Mortgage loan curbs to stay until home prices fall, HKMA chief Norman Chan says

Home values remain stubbornly high despite six rounds of Monetary Authority cooling measures

PUBLISHED : Monday, 14 July, 2014, 11:40pm
UPDATED : Tuesday, 15 July, 2014, 8:00am

Six rounds of mortgage tightening by the Hong Kong Monetary Authority since 2009 have reduced lending but not reined in prices, the latest figures show.

The average loan-to-value ratio of new residential mortgage loans has dropped to 55 per cent, from 64 per cent in September 2009 before the first round of measures was introduced, Hong Kong Monetary Authority chief executive Norman Chan Tak-lam said yesterday.

The figures show the growth in mortgage loans has been brought under control

But the Centa-City Leading Index, which tracks secondary market prices at major housing estates, shows home prices rose 66.8 per cent between the start of September 2009 and the end of last month.

Chan, in an article posted yesterday on the website of the city's de facto central bank, wrote that since the second quarter of last year mortgage loan growth calculated on a yearly basis has shrunk to 4.2 per cent from 8.7 per cent in 2010.

"These figures show the growth in mortgage loans has been brought under control, especially since the introduction of positive mortgage data sharing in 2011, which plugged previous loopholes for concealing outstanding mortgages to secure more bank loans for speculative purposes," Chan said.

He acknowledged that the market cooling measures had been likened to "spoiling the party by taking away the punch bowl", but said they helped safeguard banks by defending them from risks in a market downturn.

The measures would remain in place until property prices fell, Chan said.

Ben Kwong Man-bun, the head of research at KGI Asia, said the HKMA policies had failed to lower home prices because interest rates remained low and supply and demand remained out of balance.

"Property prices are likely to remain high and the HKMA has done the right thing to curb bank property lending to prevent them from taking on too high a risk," Kwong said.

The HKMA began tightening up on mortgages after hot money started flowing into the city following the United States' adoption of a monetary easing policy, which boosted local stock and property prices.

In the sixth round of measures, introduced in February last year, banks were told to test borrowers' ability to repay mortgages on the assumption that interest rates would go up by 3 percentage points.

Earlier rounds were aimed at luxury purchases and made it harder for people to get a mortgage for a second property.