A LEADING developer said yesterday it was time to ''raise the red flag'' and address the economic impact caused by rocketing property prices. Payson Cha Mou-sing, managing director of Hong Kong Resorts International, said economic prosperity would be threatened if the sector's surge priced it out of reach of foreign corporations and others. ''If cities become too expensive there tends to be a slow migration of large corporations,'' said Mr Cha, developer of Discovery Bay. He said the impact of such withdrawals would have far-reaching consequences on the booming economy. ''That is something that Hong Kong developers and the Government should get together on in seriously addressing. Somebody should be appointed to study it,'' he said. ''Because if it becomes too expensive and the economy stops booming, then we won't just have to worry about the sandwich class. We will have to worry about everyone. Then we will really have a problem.'' Tough conditions slapped on new mortgages by the territory's two major lenders, Hongkong Bank and its subsidiary Hang Seng Bank, last week are expected to force many would-be buyers to downgrade plans for their dream home. The conditions, which cut the amount of money advanced on a single property and raise the cost of borrowing, are part of an ongoing strategy by the major lenders to limit their exposure and cool down the overheating market. So-called luxury apartments, or those costing more than $5 million, lead the residential surge with a 50 to 60 per cent leap in January compared with the same time last year, according to Hongkong Bank's statistics. Mr Cha said escalating property prices had hit the middle or sandwich classes hardest. ''They can either move to a cheaper location further away from their work, or get into a smaller place. Or they can even buy across the border, in Shenzhen or Guangzhou. This is a phenomenon happening already,'' he said. The Hongkong Bank said it was comfortable with ''our current exposure to home mortgages, but we don't want it to get out of hand''. ''We are not making it harder, we are just giving out less money,'' said a bank spokesman. ''Our criterion for giving mortgages remains the same. What is different is the price being charged and the amount being lent out. ''We have focused [new restrictions] on the higher end of the market because that's where most of the growth is and where most of our concerns are. ''We have intentionally drafted these changes so as to cause least disruption to smaller would-be home buyers. We have been mindful of the small players.'' About 82 per cent of the territory's working population earns less than $10,000 a month, according to the latest population census. About 80 per cent of households, or four in every five families, has a monthly income of less than $20,000. ''Families have to go downmarket. They need to get into a smaller place,'' said Lai Kim-leong, director of JCG Finance Company which has found a small niche as a lender to buyers at the lower end of the mortgage scale. ''Our typical client is a family with a combined income of $20,000 to $25,000, and aged 25-40. Their savings have come from their family or parents and are their only assets. ''Normally they have savings of $500,000 to $1 million and we insist on 50 per cent deposit. We charge prime plus four, so about 10 per cent. ''They are repaying $7,000 to $10,000, about 50 per cent of their disposable income, a month on a flat of about 400-500 sq ft bought for around $2 million. Quite commonly, they take second jobs. ''Our market base should not be narrowing because they will take whatever amount of mortgage we give.'' First Pacific Bank, which has positioned itself as a small ''homeowners' bank'', demands a minimum deposit of 30 per cent of the valuation of a purchaser's home and charges prime rate plus 1.75 per cent (8.25 per cent). ''The market is just going crazy. So we are very strict to ensure we are lending for the use of owner-occupiers and not speculators,'' said Bonnie Ngan Suet-fong, vice-president and head of marketing. Citibank banking director Peter Wong Tung-shun said there was no question of banks intensionally pushing down the valuation price of a property, because valuation was done by independent surveyors. ''Banks have a policy on mortgage ceilings to reduce their risks. But there is no guideline on valuation prices. ''Some people might complain about the bank's low valuation price, which may be more than 10 per cent less than the flat's purchase price. But that is not the problem of the bank or the surveyor. ''We are facing an unreasonable market where prices can go up by 10 per cent in a few days. But what a surveyor can do when assessing the value of a property is to base on the latest transaction prices of comparable flats. ''It is understandable that a low valuation price might hit a home-buyer hard. But we can do little on this aspect. You cannot ask the surveyors to predict the market and assess a higher or lower price in favour of you,'' Mr Wong said. The common practice here is that banks will hire an independent surveyor to do the valuation. But there are some banks who will use their own internal surveyors to do the job. Buyers can also choose their surveyor from a list recommended by the bank. A partner of the surveyors' firm Knight, Frank Kan and Baillieu, Kan Fook-yee, said on some occasions the valuation price could be lower than the purchase price by more than $200,000. ''It is particularly common in case of second-hand flat transactions where the selling prices might include costs of flat decoration and furniture that are supposed to be sold as part of the unit. ''But certainly a surveyor will ignore the values of the furniture. We only assess the market value of the unit.'' Property consultant Shih Wing-ching of Centaline Property Agency however argued that most surveyors recommended by the bank tended to very conservative and they were acting in favour of the bank. ''They know that the banks are tightening their mortgage terms to lower the risks and thus they often give a lower valuation price to maintain a business relationship.'' But for tens of thousands of staff at banks and lending institutions, the runaway residential property market and the tough stance adopted by major lenders does not spell doom. Most bank staff enjoy a heavily subsidised mortgage interest rate of around four per cent, while Hongkong Bank's 13,000 staff do even better at three per cent.