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Property sales agents chat during the roadshow of a residential property development in Hong Kong. Photo: Reuters

New property cooling measures will see higher down payments for Hong Kong buyers

New mortgage-tightening measures will require homebuyers to come up with at least 40pc of price for properties costing under HK$7 million

Homebuyers will need to come up with a higher down payment for properties under HK$7 million in a new round of mortgage-tightening measures announced yesterday by the Hong Kong Monetary Authority after prices in the city's residential market hit an all-time high.

It is the seventh lot of measures introduced to cool the market since February 2013.

HKMA chief executive Norman Chan Tak-lam said the loan-to-value ratio for residential properties under HK$7 million would be capped at 60 per cent, down from the existing range of 60 to 70 per cent. That means buyers will need to pay a higher down payment.

Second home-buyers will find it more difficult to borrow as the measures - which take effect immediately - also lower the maximum debt-service ratio (DSR), the monthly repayment of the borrower as a percentage of monthly income, from 50 per cent to 40 per cent.

"This latest round of countercyclical measures will inevitably affect the home purchase plans of some people, including first-time buyers," said Chan. "However, it is the duty of the HKMA to undertake whatever supervisory measures are necessary to safeguard banking and financial stability as and when the property cycle evolves."

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Property agents said the measures were likely to reduce sales volume by as much as 30 per cent, with prices declining 5 per cent in the short term, but some questioned how effective the measures would be in the long run given the housing supply.

"Supply is limited but demand remains strong. That is the key issue that has not yet been solved," said David Tse, of the Royal Institution of Chartered Surveyors' external affairs and public concerns committee.

Raymond Kwok Ping-luen, chairman of developer Sun Hung Kai Properties, said the measures would suppress demand in the short term. "But the property market remains positive for the medium to long term," he said after the company announced its interim results yesterday.

Buyers of all non-self-use properties including residential, commercial and industrial also saw their maximum DSR sliced to 40 per cent from 50 per cent.

MORE ON THIS: Latest cooling measures on home sales 'may drive rents higher'

Home prices for small units rose 15 per cent from June to December last year and the indebtedness of Hong Kong households rose to a historic high of over 64 per cent to gross domestic product, said Chan.

He said the market became active in the second half of last year with monthly transactions hitting more than 6,000 deals compared to the average monthly volume of more than 4,000 deals in the first half of 2014.

The buying frenzy spread to government-subsidised housing with a record of nearly 130,000 applications made for just 2,160 bargain flats on sale under Hong Kong's relaunched Home Ownership Scheme last month.

The Town Planning Board yesterday rejected the rezoning of a green belt in Stanley for residential use yesterday - a day after Secretary for Development Paul Chan Mo-po announced that the site would be put on market.

 

This article appeared in the South China Morning Post print edition as: Bigger down payments In bid to cool market
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