More buyers of incomplete flats with stage payment schemes face higher risk of default as rising interest rates spur price falls
- More than 76 per cent of buyers of incomplete flats opted for stage payment schemes as of June 30
- By the time some of these buyers arrange mortgages, ‘they may not pass the stress test’, say analysts
An increasing number of buyers who opt to buy incomplete flats in Hong Kong via stage payment schemes are at risk of defaulting on their purchases, as rising interest rates in the city accelerate real estate price falls.
More than 76 per cent of buyers of incomplete flats opted for stage payment schemes as of June 30, up from 52.3 per cent for the whole of 2021, and 54.5 per cent in 2020, according to data from mReferral Mortgage Brokerage Services. Stage payment schemes allow buyers to defer loan repayments until projects are complete.
“The increased numbers of buyers selecting deferred payment plans at a time when interest rates are in an up cycle illustrates [market] irrationality,” said Alvin Cheung, associate director at Prudential Brokerage, an asset management, research and analysis firm.
The stage payment arrangement allows first-time buyers to apply for mortgage loans closer to building completion, and take out a 90 per cent loan for flats worth up to HK$10 million (US$1.27 million). Under existing rules, developers are allowed to pre-sell their projects up to 30 months before completion.
Developers in Hong Kong currently offer two payment schemes: one is immediate payment, which is usually settled within 90 to 180 days. The other is staged payment, in which most payments are due only when property construction is complete.
“By the time these buyers arrange mortgages, they may not pass the stress test, and more importantly, banks are becoming more conservative on property valuations amid a rising interest rate environment,” said Cheung.
