The impacts of Hong Kong’s loan-to-value-ratio policy on the affordability of young first-time buyers in small and medium-size residential markets

Abstract

The Hong Kong government has adjusted the Loan-to-Value (LTV) ratio of the residential property market from time to time in various phases of the economic cycle to achieve different goals. This paper aims to reveal the actual impacts of the 2019 government LTV relaxation regarding affordability of young first-time buyers based on investigation in the small and medium-size residential market. Despite existence of previous research on the correlation between LTV policies and the property market, this dissertation contributes uniquely as the scope narrows down to young adults and “Starter Homes” that cost below 10 million HKD, arousing more attention towards first-time home purchasing and associated social impacts of the LTV relaxation. Several research methodologies have been adopted. A GARCH model regression analysis has been carried out to analyse the impacts caused by the LTV policy adjustment towards the transaction prices and volume of the small and medium-size residential market. Variables accounting for LTV relaxation alongside other determinants have been included. Results of statistical significance have shown that LTV policy relaxation have stimulated the market upwards in terms of transaction prices but not in volume. Also, online questionnaires have been distributed to potential young first-time buyers based on different income groups aiming to know their views towards the policy relaxation on flat purchase and the property market. Most respondents believed that the policy relaxation would assist their first home purchase and they tend to use up the new allowable mortgage percentage. Also, they had almost unanimous predictions that the policy would drive up property prices. Nevertheless, not respondents from all income groups had a higher eagerness to buy their first flat or a more expensive flat due to a number of concerns. Moreover, a number of suspicious transaction records and news relating to LTV relaxation has been examined and investigated. Results have shown a phenomenon of collusion between real estate agents, property buyers and sellers to conceal the actual transaction prices from the sales and purchase agreement. The differences between the intended impacts and actual impacts of the LTV relaxation have been discussed, including the reactions of the property market and young-first-time buyers. In view of certain social externalities and side-effects, suggestions are made in a bid to further benefit young first-time buyers as well as to achieve social efficiency and equality. It is hoped that the recommendations covered in the above perspectives would do a great and positive impact towards society and would be one of the major concerns in the coming Policy Address and Financial Budget by the Hong Kong Government.