Hong Kong’s central bank moved yesterday to slow a surge in luxury property prices driven by buyers from mainland China by limiting mortgages amid concern over a real estate bubble in the territory.
Last week, Hong Kong Chief Executive Donald Tsang (曾蔭權) warned of a potential property bubble and said the government could release more land for sale.
The Hong Kong Monetary Authority (HKMA) said yesterday it would cap the mortgage limit for luxury property at 60 percent, down from 70 percent, and limit mortgage loan values.
“It is very difficult to detect if a bubble is there,” Norman Chan (陳德霖), chief executive of the Hong Kong Monetary Authority, told reporters. “But what we’re concerned about is, given the very sharp rise in prices in this top segment of the property market, the risk, or credit risk, to these mortgage loans to these properties has increased.”
The HKMA said the 60 percent mortgage cap would apply to property valued at HK$20 million (US$2.6 million) or more. For properties below that the 70 percent ratio will remain but the maximum loan amount will be capped at HK$12 million.
“We do not directly target price levels,” Chan said.
Prices have surged by 26 percent this year, and by more in the luxury segment, where mainland Chinese are snapping up apartments. Many of them are entrepreneurs who are awash with cash and would not be deterred by the mortgage limit, analysts say. Chan acknowledged that but said there was still a portion of people needing mortgages.
He also warned homebuyers and banks to account for an eventual rise in interest rates from record lows.
Financial Secretary John Tsang (曾俊華) plans to discuss the government’s concerns with developers next week, a source familiar with the situation said yesterday. Data showed housing construction this year is down 60 percent from three years ago.
As cheap money globally is boosting fund flows into Asian assets and driving up property prices, Singapore’s government last month moved to release more land and make it harder for home buyers to defer payments.
South Korea has threatened to raise interest rates to curb property prices, although the Bank of Korea said yesterday that the market had been stabilizing.
Hong Kong’s currency peg to the US dollar forces it to track US interest rates, which are expected to remain low for some time.
Private housing construction between January and September this year totaled 5,100 units, government data showed yesterday. For the whole of last year, construction totaled 8,000 units — less than half the 17,300 units in 2006 and below 15,000 in 2005.
A decade ago, annual construction topped 30,000 units.
Anthony Cheung (梁家傑), an academic on Hong Kong’s Executive Council, said price surges in the luxury sector would spread to the broader market.
“There is some impact, it will start to move prices so the government should pay greater attention to this,” he said, adding the government should consider building more public housing.
The last property bubble in the late 1990s burst with the onset of the 1997-1998 Asian financial crisis, and property prices plunged 70 percent over the next six years.
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