Press Release
LCQ 16: Dropped value residential flats
Monday, June 26, 2000
Following is a written reply given by the Secretary for Financial Services, Mr Stephen Ip, to a question asked by the Hon James Tien in the Legislative Council today (June 26):
Question:
Given that the current prices of residential properties have dropped substantially compared to those in 1997, when the property market was at its height, will the Government inform this Council whether:
(a) it has statistics on the number of families owning residential units which have market values lower than the respective amounts of their outstanding mortgage loans;
(b) it knows the number of residential units taken possession of by financial institutions because the mortgagors have defaulted on mortgage payments, in each month since January 1997; and
(c) it has assessed the impact of the substantial downward adjustment in residential property prices on the economy of Hong Kong, the consumer sentiment of the public and their confidence in the future?
Reply:
Madam President,
(a) The Hong Kong Monetary Authority does not collect statistics on the number of units which have market values lower than the respective outstanding mortgage loans. This is largely due to the fact that the majority of authorized institutions do not conduct regular revaluation of all residential properties mortgaged to them. Generally speaking, such revaluation are normally performed in respect of defaulted mortgages only. The primary focus of authorized institutions is whether the loans are performing rather than the fluctuations in the values of the mortgaged properties.
(b) The Hong Kong Monetary Authority does not collect information on the number of residential units taken up possession by authorized institutions in each month due to defaulted payments. However, through its monthly residential mortgage survey on 33 authorized institutions active in such business, the Hong Kong Monetary Authority has been collecting since June 1998 statistics on the total number of outstanding cases which are under "mortgagee actions". "Mortgagee actions" refer to steps taken by an authorized institution to enforce its right on the security of a residential mortgage loan in default. The steps include the appointment of a receiver, application to the court to take possession of premises, application to the court for a foreclosure order or exercising the power of sale.
The information collected from the surveys in respect of "mortgagee actions" is tabulated below. It should be noted that the figures represent the total number of "mortgagee action" cases which the authorized institutions are taking on the day of survey (the end of the month). As "mortgagee action" involves a series of procedures, a case may take over a month to complete, and a case may appear in the table more than once. Thus, the monthly total figure covers those "mortgagee action" cases which are newly initiated in the month and those initiated earlier and are still in progress.
Month-end Total Number of Change from the
"mortgagee actions" previous month
being taken by
authorized
institutions
Jun-98 182 -
Jul-98 225 +43
Aug-98 278 +53
Sep-98 341 +63
Oct-98 428 +87
Nov-98 506 +78
Dec-98 597 +91
Jan-99 699 +102
Feb-99 780 +81
Mar-99 893 +113
Apr-99 957 +64
May-99 1,038 +81
Jun-99 1,088 +50
Jul-99 1,209 +121
Aug-99 1,353 +144
Sep-99 1,473 +120
Oct-99 1,534 +61
Nov-99 1,629 +95
Dec-99 1,634 +5
Jan-00 1,752 +118
Feb-00 1,757 +5
Mar-00 1,854 +97
Apr-00 1,863 +9
May-00 1,913 +50
(c) The fall in residential property prices will in general dampen the asset market and create a negative sentiment on wealth. This may in turn weaken domestic consumption and internal demand. However, property price is only one of the many factors influencing the health of the Hong Kong economy.
With the strong recent momentum of economic recovery, all major sectors are on an uptrend, showing that the recovery process has broadened and consolidated. After a distinct pick-up to a 9.2% growth in the fourth quarter of 1999, the Gross Domestic Product (GDP) attained a further growth of 14.3% in real terms in the first quarter of 2000 over a year earlier. This was the fastest growth recorded since the third quarter of 1987.
With the economy picking up strongly since the beginning of this year and the external environment remaining good, it is expected that the GDP for 2000 will attain a growth of 6% in real terms. The forecast growth rate has taken into account the impacts of the relative sluggish asset market and the upward trend of interest rate on local consumption and investment. Recently, China has reached an agreement with the European Union on its accession to the World Trade Organisation and the United States House of Representative has passed the act to grant Permanent Normal Trade Relations (PNTR) status to China. These factors, will render support to the confidence in and performance of the economy in the latter part of this year, and thereby alleviate the possible negative effect on domestic demand resulted from the fall in residential property prices.