Ted Hisokawa
Jul 31, 2026 09:09
Negative equity residential mortgages in Hong Kong fell sharply to 4,356 cases by June 2026, reflecting a 61.9% drop from Q1, HKMA data shows.
The Hong Kong Monetary Authority (HKMA) reported a steep drop in residential mortgage loans (RMLs) in negative equity by the end of June 2026. The number of cases plunged 61.9% to 4,356, down from 11,424 at the end of March. The total value of these loans also shrank significantly, falling 64.4% to HK$19.6 billion.
Most of the negative equity cases were tied to high loan-to-value borrowing, such as bank staff housing loans and mortgages insured under government-backed programs. The unsecured portion of these loans decreased from HK$2.8 billion in March to HK$0.9 billion in June, reflecting improved collateral coverage.
Despite the overall reduction in negative equity, the three-month delinquency ratio rose sharply to 1.25% from 0.5%. This suggests that while the aggregate value of RMLs in negative equity dropped, delinquent loans did not decline at the same pace, potentially signaling financial stress for some borrowers.
The HKMA’s survey covers approximately 99% of the banking industry’s residential mortgage portfolios, excluding co-financed loans where second mortgages may also be in negative equity. These second-lien loans are not tracked by banks, leaving some gaps in the overall picture.
Market Context: Cooling Property Sector
The sharp decline in negative equity comes amid a moderating Hong Kong property market. While the Centa-City Leading Index (CCL), a key indicator of secondary residential prices, rose 0.75% week-on-week to 160.54 as of July 24, 2026, broader signals suggest cooling momentum. Luxury residential transaction values dropped 30% quarter-on-quarter to HK$8.76 billion in Q2 2026, reflecting softer demand for high-end properties.
On the supply side, the Hong Kong government has tightened its release of housing land. Only one residential site will be made available in Q3 2026, contributing to lower land premium revenue targets for the fiscal year. Structurally, housing affordability remains a chronic issue. The city retained its title as the world’s least affordable housing market for the 16th consecutive year, adding pressure on policymakers to address long-term challenges.
Implications for Borrowers and Banks
The reduction in negative equity could provide some relief to borrowers, particularly those who struggled with high loan-to-value ratios. However, the rise in delinquencies is a red flag for lenders, suggesting pockets of vulnerability in the banking system. For investors, the mixed signals from the property market—declining negative equity alongside a slowdown in luxury transactions—underscore the need for caution, especially in assessing mortgage-backed assets.
Looking ahead, the HKMA’s next survey, likely covering Q3 2026, will provide further insight into whether the decline in negative equity is sustainable or merely a temporary reprieve amid broader property market adjustments.
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