In the past, banks in Hong Kong generally have given relatively less weight to the mortgage market of old and poorly managed buildings mainly because these buildings are prone to dilapidation and therefore financially less secure as mortgage collateral. As a result, the mortgage loan term has been mostly capped below 50 percent of the market value of the property concerned with a shorter repayment period and a higher mortgage rate. This makes it more difficult for an owner to market his flat, which in turn frustrates any incentive to maintain his flat and building properly. This is a vicious cycle which the URA now hopes to reverse into a virtuous one."

In May this year, the URA announced a rehabilitation aid scheme with a total budget of $210 million to assist owners in carrying out rehabilitation work voluntarily to improve their buildings. As a follow-up measure, the URA has been liaising with the banking sector to help bring the old buildings market to a more active life.

The URA has invited representatives of the banks to visit on site several residential buildings which have been rehabilitated with the assistance of the URA two months ago. They were impressed with the outcome of the rehabilitation works and after further deliberations, the banks have agreed to re-assess the potential of the rehabilitated buildings for mortgage services.

"In this connection, the banks have also taken note of the fact that the Government is considering various measures to promote a stronger culture of building care," Mr Lam said.

Meantime, the URA has recently conducted an opinion survey among some 200 owners and tenants in eight rehabilitated buildings to gauge their needs on home mortgage services.

The findings showed that on average, every one in four tenants interviewed is interested in obtaining a mortgage loan to purchase a flat in his rehabilitated building. Among the owners, 80 per cent are of the view that the value of their flats would go up after rehabilitation and most would expect a rise of 10 to 20 per cent.

Over 60 per cent of the owners are interested in taking out a bank mortgage loan provided that the terms are sufficiently attractive, such as a lower interest rate, a longer repayment period and an increase in mortgage quantum.

Mr Lam commented that the market potential of rehabilitated buildings was quite substantial: "In the next five years, the URA alone will provide assistance to owners of some 32,400 units in 540 buildings to carry out rehabilitation works. There are of course many other residential buildings for which the owners would initiate rehabilitation work on their own without the URA's assistance."

The URA has also arranged several briefings and site visits for valuation firms and estate agents and encouraged them to join hands with the banks in promoting the mortgage market for rehabilitated buildings.

Commenting on the urban decay problem as a whole, Mr. Lam cautioned that there was no room for complacency. "There are about 11,000 residential buildings or roughly 30 per cent of the total in Hong Kong, which do not have owners' corporations or any form of management. This makes it almost impossible for rehabilitation work to take place in such buildings."

He said the URA's experience was that the existence of owners' corporations was indispensable for getting a rehabilitation project off the ground as well as maintaining a rehabilitated building in the long run. "The owners of these buildings must help themselves before we can help them," Mr. Lam said.