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  • Dec 27, 2014
  • Updated: 11:28pm
NewsHong Kong

Antony Leung warns rising interest rates could derail flat supply boost

Rise in interest rates once US economy recovers could sap demand for extra homes CY plans, as happened with 1997 target, Antony Leung says

PUBLISHED : Sunday, 03 February, 2013, 12:00am
UPDATED : Sunday, 03 February, 2013, 5:36am

Former financial secretary Antony Leung Kam-chung says the government's plan to boost the housing supply could flood the market with more flats than it can absorb if interest rates rise owing to a rally in the US economy.

Leung warned of a repeat of the failed "85,000 flats a year" target announced by then chief executive Tung Chee-hwa in 1997. By the time the new flats were ready, he said, the market would have shrunk due to external economic factors, leaving it unable to absorb all the flats.

Leung, a member of the Executive Council from 1997 who was named financial secretary in 2001, said the new administration was right to address the city's housing problem by increasing supply. But he was worried about complications arising from the US economy.

Asked if he thought the market slump following the announcement of the government's target of 85,000 flat completions a year would repeat itself, Leung said: "It is possible." He added that a rise in real interest rates led to the 1997 target not being met.

"Our inflation rate follows the mainland market, but our interest rate is tied to the US rate because of the linked exchange rate. We've had quite a seriously negative real interest rate for the past few years," he said.

"When this interest-rate environment changes, the property market will turn downward," Leung, a former banker who now works for investment firm Blackstone, said.

The target set in 1997 was affected by external factors, he said. The administration quietly abandoned the target the following year as the economic impact of the East Asian financial crisis was felt, but Tung only publicly confirmed in 2000 that it had been dropped two years earlier. Although the target was achieved in 2000 - with half the flats produced for private or subsidised sale the rest for public rental - by then the market had slumped.

The Hong Kong Association of Banks sounded a similar warning to Leung's last month, saying higher interest rates would mean an increase in monthly repayments for mortgage-holders.

The US Federal Reserve expects to keep interest rates at near zero until the unemployment rate drops to 6.5 per cent, which it forecasts to happen by 2015. But many economists fear the rate may change earlier.

Meanwhile, the Long Term Housing Strategy Committee met yesterday to discuss whether there should be a minimum income level for applicants for subsidised flats under the Home Ownership Scheme flats, said Secretary for Transport and Housing Professor Anthony Cheung Bing-leung. The scheme has only a maximum monthly income limit of HK$40,000.

"It sounds strange that some applicants say they have no income. If they don't, how will they pay the mortgage?" said Cheung, referring to Greenview Villa, a subsidised housing project that drew almost 60,000 applicants last month. The committee will make a decision later.


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This article is now closed to comments

thought this piece of garbage was flushed down the toliet years ago
Tax the 250k empty units
While HK should try to reduce cage homes, a property collapse a la SARS is worse.
Those wishing for a crash for their own selfish reasons should remember it was when unemployment was likely near 10% and most homes were in negative equity when prices were off 70%. That is why 1m middle class folks, who generate 90% of income, were out on the streets. This is what govt fears this more as if we lose the middle class then HK is doomed.
So watch what you wish for - cheap homes with no jobs, future for HK? Property crash always worse (ask those in US, Spain Greece Ireland etc). Hopefully govt can find a middle route.
I am a home owner myself, and it is not selfish that I wish home price would come down to a more affordable level. The house price now is getting so high that even the middle class folks cannot afford. Negative equity on a principal residence is no big deal as long as the government has policy in place to ensure the bank will not foreclose the homes in question when the mortgage payment can be kept up. I don't feel sorry for those who owns multiple flats and cry about negative equity.
Anthony did not take into account of previous proposals that the Gov ought to set up an "agency" that provides security to "first-time buyers" for a 90 - 95% mortgage. That will stabalize the market, and slow down any panic fall in prices - if the economy goes down or interest rates goes up. Negative equity, is nothing strange, as long as Banks has no fears on defaulting. Since Gov-backed "first-time buyers" should be local, they're unlikely to "run-off" or go bankrupt.
Moreover, any defaults of these "first-time buyers" , can easily be taken up by HKHS whom I'm sure can re-sell when the market picks up again.
Dai Muff
When the market is above the prices that most Hong Kong residents earning the mean household income will be able to afford in a working lifetime it HAS to fall and negative equity be damned.
Not if prices are supported by top 20%, and richer mainlanders or foreigners
Anthony Leung is a very successful banker, and his interest is to make money for himself and for the filthy rich. Thus he has no interest in looking out for the under privileged citizens of Hong Kong.
If you only owns the flat you live in, rising/falling prices is immaterial. It is only the investor/speculators/developers who will not want flat prices to fall because of their own greed.
You are looking at figures, Mr Antony Leung; I am looking at human beings - coffin homes, sub standard living condition in so called affluent Hong Kong. Fall, let it fall, if it is necessary for upgrading the life of ordinary citizens who are suffering in the most inhumane condition, as a result of monopoly and greed. I am a homeowner but my sympathy to those people who live in such appalling environment comes first. Something humanity needs to face; Hong Kong is facing that. Mr CY Leung and team, please continue to walk your words to meet the number of homes for the poor and less privileged, then move on to other issues that are in top priorities for the ordinary HKers, not to kowtow to the powerful few and those who support and work for those powerful people. Betterment for the life of HK ordinary citizen is obviously your top priority; Mr Leung and your team; you have authority to materialise your words and plans, go full force. May God steer you?
Dai Muff
Let's not worry about people living in bed spaces and subdivided apartments, and having to cook in the toilet, eh Mr Leung?
Well said, hoi polloi! The gap between the demand for decent living accommodation at prices people can afford and the supply of it is so huge that it would take years of concerted effort to bring it anywhere near balance. This is just one of the many pressing social problems bedevilling this pressure cooker we call home, while the government sits on hundreds of billions of dollars of reserves, and the fat-cat vested interests purr from on top of their piles of tax-free dividends, interest and capital gains. Meanwhile, the cage-home dwellers and Hong Kong's poverty statistics continue to shame us all. It amazes me that the pressure cooker has not blown its top already. Oh, by the way, Mr Leung, there will be no US recovery for quite a while. They have to get through a hyperinflationary depression first. Watch this space!


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