Hong Kong finance chief warns again of property risk as US Fed acts

Residential apartments are seen under Ma On Shan peak in Hong Kong, on Aug 29, 2017. PHOTO: REUTERS

HONG KONG (BLOOMBERG) - Hong Kong's Financial Secretary Paul Chan warned potential buyers to be careful buying property in the world's most expensive housing market, as moves by the Federal Reserve to unwind its balance sheet may shrink money supply.

Chan warned in June that Hong Kong's property market is in a "dangerous situation" and vulnerable to a correction. Hong Kong Chief Executive Carrie Lam describes housing as citizens' No 1 concern and recently set up a task force on increasing land supply as she tries to rein in ever-escalating prices.

"One has to be very careful if one really wants to buy a property in Hong Kong," Chan said in an interview on the sidelines of a Belt & Road Forum in Hong Kong on Monday (Sept 11). Buyers need to assess their ability to service mortgages as interest rates normalize, he said.

Hong Kong's home prices, the least affordable in the world, have surged 21 per cent in the 12 months through June 30, the second-biggest gain globally after Iceland, according to a report from broker Knight Frank. The boom in global house prices may be coming to an end as central banks worldwide step away from economic stimulus, with a slowdown in growth already evident in Europe, the broker said.

Expectations for Fed tightening have been scaled back as its preferred inflation gauge has declined for five straight months, sitting below the central bank's 2 per cent goal. Even so, Hong Kong's leaders are monitoring the situation closely especially because an unwinding of central bank support could coincide with the addition of a large supply of homes in the city, Chan said. The government estimates 98,000 first-hand housing units will come on the market in the next three or four years.

Past experience indicates that rising US interest rates will "definitely" affect Hong Kong asset prices, Chan said. Combined with the increased supply of homes, "I would not be surprised if there will be a certain adjustment in the market," he said.

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