BT : HK tightens mortgage rules to cool property prices

Business Times - 14 Aug 2010

HK tightens mortgage rules to cool property prices

(Hong Kong)

THE Hong Kong government tightened mortgage lending yesterday for bigger flats as their prices head for historic highs, fuelling asset bubbles in the Chinese territory.

Property shares will likely feel pressure next week on the news, after late losses pushed the Hang Seng index to its worst weekly performance since early July.

Hong Kong, home to property tycoons such as Li Ka-shing and Lee Shau-kee, faces overheating in its real estate sector, driven by record-low interest rates, abundant liquidity partly due to mainland Chinese buying and Asia's strong economy.

'We need to take preventive measures before an asset bubble forms,' Hong Kong Financial Secretary John Tsang told a news conference after the government announced economic data.

'Experience indicates when the property market heats up, a lot of speculation takes place in the market,' he said. 'I will not hesitate to introduce further measures if necessary.'

In a separate news conference, the Hong Kong Monetary Authority announced tighter rules for lending, lowering the mortgage loan ceiling to 60 per cent from 70 per cent for properties with transaction prices of HK$12 million (S$2.1 million) or above.

Previously, mass-market apartments usually had a higher loan ceiling of 70 per cent, while luxury apartments are categorised as those that cost HK$20 million or more.

The government will also raise the forfeit of deposits for buyers who cancel apartment transactions to 10 per cent, up from 5 per cent, to discourage speculators.

While trying to increase the housing supply, the government has also set a limit on debt servicing ratios of mortgage applicants to 50 per cent, rather than the current 50-60 per cent. 'This is quite a powerful move to clamp down speculation in the property market,' said Alva To, head of consulting for North Asia at property services firm DTZ. The latest moves will likely dampen sentiment in the stock market next week.

'That is going to have a bit of pressure on the share prices, but not by too much. Actually if you look at the share prices, they have not performed that well if you compare that to the physical market,' Eva Lee, an analyst at Macquarie Securities.

Housing prices have risen by another 10 per cent since the start of 2010, after gaining about a third last year. Property stocks fell 1.3 per cent since the beginning of this year.

Mr Tsang said prices for large flats had surpassed previous highs of 1997 and were fast approaching historic highs.

Earlier this year, the government slapped a higher stamp duty on luxury apartments to try and rein in prices.

It is also increasing scrutiny of Hong Kong property developers such as Henderson Land Development Co Ltd, which was investigated by police after announced sales of several units at one of its luxury apartment developments ultimately failed to close. -- Reuters

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