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Raymond Ma

HSBC has unveiled a new loan product aimed at property investors who use residential mortgages to finance their purchases.

According to Lawrence Law Hong-ping, head of mortgages at HSBC, many borrowers were obtaining residential mortgages for investment properties - considered by banks to be riskier collateral - under the pretence that they would live in the home.

The proper channel for property investors to obtain loans is through a shell company, paying interest rates between one and 1.5 percentage point above comparable residential mortgages.

An alternative is to apply for a general banking facility - which requires a lengthy assessment process and is even more expensive. The loan's duration is also shorter than most residential home loans.

Some banks - eager for mortgage interest dollars in a weak lending environment - have turned a blind eye to investors taking out residential mortgages.

Other banks adjust a loan's interest rate upon notice that a flat is being used for rental purposes.

In conjunction with property developers, HSBC has begun offering a loan designed for investors priced at a 0.5 percentage point premium to comparable residential home loans.

Clients would be able to borrow up to 70 per cent of a property's value.

HSBC also said it would consider 50 per cent of a person's rental income in addition to salary and liquid assets in evaluating a loan's risk. The loan's duration can last up to 20 years.

Property firms said Hong Kong people had continued to invest in flats, despite the drop in prices.

'The people [who buy flats for investment] are there, but the number is not that big,' Centaline Property senior manager Wong Leung-sing said.

'They are mostly concentrated in either luxury projects or low-end flats, whereas people usually buy middle-range properties to live in.'

According to CLSA Emerging Markets, property prices fell 14 per cent last year.

CREATIVE FINANCE

Many borrowers use residential mortgages to invest in property

Although investors should take out proper loans - which cost more because of the higher risk - many banks turn a blind eye to the practice

HSBC's new loan is priced at 0.5 percentage point above comparable residential home loans



HSBC targets property investors with special mortgage product