Hong Kong acts to avoid property bubble
Mortgage lending rules tightened, more land to be released to cool market
HONG KONG: Hong Kong's government yesterday said it will tighten mortgage lending rules and increase the supply of land to avoid a property bubble, warning that prices of some flats are approaching historic highs.
Financial Secretary John Tsang said prices in June were up 8 per cent from the end of last year despite a series of government measures introduced in April to cool the overheating market.
'A large amount of hot money has flown into Hong Kong's financial system.
'Flat prices of some popular housing developments are fast approaching historic highs,' he told a press conference.
'There is an increased risk of a property bubble forming because interest rates are expected to continue being very low for some time to come.'
Down payments for apartments costing HK$12 million (S$2.1 million) or more will rise to 40 per cent - from 30 per cent - with immediate effect, Hong Kong Monetary Authority chief executive Norman Chan said yesterday.
For properties worth HK$12 million or less, the maximum loan amount will be capped at HK$7.2 million, meaning down payments will increase for properties valued above HK$10.3 million. Luxury homes in the city are defined as those costing at least HK$10 million or bigger than 1,000 sq ft.
Down payments for investment properties will rise to 40 per cent from 30 per cent as well, Mr Chan said.
The government will also increase land sales next year, Mr Tsang said earlier.
Hong Kong has been seeking to rein in home prices that have soared about 40 per cent since the beginning of last year, boosted by the lowest mortgage rates in two decades and buying by mainland Chinese. Mr Tsang said home prices are approaching the levels of 1997, the height of a previous bubble that was followed by a six-year slump.
'This is a serious attempt by the government to slow the growth in property prices,' said CLSA Asia Pacific Markets regional head of property research Nicole Wong. 'Maybe a lot of people still have HK$4.8 million for a down payment on a HK$12 million flat, but luxury is a leading sector and this is sending a message that this is serious.'
Hong Kong banks will also be asked to apply stress tests on mortgage rates rising 2 percentage points, Mr Chan said. Mortgage borrowers' debt-to-income ratio should not be higher than 60 per cent when the interest rate increases by 200 basis points, he added.
'We want to remind all potential homebuyers that the interest rate right now is at a very abnormal level and it is impossible for this to be sustained,' Mr Chan said.
Banks are offering mortgage terms as low as 70 basis points above the one-month Hong Kong interbank offered rate, which is currently at 0.22 per cent.
Mr Tsang said the government would auction three extra sites on its latest application list in the remainder of the fiscal year ending March next year, regardless of whether developers table an offer. Two of these three sites would be auctioned next month.
Under Hong Kong's application list system, a land auction is triggered only when a developer offers at least 80 per cent of the government's minimum price for a lot on the list.
Mr Tsang added that the government would also convert some industrial sites into residential sites.
'The key to the issue of ever-rising home prices is the shortage of supply, and that the government has to wait at least a few years from now to see the effect of increasing land supply on the property market,' said Hang Seng Bank economist Irina Fan. 'The risk of asset-price bubbles will continue to grow as we expect the low interest rate environment will last for an extended period.'
The government will also raise the cancellation fee to 10 per cent of the deposit - from 5 per cent - and ban the resale of new flats before transactions are completed, Mr Tsang said.
Speculation in the Hong Kong market needs attention and the measures will increase the cost for speculators, he added.
BLOOMBERG, AGENCE FRANCE-PRESSE
With immediate effect, down payments for apartments costing HK$12 million (S$2.1 million) or more will rise to 40 per cent, from the current 30 per cent. -- PHOTO: AGENCE FRANCE-PRESSE
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