The Hong Kong Monetary Authority reported a sharp decline in residential mortgage loans in negative equity during the second quarter of 2026, with cases falling to 4,356 at end-June from 11,424 at end-March, a 61.9% decrease in just three months. The aggregate value of these troubled loans dropped 64.4% to HK$19.6 billion from HK$55 billion, signaling improved conditions in the territory’s property market despite rising delinquencies among underwater mortgages.
- Cases in negative equity: 4,356 at end-June 2026 (down from 11,424 in March)
- Aggregate loan value: HK$19.6 billion (down from HK$55 billion)
- Unsecured portion: HK$0.9 billion (down from HK$2.8 billion)
- Three-month delinquency ratio: 1.25% (up from 0.5%)
The unsecured portion of these loans, the amount exceeding the property’s market value, contracted to HK$0.9 billion from HK$2.8 billion, reducing banks’ exposure to potential losses. The majority of negative equity cases involved bank staff housing loans or mortgages under insurance programmes, which typically carry elevated loan-to-value ratios, making them more susceptible to underwater status during market downturns.
A notable counterpoint emerged in the delinquency data: the three-month delinquency ratio for these loans increased to 1.25% from 0.5%. The HKMA attributed this rise to the aggregate value of negative equity loans declining faster than delinquent cases, a technical mathematical shift rather than necessarily indicating deteriorating borrower finances. The survey covered authorized institutions representing approximately 99% of the banking sector’s mortgage portfolio, with results extrapolated across the industry.
The authority noted that its figures exclude mortgages under co-financing schemes where negative equity status would only materialize when second mortgages are factored in, as authorized institutions do not maintain centralized records of second mortgage balances. The dramatic improvement in negative equity positions reflects a rebound in Hong Kong property valuations during the first half of 2026.
