Table of Contents
The "Breathing Plan" spawned by the long-term high housing prices in Hong Kong has become one of the hottest topics of livelihood in 2023. This "mortgage insurance plan" launched by the Hong Kong Mortgage Corporation has sparked heated debate in society because of its low threshold of "borrowing money for just breathing". Its operating mechanism and social effects deserve in-depth analysis. This article will deconstruct the deep-seated contradictions behind this nationwide lending frenzy from three aspects: financial mechanisms, market effects, and generational conflicts.
1. The perfect trap of debt financialization
The essence of Breathing Plan is a financial innovation that dismantles and reorganizes the traditional mortgage structure. By dividing the loan into "developer second mortgage" and "bank first mortgage", the design of only needing to repay 1.68% interest in the first three years perfectly utilizes the "present bias" psychology in behavioral economics. This "sweet first, bitter later" repayment model successfully reduced the average mortgage burden rate from 65% to an initial 35%, creating the illusion of "painless home buying."
There are precise calculations hidden behind the financial engineering: assuming that a property worth 8 million is purchased, the down payment is only 10%, or 800,000, but starting from the fourth year, the mortgage amount needs to be reduced to 70%. This means that the buyer must raise the difference of 2.4 million within 36 months, which is equivalent to saving 66,000 yuan per month, far exceeding the reality of Hong Kong's median household income of 27,500 yuan. Financial institutions cleverly transfer risks to consumers, forming a structural debt trap.
2. Distortion Effect of the Property Market Ecosystem
The breathing plan triggers the failure of the market mechanism. The sales data of new projects in 2023 showed that the proportion of projects adopting the Breathing Plan was as high as 78%, which directly stimulated developers to adjust their pricing strategies to the "Breathing Plan critical point". The asking price of the new Tuen Mun property "Fei Yang" was 42% higher than that of second-hand properties in the same district, but it was still oversubscribed, indicating that financial instruments have positive and negative control over pricing power.
This credit expansion creates an "addictive" market dependency. Data from the Monetary Authority of Singapore revealed that among Breathing Plan users, 23% had a monthly income of less than 30,000 yuan, but purchased properties worth more than 7 million yuan. When the first batch of Breathing Plans enter the repayment period in 2025, it is estimated that 15% buyers will face the risk of defaulting on their loans. This "subprime mortgage" model forms a dangerous contrast with the 2008 US subprime mortgage crisis.
3. The general outbreak of intergenerational conflicts
The Breathing Plan has become a symbol of Generation Z's criticism of society. Young netizens coined the term "breathing youth", which not only refers to the helplessness of being forced to participate in the real estate gambling game, but also implicitly satirizes the survival dilemma under the hegemony of real estate. This collective emotion has evolved into a unique online subculture against the backdrop of the "Hong Kong Property Market Pain Index" hitting a record high of 92.7 points.
There has been a fundamental shift in social values. The traditional concept of "getting on the bus = success" is being deconstructed. The popular post "Is Breathing Plan the new generation's indenture?" has received 350,000 views, reflecting young people's despair about class mobility. This sentiment forms an ironic contrast with the government's "Lantau Tomorrow" plan, deepening the trust gap between generations.
4. The "sweet first, bitter later" interest rate trap: data reveals long-term risks
Developers design interest rate structures by taking advantage of buyers’ short-sightedness. According to data from Centaline Mortgage Research Department, among buyers who use the Breathing Plan in 2022, only 12% can successfully refinance before the penalty interest period, and the remaining 88% are forced to bear high interest rates, leading to the following problems:
1. Negative equity risk:
Assuming the purchase price is 8 million and the loan is 90% (7.2 million), if the house price drops by 15%, the book value will be 6.8 million and the loan balance will be approximately 6.9 million (after 3 years), which means the house will be in negative assets. Among the negative asset cases in Q2 2023, respiratory PLAN accounted for 45%.
2. Debt Spiral:
Based on the interest rate of 7.375%, the annual interest for every 1 million loan is $73,750, which is equivalent to $6,146 per month. If the mortgage cannot be transferred, the additional interest expenditure over 5 years will be as high as $368,760 (based on a loan of 1 million).
