IMF issues warning over property prices

The International Monetary Fund has warned of the risk of ample liquidity and credit fuelling the property market in Hong Kong.

It says measures may be necessary to ensure banks manage risks prudently and curb any escalation in housing prices.

'There is a risk that prices could become driven more by short-term liquidity conditions, divorced from fundamental forces of supply and demand,' Nigel Chalk, the fund's mission chief for Hong Kong, said in a conference call from Washington.

But there were no indications yet that rising luxury property prices were affecting mass housing, he said.

'We welcome the consideration that is now being given to increasing the supply of land to the market as one of the possible means to help moderate potential property price surges,' Chalk said.

The fund yesterday released its preliminary conclusions on Hong Kong after visiting the government and private-sector representatives in the city two weeks ago. The IMF lifted its forecast for Hong Kong's economy this year and next by 1.5 percentage points. It said the economy was expected to contract 2 per cent this year but expand 5 per cent next year.

The government's projection for this year is a contraction of between 3.5 per cent and 4.5 per cent.

Chalk said the city's recovery was still viewed as fragile despite the increasingly encouraging economic data. He called for the strict enforcement of the regulatory regime to continue, saying it would 'be essential in maintaining financial stability and limiting future macroeconomic volatility'. There was a role for banks to adopt countervailing prudential measures, he said.

'Such measures should be simple and transparent and introduced at an early stage in order to make clear what the ground rules are and ensure that the banking industry continues to manage risks prudently.'

The fund recommended maintaining financial support for lower-income households in the budget for 2010/11, introducing a mid-year progress report on budget execution, and carrying out some form of mandatory health care financing scheme. The IMF findings were welcomed by the government.

'We will continue to pursue the strategy of stabilising the financial system, supporting enterprises and preserving employment until the recovery is firmly in place,' Financial Secretary John Tsang Chun-wah said.

Meanwhile, the Democratic Party's most recent phone survey showed that nearly 80 per cent of the 603 respondents found current flat prices too high for the public.

Slightly more than 80 per cent of the interviewees said the government should restart the Home Ownership Scheme to build a small number of subsidised flats. The scheme, mothballed in 2002 after developers' pressure, allowed eligible families to buy at a discount.