Tsang's warnings are on the money
Hong Kong's property market has come through some turbulent times since the handover - the Asian financial crisis, the Sars outbreak and the global financial crisis. Many people still have painful memories of years of struggle to emerge from negative equity in their properties after the first two events. This year Financial Secretary John Tsang Chun-wah has issued a string of warnings to homebuyers to be cautious in deciding whether to buy a flat in the face of Europe's deepening debt crisis and an unpredictable world economy.
What sets the current deteriorating climate of uncertainty apart is Tsang's warning. The Asian and global meltdowns and the Sars emergency broke without warning. The threat from Europe is developing before our eyes every day the euro zone's leaders fail to come to grips with it.
Politically, Tsang cannot lose. No one can blame him if the economy - and the property market - take another hit. If he is proved wrong everyone will cheer.
Meanwhile, his warning resonates with the report in our Business pages yesterday that property agents believe more buyers, mostly from the mainland, will default on the purchase at high prices of new flats in Hong Kong, given the deteriorating market sentiment. In any case Tsang is right to warn of a 'rocky' time ahead. If Greece leaves the euro zone and defaults, it would have a massive impact on European banks and governments that would spook financial markets and spark a global contagion.
There remains hope that European governments can agree on a co-operative solution to the crisis that is acceptable to Germany and allows room for a return to economic growth. But it will be in the context of fiscal consolidation, a euphemism for belt-tightening and financial house-cleaning. That, too, will impact on China's exports, since Europe is its biggest trading partner, and Hong Kong will suffer knock-on effects to its economy and property market.
The signs are already there, with the city's first-quarter economic growth slowing almost to a halt because of lower exports, more recent signs of reduced economic activity, a slowdown on the mainland, and increasing stock-market volatility.
Amid Europe's troubles and government warnings about the growing risk of a property 'bubble', home sales have been falling. But property prices have been sustained by ample liquidity and low interest rates, a situation Tsang describes as 'unhealthy'. With buyers spending an average of 46 per cent of disposable income on their mortgage, he is right to stand ready to tighten mortgage lending rules. Prospective homebuyers have nothing to lose by heeding his warnings.