Spike in some Hong Kong flat sales raises fraud suspicions

The Hong Kong skyline is lit up on Christmas Eve in Hong Kong
FILE PHOTO – The Hong Kong skyline is lit up on Christmas Eve in Hong Kong, China, December 24, 2019. REUTERS/Lucy Nicholson

May 20, 2020

By Clare Jim

HONG KONG (Reuters) – A jump in the number of Hong Kong flats selling for exactly HK$10 million ($1.3 million) in recent months has raised suspicions about potential fraud, following a relaxation of mortgage rules for properties sold at that price.

Regulators loosened rules in October, allowing buyers to borrow up to 80% on properties worth HK$10 million or less versus HK$6 million previously, but still only enough for small-to-medium flats in one of the world’s most expensive markets.

For properties priced above HK$10 million, a 50% downpayment is still required.

Data from realtor Ricacorp shows the number of home transactions priced at exactly HK$10 million rose in March and April to 61 and 70 respectively, from usually fewer than 40.

Property and mortgage agents said sellers, under pressure to offload flats as the recession weighs on prices, could be open to helping buyers get higher financing ratios by declaring a lower transaction price and settling the rest separately.

This could constitute both mortgage fraud and tax evasion, realtors said. It can also distort market data that helps with pricing other flats, with HK$10 million transactions now representing close to 2% of monthly totals.

“This can only be done in a turning market when bank valuation is leading the transaction price, otherwise banks may not approve the mortgage,” said Eric Tso, a senior vice president of mortgage agent mReferral Corporation.

Reuters could not verify whether any of the transactions were misrepresenting the full amount.

Bank officials, who declined to be named because they were not authorised to speak to media, said they were aware of the trend and as a precaution did not approve applications if transaction values were 10-20% below the amount estimated by their evaluators.

Since the coronavirus outbreak in January, banks also increased scrutiny on applicants who work in retail, food and beverages and the aviation industries, property sources said.

Banks have been beefing up mortgage standards since the economy officially plunged into recession late last year, including issuing guidelines that monthly mortgage payments cannot exceed 65% of income.

($1 = 7.7503 Hong Kong dollars)

(Reporting by Clare Jim; Editing by Marius Zaharia and Sam Holmes)

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