Warning on collapse of market

MR Patten was warned of social unrest if he does not scrap measures against property speculation that developers blame for the economic downturn.

Calls have also increased for Mr Patten to lift the 70 per cent mortgage ceiling to help first-time home buyers.

Property consultants have warned the market has edged towards collapse, because people are losing confidence in property investment, which has been a major economic activity.

Home prices dropped by a third since the introduction of price-cooling in June 1994, and property experts predicted the market had not yet bottomed out.

Few expected any major changes from Mr Patten's policy address next week, but he was expected to promise closer monitoring of the market.

Market doldrums in recent months have forced the closure of small estate agents and sackings at leading firms.

But Housing Branch statistics showed home prices last July were still about 10 per cent higher than prices for July 1993.

A spokesman said there was no need for big changes at this stage. 'The Government is taking a 'no more, no less' attitude. It will keep monitoring the market,' she said.

Society of Hong Kong Real Estate Agents president Michael Choi Ngai-min called for the establishment of a commission to review the mortgage ceiling level.

Mr Choi said the 70 per cent ceiling, imposed four years ago, was a major hurdle for those trying to buy their own homes.

In June 1994, in a bid to cool the rampant property market, the Government clamped down on internal sales of flats by developers, cutting them from 50 per cent of the total to 10 per cent.

Sales of unfinished flats were restricted to allow deals no more than nine months before assignment. The resale of unfinished units was banned.

'Monthly purchase deals have dropped by half in recent months,' Mr Choi said.

'People do not want to buy flats now because they fear losses if prices continue dropping.' The market was also hit by interest rate hikes since early last year. The prime rate jumped from 6.75 per cent in March last year to nine per cent.

The Hong Kong Real Estate Developers' Association warned that the cash flow of developers could be hurt if the market remained stagnant.

A special group under the Lands Department has been set up to fast-track housing developments which provide more than 500 residential apartments.

During the year, three projects were approved and the group is dealing with seven others.

The department estimated the move could hasten the supply of more than 10,000 flats in the next few years.