The amount of home loans extended to buyers in Hong Kong is expected to drop to a four-year low this year, as a result of the Covid-19 induced economic recession, which has hit investment demand hard and stalled home sales.

Home loans are expected to drop to HK$290 billion (US$37.4 billion), according to an estimate by Mreferral Mortgage Brokerage Services, and HK$296 billion, according to Centaline Mortgage Broker, from HK$341 billion last year. The total amount of home loans stood at HK$217.4 billion in 2016.

In October itself, the number of mortgage applications decreased month on month by 11.2 per cent to 10,908 cases, while the value of mortgages approved decreased by 6.7 per cent compared with September to HK$34.6 billion. The value of approved mortgages fell for a fourth consecutive month in October, according to the latest data from the Hong Kong Monetary Authority.

“The slack in demand for home loans is largely due to a sharp fall in mortgage refinancing, and fewer new project launches this year,” said Ivy Wong, the managing director of Centaline.

In the first 10 months of this year, refinancing fell to 19 per cent of all mortgages approved from 35 per cent for the full year of 2019, HKMA data shows.

“Investment appetite has been sapped by the uncertain market outlook, [which will prevail] until the Covid-19 pandemic has been brought under control,” said Raymond Chong, the chief executive of mortgage referral firm Starpro Agency. He said mortgage refinancing – used by many borrowers in Hong Kong to pursue investment activity – handled by his agency had dropped by up to 80 per cent this year.

When property prices rise, borrowers opt for additional loans through refinancing, Chong said. Under current regulations, borrowers can get loans up to 60 per cent of property values for homes worth less than HK$10 million, and 50 per cent for those worth HK$10 million or more, when they seek refinancing.

“Borrowers usually use the additional loans for investment purposes, such as buying more flats during market booms. But these activities have nearly stalled in a softening market,” Chong added. He said cash rebates had been cut to 0.5 per cent from 2 per cent previously, which has also contributed to the fall in mortgage refinancing.

Mreferral said it was hard to forecast next year’s mortgage market. “We still need to observe [the market] for several more months. But a downbeat market sentiment could affect housing demand in general, ” said Eric Tso, its senior vice-president.

Centaline Property Agency said that while transactions for lived-in homes were expected to see 17 per cent year-on-year growth in 2020, thanks to easing of mortgage rules for completed flats, the sales of new homes would register a 27 per cent year-on-year decline to 15,000 deals.

Midland Realty data shows that the sales of new flats worth HK$6 million and less had dropped most, by 39.9 per cent to 3,225 deals, in the first 11 months this year, while those of homes priced between more than HK$6 million and HK$10 million fell 31.5 per cent. This year has been volatile, said Buggle Lau, the chief analyst at Midland. “The Covid-19 pandemic continues to bite,” he added.

Developers have really had to lower their prices to woo buyers for new flats. The first batch of 30 units at mainland Chinese developer Kaisa Group’s Concerto development in Sham Shui Po was put on sale at an entry price of HK$3.85 million on Thursday, for instance.

“It is the lowest lump sum amount for new flats in Kowloon in the past year,” said Louis Chan Wing-kit, Centaline’s vice-chairman and chief executive of residential in Asia-Pacific.