Hong Kong Moves To Stop Bubble Trouble

Hong Kong Moves To Stop Bubble Trouble

Hong Kong Skyline from Victoria Peak

The Hong Kong Monetary Authority, the city’s central bank, last month imposed tighter mortgage restrictions, which Hong Kong Chief Executive Donald Tsang said were to stave off a big property bubble following soaring prices this last year. He told attendees at a business lunch: “We do not want to see a huge property bubble developing in Hong Kong,” having earlier said that he wasn’t sure whether a bubble was forming or not.

The action taken by the HKMA was on October 23rd, and it cut the mortgage limit from 70 percent of the property’s value to 60 percent, on property worth HK$20 million (US$2.6 million) or more. For properties below that figure, the 70 percent ratio stayed in place but the HKMA capped the maximum loan amount at HK$12 million.

Tsang did try to reassure people, however, by suggesting that this present surge in property prices did not show the same signs of speculative behaviour that preceded the bursting of Hong Kong’s property market bubble back in 1997, which resulted from the Asian financial crisis.

He was tight-lipped on whether there were any other plans afoot to keep property prices under control, only saying that the government did have the necessary tools at their disposal, and that any action taken would be prompted by the need for stability, transparency and smooth market operations. One method could be to make more land available for residential property development, which is something the government said last month it is already considering. This would be done through auctions and would mainly concern derelict buildings left over from Hong Kong’s manufacturing days.

However, when Tsang met the city’s property developers last week to discuss the rising property prices, they told him that the government should release land at more reasonable prices than in the past, because developers have to agree to pay 80 percent of the site’s recommended price before the auction can go ahead.

Despite the global recession, prices of Hong Kong’s mass-market residential property have leapt more than 20 percent in 2009, and luxury property prices have gained even more, jumping 40 percent. This latter surge is the result of an excess in global liquidity, and a fresh influx of cash from mainland China where there has been a big increase in the number of wealthy Chinese.

Real estate agents have said that property transactions have fallen since the cut, but analysts have pointed out that because many mainland Chinese buyers of luxury property in the city buy with cash, mortgage measures may not do much to calm the luxury sector.

Photo credits: tangysd via flickr