HSBC, ICBC (Asia) and other Hong Kong banks stop issuing mortgages for unfinished Evergrande apartments due to problems with developer debt

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HSBC, Industrial and Commercial Bank of China (Asia) and other major banks in the city stopped offering mortgages for unfinished apartments built by a heavily indebted developer. China Evergrande in Hong Kong, according to people familiar with the matter

The turnaround on multi-bank mortgage lending came after an eastern China lender won a court order this month to freeze 132 million yuan ($ 20 million) of assets held by a Shenzhen-based property developer, raising additional concerns over its financial health. Evergrande, the world’s largest developer in debt, said on Monday that it is considering “Litigation” over the freeze order.

Banks, which also include the Bank of East Asia, continue to offer loans for finished apartments, but restrict lending to unfinished construction, according to people who were not authorized to discuss the matter publicly.

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“Such a step happens very rarely. Banks are likely concerned that problem with the developer’s cash flow will increase credit risk, ”said Raymond Chong, founder and CEO of Starprop Agency.

In Hong Kong, Evergrande is currently building two residential projects: Emerald Bay Phase Two in Tuyen Mun and The Vertex in Chung Sha Wan.

“Evergrande is moving the projects on schedule and we will not comment on the actions of one or some specific banks,” the spokeswoman said. “Some banks are still positive about accepting mortgages for pre-sale homes, and we believe that the impact [on Evergrande’s projects] minor. If one of our buyers comes across banks that reject their mortgage applications, we suggest that buyers find other financial institutions. “

According to her, the developer will consider buyers on an individual basis and extend the transaction period to 60 days.

HSBC and ICBC Asia declined to comment.

Bank of East Asia said approved mortgage applications at Emerald Bay and Vertex would not be affected. “BEA continues to accept applications for participation in these projects primarily on a legal basis,” the bank said in a statement.

However, according to Eric Tso, senior vice president of mReferral, Evergrande has discontinued its own financing plan, which is offering new buyers up to 90% of the purchase price through external financial institutions in the Emerald Bay and Vertex projects over the past three weeks. Mortgage brokerage services.

“Without financial assistance from a developer, they will have to look for mortgages from banks,” he said, adding that those who have already applied for mortgages will be processed.

According to Tso, it is too early to say how many buyers will be affected by the banks’ decision to provide more cautious loans.

According to him, buyers can return to their lenders and receive a mortgage once the apartments are completed.

Tso suggested that buyers who did not apply for a mortgage should opt for “milestone payment plans,” which require only a 10 percent down payment, with the remaining 90 percent paid through bank loans when the apartments are due to be rented out.

The tightening of credit policy should not affect the first phase of development of Evergrande Emerald Bay, as it has already been completed.

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The second phase of the 1,228-unit Emerald Bay project is due to be completed in the third quarter of 2021, and the 414-unit Vertex project will be completed in the fourth quarter.

So far, 229 units have been sold at Vertex and 1,196 at Emerald Bay, according to mReferral.

The mortgage broker estimates that 58 buyers – two in Vertex and 56 in Emerald Bay Phase Two – are likely to be hit by the move.

“Those buyers who bought apartments in May and chose to pay in cash must now apply for mortgages,” Tso said.

Evergrande bonds are undergoing sharp cuts in a key land-based finance market, a testament to how risky these bonds are perceived by dealers on the mainland.

Evergrande plans legal action against bank after shares fall by $ 2.7bn

According to the China Securities Depository and Clearing Corp, holders of the 2023 yuan-denominated Evergrande bonds are forced to accept a 53 percent discount to pledge the bond as collateral in the repo market, up from 28 percent in April. According to the data, a markdown of about 57% of the bond’s face value was noted as a result of the developer’s previous liquidity crisis in October.

The big haircuts come at a time when the real estate giant is trying to convince investors that it can make enough money to pay off debt. While China’s largest credit risk assessor gave Evergrande an investment grade, some of its onshore bonds fell to record lows this week as concerns over its financial health worsened.

Additional reporting by Pearl Liu

This article originally appeared in South China Morning Mail (SCMP), the most authoritative voice reporting on China and Asia in over a century. To learn more about SCMP, check out SCMP application or visit SCMP Facebook as well as Twitter pages. Copyright © 2021 South China Morning Post Publishers Ltd. All rights reserved.

Copyright (c) 2021. South China Morning Post Publishers Ltd. All rights reserved.





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