Hong Kong finance firm comes up with loan scheme targeting Gen Z ease their way into a world of soaring rents

Finance companies are targeting Hong Kong's young renters who are not only finding it difficult to step on the property ladder in the world's most expensive real estate market but also keep up with soaring rents.

United Asia Finance (UA), one of the city's largest money lenders, said on Wednesday that it would offer loans of up to 10 times the monthly rent or a maximum of HK$200,000 to ease renters' financial burden that can accounts for up to 50 per cent of an individual's monthly income.

UA did not define the age group of its target audience, but Victor Wong, chief executive of Ego Finance, said that such loans are usually targeted at Generation Z renters " below the age of 30.

The "New Renter's Loan" is targeted at renters of new flats. It comes after Hong Kong rents reached an all-time high in October 2018, according to data from the Rating and Valuation Department's residential rental index. Rents for units smaller than 430 sq ft have jumped 35 per cent between 2013 and 2018, while sale prices have surged 63 per cent during the same period, the data showed.

Borrowers will be charged a monthly interest rate of as low as 1 per cent.

Li Kwong-yan, chief operations officer of UA, said property prices in the city have climbed nearly 2.5 times since 2008, making buying property unaffordable for most people, especially the younger generation or newly-married families who have no choice but to rent flats.

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"However, two months rent deposit, one month's upfront payment plus additional funds for basic household goods and other expenses are quite a burden for renters, especially for those who are new

renters," Li said. "Such expenses bring them financial pressure and short-term cash flow difficulties."

But market watchers said the annual interest rate could work out to be as high as 20 per cent, subject to the formula being used by different money lenders. Some personal finance loans charge annual interest rates of 30 per cent.

The city's highest legal interest rate is 60 per cent a year.

Ego Finance's Wong said that the firm might consider pursuing the "niche market".

"Our business is market driven. We create products whenever there is a market demand," he said.

Wong said finance companies offering such loans thoroughly evaluate client risk by checking their financial health through consumer credit reference agencies.

"Data will show outstanding loans or unpaid credit card bills. If we find that they pay their bills regularly, their risk of defaulting on loan reduces as well," said Wong.

Finance firms are beyond the purview of the Hong Kong Monetary Authority, as they are regulated by the Money Lenders Ordinance, which is enforced by the Commissioner of Police.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2019 South China Morning Post Publishers Ltd. All rights reserved.