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The Monetary Authority yesterday moved to rein in the red-hot property market by tightening the rules for mortgage loans for medium sized flats. Photo: Bloomberg

The fundamental problems of the property market remain

The Monetary Authority yesterday moved to rein in the red-hot property market by tightening the rules for mortgage loans for medium sized flats. 

The Monetary Authority yesterday moved to rein in the red-hot property market by tightening the rules for mortgage loans for medium sized flats. The maximum loan-to-value ratio for self-use residential properties valued below HK$7 million was immediately lowered from 70 to 60 per cent. The maximum debt-servicing ratio for borrowers who buy a second residential property for self-use was also lowered from 50 to 40 per cent. With prices of small- and medium-sized flats having surged by more than 10 per cent since last April, there are reasons for the authority to step in.

Inevitably, potential buyers will be caught by the new restrictions. But the government is obviously worried about the outlook and sees the need to deflate the property bubble.

The surprise announcement came just two days after Financial Secretary John Tsang Chun-wah had been criticised for not taking further action in the budget to stabilise property prices. Speaking in a radio phone-in programme yesterday morning, he maintained that he would not hesitate to take actions when necessary, adding that the measures would come "fast and harsh".

Like the heavy stamp duties and other mortgage restrictions introduced in the past, the new measures are expected to have temporary effects on the market. The government is merely treating the symptoms without tackling the fundamentals. The housing conundrum lies in the inadequate supply.

The finance chief did try to enhance supply with a new loan guarantee scheme, which enables owners of 250,000 government-subsidised flats to pay off the concession so that they can lease out the units in the private market. But it was greeted with lukewarm response. Some critics branded it as unfair to taxpayers, adding that it would fuel the market further.

According to the land sale programme for 2015-16, there will be 29 residential sites, 16 of which are new. Together with supply from other sources, a total of 19,000 units can be provided. Encouraging as it sounds, some sites have yet to clear the statutory rezoning hurdle. Compared to the target of producing 480,000 units in the next decade, the number still falls short of the demand.

The government is to be commended for making housing a top priority. But with greater commitment comes greater expectation. Unless better efforts are made to boost supply in the short and longer term, the problems are likely to persist.

 

This article appeared in the South China Morning Post print edition as: Fundamental problems remain
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