3. The threshold for refinancing is too high:
The upper limit of traditional bank mortgage ratio is 60%. If one wants to transfer to Breathing Plan's 90% loan, the house price needs to appreciate by 50% to meet the requirement (the original value of 8 million needs to be increased to 12 million), which is almost impossible during the property market adjustment period in 2023.
5. New mortgage policy: escape hatch or risk transfer?
The 2019 Policy Address relaxed mortgage insurance, which does provide a buffer for PLAN buyers:
Policy highlights:
– Properties below NT$10 million can be insured up to 80%
– Premium structure: 1.15%-4.35% (depending on the amount and repayment period)
– Applicable to existing buildings (needs developer’s immediate supply plan to cooperate)
Example verification (Evergrande Junlong Bay case):
– Purchase price: 5.68 million (after discount)
– Breathing Plan loan: 90% (5.112 million)
– Loan balance in the third year: 4.65 million
- New mortgage insurance requirements: Property valuation ≥ 5.82 million (2.5% higher than the purchase price)
– Monthly payment after refinancing: $19,147 (interest rate 3.5%), down 46% from $35,500 in the fourth year of the Breathing Plan
Market Impact:
– Mortgage company data shows that the number of cases of respiratory plan conversion to mortgage insurance in 2022 increased by 120% year-on-year
- But the concern is that the banking system bears the original risks of the developers. If the property prices fall, the insurance claim ratio may rise.
VI. Regulatory gaps and market distortion effects
The prevalence of respiratory PLANs reflects three major regulatory loopholes:
1. Circumventing HKMA guidelines:
Bank mortgages are subject to the Debt Service Deposit Ratio (DSR) cap of 50% and stress testing, but finance companies are not subject to such restrictions, leading to excessive borrowing.
2. Information asymmetry:
Developers rarely provide long-term payment schedules when selling properties, so buyers tend to underestimate the risks. The Consumer Council’s 2022 survey showed that only 23% Breathing Plan users were clearly aware of the interest rate after the fourth year.
3. Leverage stacking:
Some buyers use both the Breathing Plan and the Financial Loan at the same time, and their total debt-to-equity ratio (DTI) can reach 150%, far exceeding the healthy level.
7. Rational Choice: Buyer’s Response Strategy
1. Self-control of stress testing:
Even if the developer is exempted, he should calculate the DSR based on the long-term interest rate (such as 7%) to ensure that it does not exceed 60%.
2. Escape route planning:
Start saving funds for refinancing in the first year of the honeymoon period, with the goal of repaying the principal to below the property price of 70% within 3 years.
3. Risk diversification tools:
Consider interest rate hedging products (such as fixed-rate mortgages), or keep at least 12 months of payment reserves.
8. Future Outlook: Policy Reform and Market Trends
– Interest rate normalization shock:
As US interest rates rise, the P rate may rise to 6.5% in 2024, and the breathing PLAN rate will exceed 8%, increasing the risk of default.
– Expectations of tightening regulation:
The MAS may require finance companies to refer to bank approval standards or set a maximum loan-to-value ratio (such as 70%).
– Market elimination mechanism:
If housing prices continue to adjust, there may be a wave of defaults on residential properties before 2025, prompting developers to curb high-risk lending.
This great social discussion triggered by the Breathing Plan is, in essence, a total exposure of Hong Kong’s deep-seated structural contradictions. When the housing issue is transformed from a livelihood issue into a financial commodity, it reflects not only market failure but also the fundamental crisis of the capitalist development model. While young people use jokes to fight despair, they also sound the alarm for the future of the city - when even breathing requires planning, perhaps it is time to rethink the true meaning of "housing security."
The "Breathing Plan" is essentially a promotional tool used by developers during the property bubble period, and its risk structure is like a "time bomb". While new mortgages provide a buffer, the fundamental problem is excessive expansion of leverage. Buyers must be aware of the costs behind “exemption from review”, and policymakers need to strike a balance between stimulating the property market and financial stability. The next few years will be a critical period to test the sustainability of this model.
Further reading:
- "Breathing Plan" Homeowner Self-Help Guide | Soaring interest rates + declining property market: Using low-interest, high-ratio mortgages to get out of trouble
- [In-depth analysis] Tseung Kwan O's "loss and sale tide" continues, the value of a two-room apartment in LOHAS Park has depreciated by 28% in 7 years, and the owner lost 2.34 million yuan and left the market
