Hong Kong central bank unveils fresh measures to check property price surge

Hong Kong's real estate is among the most expensive in the world.
Hong Kong's real estate is among the most expensive in the world.PHOTO: AFP

HONG KONG (REUTERS) - Hong Kong regulators announced new prudential lending measures on Friday to cool a red-hot property market, moving for the second time in six months to discourage buyers from pushing up residential prices that are already at record highs.

Hong Kong's real estate is among the most expensive in the world and latest government data showed property prices in March surpassed a peak hit in September 2015 amid increasing volumes.

The surge has come as mainland Chinese companies are increasingly making their presence felt in Hong Kong's primary market while mainland buyers form an increasing proportion of the secondary residential market.

Skyrocketing property prices have added to growing discontent in the city, with its population already under strain from high living costs and a widening wealth gap.

Norman Chan, the head of Hong Kong's de facto central bank, the Hong Kong Monetary Authority (HKMA), said the fresh measures include raising the risk-weighted floor to 25 per cent for new mortgage loans, lowering the loan to value ratio by 10 percentage points and trimming the debt servicing ratio.

Mr Chan told a media briefing that keen competition for mortgage business in the banking sector has heightened the risk of overheating in the property market, and weakened the resilience of banks to cope with a downturn in the market.

"Given these developments, the HKMA considers that there is a need to introduce new measures to strengthen the risk management of banks," he said.

The measures come after the government raised stamp duties on home purchases in November and as the central bank has raised interest rates twice since December following the US Federal Reserve's actions. But they have failed to dampen a buoyant property market.

Worryingly, rising prices have been accompanied by growing volumes and record primary land auction sales. Transaction volume for residential properties has doubled to about 7,000 in April 2017 from January this year, according to government data.

On Tuesday, Henderson Land Development snapped up a rare commercial site in the heart of Hong Kong's central business district for HK$23.3 billion (S$4.17 billion), setting a fresh record for land sold by the government in the city. The HKMA said all the new measures take effect immediately.

Market watchers believe the new measures won't trigger a correction in prices with more measures likely in the coming months as the majority of the overseas buyers tend to be cashed up mainland buyers. "The majority of overseas property buyers are mainland Chinese," said Thomas Lam, senior director of Knight Frank. "The new measures will not have a big impact on mainland Chinese buyers."