[HONG KONG] Hong Kong took fresh measures to cool one of the world's most expensive real estate markets on Friday, reducing the amount of money home buyers can borrow and capping the amount of debt they can take after house prices hit a record high last year.
The central bank's steps come ahead of an expected US interest rate rise this year and a day after Asia's richest man, Li Ka-shing, who controls they city's second-largest developer, said smaller home prices in Hong Kong would remain firm.
Home prices have risen nearly 35 per cent since 2012, when the city's leader, Leung Chun-ying, took power with a pledge to make housing more affordable. Frustration over the city's widening wealth gap and soaring home prices have sparked widespread protests in Hong Kong. "If the US raises interest rates, Hong Kong will follow suit...We need to be mindful that the risk is not that far away; the risk is getting closer and larger," Norman Chan, chief executive of the Hong Kong Monetary Authority, the city's de facto central bank, told reporters.
The city's currency is pegged to the US dollar and an increase in US interest rates would cause domestic rates to rise as well, increasing mortgage payments for home owners.
Fuelled by record high property prices and ultra low interest rates, borrowers have taken on more debt, pushing the household debt to GDP ratio to a high of 64 per cent.
The HKMA cut the amount of money home buyers can borrow to 60 per cent of the property's value, from 70 per cent for homes priced below HK$7 million (US$902,818), a step aimed at curbing speculative demand for smaller apartments. The debt-servicing ratio for second-home buyers would be lowered to 40 per cent for second-home buyers, from 50 per cent, he added.
Some analysts questioned the longer-term impact of the measures. "The impact of this will be very short-lived as interest rates are still very low and Hong Kong's inflation remains high relative to the region, which means effective real interest rates are still in negative territory," said Raymond Leung, an economist at ANZ in Hong Kong.
Since October 2009, the government has taken a series of steps to curb prices, including a 15 per cent property tax on foreign buyers, mortgage restrictions and taxes on quick resales. However, price pressures have continued to pose policy challenges for officials.
The HKMA also reduced the amount of debt that borrowers can service to 40 per cent from 50 per cent for all mortgage loans taken for non self-use properties. All measures will be effective immediately.
Home prices in the former British colony have surged about 130 per cent since 2008 due to low interest rates, a supply shortage and ample liquidity.
The moves, which were announced after the market closed, will likely pressure Hong Kong's stock markets and property shares on Monday.
The property sub-index on Hong Kong's stock market fell 1 per cent on Friday ahead of the measures, underperforming the Hang Seng index's 0.3 per cent drop. The sub-index has risen around 5 per cent so far this year as expectations of further price increases at home have helped offset concerns about China's cooling real estate market.