The number of Hong Kong home loans worth more than the flats behind them fell to an estimated 3,819 at the end of September, down 12.3% from 4,356 at the end of June, the Hong Kong Monetary Authority said in its quarterly survey released Friday.

For banks and investors, the figure is a gauge of how much damage the long slide in home prices left on lenders' books. A smaller underwater pool means less pressure on mortgage portfolios, which are among the largest single exposures of Hong Kong's banks, and it follows official data showing home prices rose 0.19% in September.

The aggregate value of loans in negative equity fell to HK$17.3 billion from HK$19.6 billion in June, the HKMA said. The unsecured portion, the amount by which the debt exceeds the value of the property, dropped to about HK$0.8 billion from HK$0.9 billion.

Who is still underwater

The regulator said the remaining cases were mainly bank staff housing loans and mortgages under the mortgage insurance program, both of which typically carry higher loan-to-value ratios than ordinary home loans. According to The Standard, underwater loans made up 0.62% of all mortgage borrowers and 0.87% of outstanding mortgage loans.

One measure moved the other way. The three-month delinquency ratio for negative-equity loans rose to 1.34% from 1.25% at the end of June. The HKMA said that was because the total value of underwater loans shrank faster than the value of delinquent loans within that group, not because more borrowers fell behind.

Across the whole market, credit quality held. The overall mortgage delinquency ratio was 0.11% in September, a level the HKMA described as low, and the rescheduled loan ratio was unchanged at nearly zero, the authority said in its separate monthly mortgage survey.

The survey covers lenders holding about 99% of the industry's mortgage book, with the results scaled up to the whole banking sector. It does not count loans that would be underwater only if second mortgages from developer co-financing schemes were included, because banks do not track those balances, the HKMA said.

Mortgage activity cools in September

The same set of releases showed borrowing slowed in September. Mortgage applications fell 10.5% from August to 7,560, and loans drawn down during the month dropped 22.8% to HK$25.3 billion.

New loans approved slipped 1.1% to HK$31.8 billion. Within that total, approvals for primary-market purchases fell 6.8% to HK$8.5 billion and those for secondary-market purchases fell 5.7% to HK$14.4 billion. Refinancing was the exception, rising 14.6% to HK$8.9 billion. Outstanding mortgage loans edged up 0.2% to HK$1.98 trillion.

How borrowers price their loans also shifted. The share of new mortgages tied to the Hong Kong interbank offered rate, or HIBOR, fell to 52.7% in September from 57% in August, the HKMA said. Loans priced off banks' best lending rates dropped to 1.3% of new loans from 1.9%. The authority did not break out the remainder in its statement.

Banks and developers have been marketing fixed-rate plans. HSBC and Henderson Land Development said Monday they would offer buyers at One Upper Lane in Mong Kok three-year and five-year fixed-rate mortgages at 2.93%, reverting afterward to HIBOR plus 1.3 percentage points, according to The Standard. For Kowloon Development's 33 Clear Water Bay project, Midland Realty and broker mReferral launched packages last Thursday that include a prime-based rate of 2.68% for up to three years and a five-year fixed rate of 2.93%, the newspaper reported, with prime at 5.25%.

New-home launches draw crowds

Demand for new flats in the first weeks of the fourth quarter looked firmer than September's mortgage numbers. Midland Realty counted about 1,700 primary-market transactions in the first 27 days of October, a five-month high and the third straight month above 1,000 deals, The Standard reported. The agency said new-home sales so far this year topped HK$208 billion across more than 16,500 transactions, already above last year's full-year value.

The latest test is One Marina in To Kwa Wan, developed by Sino Land, China Merchants Land and the Urban Renewal Authority. The project had drawn more than 5,500 registrations of intent by Sunday afternoon for 138 flats on its first two price lists, an oversubscription of more than 38 times, according to The Standard.

Victor Tin, an executive director at Sino Land, said the flats were priced about 10% below the neighborhood average. He said investors had risen to 25% of prospective buyers from 20%, and that two-bedroom units of 380 square feet were drawing the most interest.

Sino Land plans to sell the 138 units by price list on Friday, Nov. 6, and to offer 12 three-bedroom sea-view flats in Tower 1 by tender the same day, Tin said Monday. The HKMA's next mortgage survey, covering October, will show whether the month's sales pickup carried through to new lending.