Twin measures unlikely to bring major benefits to homeowners or spur market, say analysts
Twin relief measures unveiled yesterday for homeowners would deliver only minor benefits and would not boost confidence in the property market, analysts said.
Salaried owner-occupiers would be up to $8,500 a year better off if they claim the $50,000 increase in mortgage interest tax deductibility at the maximum rate of 17 per cent. The figure is $7,500 at the standard 15 per cent tax rate.
But that was an 'ungenerous' offer, said Yvonne Law, tax partner at Deloitte Touche Tohmatsu. The move would cost the Government about $1 billion over the next two years.
The second new measure - a guideline simultaneously issued by the Hong Kong Monetary Authority (HKMA) that allows banks to lend up to 100 per cent of the value of properties now caught in a 'negative equity' trap - was unlikely to attract many new lenders, other analysts said.
'It's kind of smart because they seem to have given something. But they've left it to banks to take it up - and it is unlikely many will want to do that,' said Todd Martin, head of financial institutions research for Deutsche Bank in Hong Kong.
Mr Tung said he would propose that the Legislative Council raise the tax-deduction ceiling for housing-loan interest to $150,000 a year for this year and the next year of assessment. The ceiling now is $100,000 and homeowners may claim it a maximum of five times.
'For a standard salaried tax payer on a 15 per cent tax rate, that will mean an extra $7,500 in their pockets each year,' Ms Law said. 'This is not a great help and it is only for two years.'
In the past financial year, about 110,000 mortgage holders enjoyed the maximum $100,000 deduction.
But only people with a mortgage loan bigger than about $3.5 million would be able to get any benefit out of the new allowance.
Democrat legislator Albert Chan Wai-yip said he was 'extremely disappointed' by the measures as they could not help the homeowners in great financial difficulty.
'Many negative-equity owners do not have to pay tax at all because they have lost their jobs or got great pay cuts. Nothing is done to help reduce the high mortgage interest they are paying,' Mr Chan said.
In a list of measures proposed ahead of the Policy Address, Deloitte's recommended scrapping the cap and allowing owner-occupiers to claim tax relief on their full interest rate payments.
Under the new HKMA guideline, banks may refinance existing home loans up to a level of 100 per cent of the new market value of the mortgaged property, from a present guideline of 70 per cent.
The new guideline applies only if the resulting monthly repayment is below 50 per cent of the mortgagees' combined salaries.
Indosuez W. I Carr bank analyst Richard Duncan said some banks would be willing to take up the new guideline, but warned that in some cases property prices would have fallen by more than 50 per cent, ruling those borrowers out of the relief measures.
Deutsche Bank's Todd Martin said: 'If [banks] want to take on the higher risk and go after that segment, the HKMA has made it more possible - but I don't believe a lot of the banks will take the extra risk.'
To do so, lenders would have to be confident that property prices would not fall a further 10 to 20 per cent, Mr Martin said.
'And I would be fairly surprised if many banks move in that direction,' he said.
A measure of bankers' caution was evident last night during a post-address briefing by the Chief Executive and the general manager of Standard Chartered in Hong Kong, Peter Wong Tung-shun.
Mr Wong, also chairman of the Hong Kong Association of Banks, said some homeowners caught in a negative-equity trap might be able to refinance loans under the new guidelines.
Standard Chartered, he said, would examine how much more risk it was prepared to take.
'But we will not compromise on the repayment capability of customers,' he warned.
