HKMA measures put Hong Kong in good stead to weather property plunge
City would not suffer as severely as in the past from a collapse in home prices because of limits on the amount of debt owners can take out
Last week, I offered three specific suggestions to address the high property prices head-on. As when any new measures are introduced, some stakeholders are bound to be affected.
With the Hong Kong economy heavily skewed towards property investment, the suggestion to increase rates would provide a substantial source of recurrent revenue for the government, unlike stamp duty and land sales, which can fluctuate greatly.
While no one likes to remember painful market adjustments, Hong Kong has had its share of calamities in the past 15 years. In 1997, the city survived the Asian financial crisis only to be hit in 2003 with Sars. Given the severe economic downturn following both, how quickly have Hongkongers forgotten about the dramatic fall in home prices from 1997 to 2003, when they dropped by nearly 70 per cent.
In addition, nearly 50 per cent of homeowners with a first lien, and some with second mortgages, were plunged into negative equity. Many homeowners thought their properties would never see the "light of day" again.
This week I want to focus on the wider impact for Hong Kong of any property price adjustment and the implications for homeowners plunged into negative equity again.
The issues surrounding negative equity seem to arise alongside conversations relating to property bubbles. With property prices in Hong Kong generally exceeding the levels last seen in 1997, many are quite concerned about the implications of a sharp downward price adjustment.