Keeping the lid on

THE Government's resolve to keep a tight lid on mortgage lending shows signs of weakening. Mr Hamish Macleod told the Hongkong Real Estate Developers Association there would be no immediate relaxation of the present 70 per cent ceiling on mortgage loans, yet he proceeded to undermine his own stance by promising a monthly review of the guideline, adding that the Government's position was not ''set in stone''.

The property developers were quick to read the underlying message, perhaps too quick. The price of property is already so high that first-time buyers have been driven out of the market, and any relaxation of the tough regime will not help them. While theimportance to the Hang Seng index of successful property stocks cannot be underestimated, many businesses would welcome some further relief from the inflationary spiral of ever-increasing rents.

The developers, of course, disagree. They claim it is the loan ceiling that is preventing first-time buyers entering the market. Raising 30 per cent of the price of any property in the current market is impossible for most Hongkong people. The average down-payment is now an extraordinary $1 million, a sum beyond the reach of even relatively affluent novice buyers.

However, as Mr Macleod reminded the Association, excessively high prices - not the lending restrictions - have hurt first time-buyers most. Indeed, as the Financial Secretary has also pointed out in the past, while 90 per cent mortgages and more are enormously attractive at a time of low interest rates and high inflation, many buyers could find themselves in serious trouble should the cost of borrowing suddenly rise and saddle them with heavier repayments.

In contrast, the people who are smarting most under the current lending restrictions are not the first-time buyers and genuine end-users, but the speculators who now find their profits are being eroded.

There is unlikely to be much sympathy for their plight from the general public. True, property prices have fallen between five and 15 per cent since the ceiling was imposed last year; but only after soaring 60 per cent in the previous 18 months. Providedthe fall in prices remains contained to those levels, there should be no urgency to lift the ceiling.

There is a risk that premature lifting of the restriction would lead to another overheated boom, as the speculators who were driven from the market last year would come flooding back for more. Prices would be forced up again and the developers' concern for the poor first-time buyer would soon dissipate. Nobody should be recommending a course of action which helps the speculators to make a killing at the expense of the general community good. There is plenty of opportunity for gambling on the stock exchange or the currency markets, whereas taking a punt on the property market often takes place at the expense of the genuine buyer, and fuels inflation.

For the genuine investor, Hongkong property has been a safe bet in recent years. Increased standards of living are bringing more and more local people on to the private housing market, and with the rapid expansion of the southern Chinese economy, the territory is unlikely to experience the damage to property values and the construction industry caused by recession in the West.

Meanwhile, interest rates for depositors are so ludicrously out of line with inflation that there is no incentive for any sensible saver to place his nest-egg in the bank.

Affordable property needs to be made available to the genuine end-user and to the small investor. The Government should listen carefully to proposals which both the Real Estate Developers and the Society of Hongkong Real Estate Agents have begun putting forward to find ways of relaxing the restrictions for genuine buyers, while still deterring speculators.

Some proposals will inevitably be self-serving, and should be approached with caution, while others, including a plan to fine anyone who falsely presents themselves as an end-user or a heavy tax on immediate resale of a property, might provide some solution. In the longer term, a carefully worked-out and legally enforceable strategy may open the way for a return to flexibility on mortgages, and the kind of free market Hongkong prefers.