On 14 Jun 2024, the HKMA announced refinements to property mortgage lending requirements, including broadening eligibility for residential properties under construction to pre-28 February 2024 agreements with post-28 February 2024 completion dates, simplifying net worth-based lending by withdrawing the ATD approach and refining the NAV formula, and reverting the rental income discount rate to 'at least 20%' for investment properties.
This article was generated using SAMS, an AI technology by Timothy Loh LLP.
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Introduction
On 14 Jun 2024, the Hong Kong Monetary Authority (HKMA) announced refinements to supervisory requirements for property mortgage lending, effective immediately, to address market developments and assist homebuyers with genuine ownership needs.
Residential Properties Under Construction
The HKMA has broadened the applicability of the countercyclical macroprudential measures announced on 28 February 2024 to include mortgage applications for residential properties under construction for self-occupation where (i) provisional sale and purchase agreements were signed before 28 February 2024 and (ii) properties are scheduled for completion on or after 28 February 2024. Authorized Institutions must obtain a self-occupation declaration from newly-eligible applicants.
Calculation of Borrowing Capacity
The HKMA has simplified the benchmark for net worth-based mortgage loans by withdrawing the asset-to-total debt (ATD) approach and refining the net asset value (NAV) formula. The revised NAV formula, detailed in the Annex, replaces the previous dual-method framework. Authorized Institutions may continue using the ATD approach with identical definitions of 'eligible assets' and 'total debt obligations' as the NAV approach, but the ATD formula is no longer the benchmark.
Haircuts on Rental Income of Investment Properties
The HKMA has reverted the discount rate for gross rental income in debt servicing ratio (DSR) calculations to 'at least 20%', aligning with the October 2009 best practice. This rate serves as a reference point rather than a mandatory minimum; Authorized Institutions may apply a different rate based on individual borrower and property circumstances, considering associated expenses such as maintenance, government rent, and vacancy costs.
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