Scores of homeowners in Hong Kong are on the verge of falling into negative equity, with small flats in older buildings losing up to a fifth of their value in a matter of weeks.

Many people who bought flats in the last couple of months have seen their value decline by as much as 20 per cent, according to up-to-date estimates by HSBC, Hong Kong’s largest mortgage provider.

Hong Kong’s famously expensive property market has started to feel the strain lately from a fall in demand caused by rising interest rates, a struggling stock market and fears about the impact of the US-China trade war.

Negative equity occurs when a home loan exceeds the market value of the property, and has not been seen in Hong Kong since early 2017.

“Theoretically, buyers who obtained a mortgage of 90 per cent of the flat’s value will fall into negative equity once home prices have dropped more than 10 per cent,” said Sharmaine Lau, the chief vice-president at mReferral Mortgage Brokerage Services.

Industry watchers said flat owners who paid high prices for tiny apartments in older buildings may face the biggest losses because banks tend be conservative in their valuations for such flats when the market takes a turn for the worse.

“Lower valuations will first apply to flats that have less marketability. Banks’ valuations, which are supported by surveyors, are made in line with market conditions,” said Chiu Kam-kuen, head of valuation and advisory services, Asia-Pacific at Cushman and Wakefield.

The Post found flats at various old housing projects are now valued by HSBC well below their recent selling prices.