Bank chief sounds alarm on rising home prices
Eldon advises caution despite saying HK is unlikely to match any Fed rate rise
Hongkong and Shanghai Banking Corp chairman David Eldon has rung the alarm bell once more over the city's embryonic property revival.
The head of Hong Kong's two biggest banks - he is also chairman of Hang Seng Bank - said he was 'perfectly happy' to see property prices rising and 'delighted to see the level of negative equity in property coming down'. But he added: 'I do get horrified by some of the prices I see being offered for property going on the market.'
He was referring specifically to the surging luxury home market.
'When 12 months ago they were probably half of what they are going for today, I do not see that as being sensible.'
Speaking after Hang Seng's shareholders meeting yesterday, Mr Eldon said Hong Kong banks were unlikely to follow an expected US rate rise closely this year. He said he was expecting an increase of 25 to 50 basis points in the US, presaged by Federal Reserve chairman Alan Greenspan's comments this week about strong corporate earnings.
The interest-rate mechanism used by the Hong Kong Monetary Authority (HKMA) makes it likely that any rise in US interest rates will be followed locally.
An HKMA spokesman said yesterday that the base rate, which it charges banks for overnight money, was maintained at a set level above the higher of either the US federal funds rate or the Hong Kong interbank offered rate (Hibor).
'The base rate is either 150 basis points above the federal funds rate or five-day average of overnight Hibor, whichever is higher,' the spokesman said. With the US federal funds rate at 1 per cent and overnight Hibor at just 0.001 per cent, US rates will continue to set the bar for HKMA's base rate.
Mr Eldon urged property buyers and lenders alike to learn from previous lessons.
'Providing people buying are sensible when they borrow and the banks are sensible when they lend', Hong Kong could avoid another rough time, he said. 'I hope that the earlier mistakes don't get repeated.'
The local property market has been in a slump for the past five years, with many homebuyers mired in negative equity.
