With lending increasingly restricted on the mainland, Chinese property developers are finding a nice loophole in Hong Kong where they can still get cheap money.
While banks demand at least 5.2 per cent in annual interest for three-to-five year money in mainland China, the cost of credit in Hong Kong dollars has fallen to the least since November 2004, according to data compiled by Bloomberg. China Overseas Land & Investment Ltd. agreed to an HK$8 billion ($1.03 billion) loan in February that pays 1.45 per cent at current market levels, the data show.
There’s been record loan demand from mainland property companies:
Syndicated borrowing by Chinese developers in Hong Kong dollars jumped to HK$37.3 billion this year, the most since Bloomberg began compiling the data in 1999, from HK$3 billion in the same period of 2009. Total lending in the city rose six-fold to HK$63 billion from HK$8.7 billion as Chinese banks’ share of the market fell to 21 per cent from 29 per cent, while yuan- denominated lending to Chinese developers dropped by 25 per cent.
China Resources Land Ltd. said on April 30 that it agreed to four loans with banks totaling HK$6.2 billion. Agile Property Holdings Ltd., a developer with projects in 20 Chinese cities and districts, borrowed $125 million in January from a Bank of America Corp. unit in Hong Kong, Bloomberg data show.
It looks like China will have to start clamping down on Hong Kong just as hard as it has done in mainland cities.
Thing is, can they? Given that Hong Kong interest rates are basically enslaved to U.S. interest rates thanks to the Hong dollar’s hard peg to the U.S. dollar and open financial system, they might just have to ban more and more types of property-related lending as they’ve done on the mainland.