New round of mortgage tightening likely amid fears of property bubble

Fears of property bubble set to lead to sixth round of tightening measures since 2009

PUBLISHED : Monday, 04 February, 2013, 8:30pm
UPDATED : Tuesday, 05 February, 2013, 4:54am

The Hong Kong Monetary Authority is poised to launch its sixth round of mortgage tightening measures since 2009 and has given its strongest warning yet of a bubble in the property market.

"The overheating property market remains the biggest risk factor to the stability of the Hong Kong economy," Norman Chan Tak-lam, chief executive of the authority, told lawmakers at a monthly financial affairs panel meeting yesterday.

Chan said household debt was near the record high of 60 per cent of GDP reached in 2002, with the ratio edging close to 59 per cent in the fourth quarter.

His warning came after the previous five rounds of mortgage tightening measures and tax measures introduced in October failed to cool down the market.

Despite a fall in sales volume and mortgage applications, prices have shown signs of rising.

Prices retreated by 1.6 per cent from a record high after the introduction of a new buyers' stamp duty and adjusted special stamp duty on October 27. But they recovered and are back at new highs, said Macquarie Securities.

The Centa-City Leading Index, which tracks home prices in 100 housing estates in the secondary market, rose 0.63 per cent week on week to 119.13 on February 1 - a record. The index's benchmark of 100 reflects prices in July 1997.

Chan said property prices were rising due to a lack of supply as well as hot money from abroad flowing into the city.

Countries such as the US and Japan have adopted monetary easing policies to lift liquidity and boost their economies.

"These monetary easing measures have caused inflation problems in Asia and have added uncertainties to the markets and economy in Hong Kong," he said.

Chan said current interest rates were close to zero and could go up at any time. "If the interest rate rises, some borrowers may have difficult repaying their mortgage and that would add to risks faced by the banks."

Financial services sector legislator Christopher Cheung Wah-fung agreed with the HKMA move, "to ensure the stability of the local financial sector as property prices have obviously gone too high already".

The HKMA's fifth round of mortgage tightening came in September.

It was designed to make it harder for people to get a mortgage for a second property while cutting the mortgage-to-income ratio from 50 per cent to 40 per cent. The previous four rounds of measures were aimed at the luxury market.