Sat, Mar 24, 2012 - Page 11 News List

Hong Kong may face renewed housing bubble risk

Bloomberg

Hong Kong may face renewed risks of a housing-price bubble as interest rates remain low, Hong Kong Monetary Authority chief executive Norman Chan (陳德霖) said.

As confidence in the market “has gone up a bit” with the sovereign debt crisis in Europe stabilizing, Chan is now turning his attention back to the city’s real-estate market, he said at the Credit Suisse Asian Investment Conference yesterday.

RENEWED RISK

“On my radar screen, another risk emerged. That’s the risk we encountered back in 2009: the renewed risk of a housing price bubble,” Chan said.

The territory’s low mortgage rates mean “real interest rates are hugely negative. Lots of people have come to the conclusion that they buy brick and mortar, tangible assets, and could preserve their purchasing power,” he said.

Average mortgage rates in Hong Kong were about 2.38 percent at the beginning of the year and could reach 4 percent by the end of the year, mReferral Mortgage Brokerage Services chief economist Sharmaine Lau said in January.

Borrowing costs were 0.9 percent early last year, almost the lowest in 20 years, company data shows.

The number of Hong Kong’s used-home transactions increased 26 percent last month, rising for the first time in four months, after the US Federal Reserve said on Jan. 25 that interest rates would probably stay low for the next two years, Centaline Property Agency Ltd (中原地產) said.

Home prices rose 1.8 percent on a week-by-week basis in the seven days ended March 11, climbing for the third straight week, according to Centaline, the territory’s biggest closely held realtor.

Interest rates being “too low for too long is always associated with a bubble phenomenon,” Federal Reserve Bank of St Louis President James Bullard said at the same conference in the territory. “It’s not just a US policy, but a G7 policy.”

Borrowing costs in Hong Kong usually follow those set by the Fed because the territory’s currency is pegged to the US dollar.

Inflation in China eased to 3.2 percent last month, the lowest since June 2010, while Chinese Premier Wen Jiabao (溫家寶) reiterated the government’s curbs on property prices this month.

China, the world’s largest oil consumer after the US, increased gasoline and diesel prices this week, the second time it has done so in less than six weeks, after crude gained last month the most in a year.

‘WILD CARD’

Oil is a “wild card” for China’s inflation prospect, Chan said.

“It’s very expensive now and could be more expensive going forward,” Chan said. “Hong Kong is watching against the downside of deterioration in the situation through trade and investment channels, and at the same time, this renewed risk of credit-fueled pass-on.”

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