HONG KONG • Snaking queues of thousands of prospective apartment buyers in Hong Kong signalled that the authorities have made no progress in cooling a red-hot housing market.
The latest attempt at cooling, however, is expected to send buyers scouring for loans in the unregulated shadow banking industry, spreading risk across the financial sector.
People were lining up over the weekend at Victoria Skye, a luxury project at the former airport site of Kai Tak, and at the Ocean Pride development by Cheung Kong Property Holdings and MTR.
"Successive moves by the government ... to cool the property market only resulted in it becoming crazier," The Standard newspaper said in an editorial published yesterday. "The result is a sea of madness."
Home prices in Hong Kong - where a nano-apartment of less than 200 sq ft can cost as much as US$500,000 (S$692,000) - have surged more than 137 per cent since the 2008 financial crisis, propelled by a supply shortage, low interest rates, and big flows of money from mainland Chinese investors.
The cost of housing in the financial hub was among the triggers for mass protests in late 2014. The authorities have failed to rein in prices despite eight rounds of mortgage tightening by the Hong Kong Monetary Authority (HKMA) since 2009, on top of a series of tax and regulatory policies.
The HKMA has been tightening rules for lenders as it tries to limit financial risks and take some of the heat out of the market. At a Legislative Council meeting yesterday, HKMA chief executive Norman Chan said levels of demand were reminiscent of 20 years ago - before Hong Kong suffered a property bust - and he expressed concern that people with limited financial resources were buying just because they thought prices would only keep going up.
As measures have curbed bank lending, finance companies have leapt into the gap. They funded 8.7 per cent of mortgages for new apartments completed in 2016, according to Centaline Property Agency.
The shift in lending into shadow banking channels is a concern, analysts warned. "This is not healthy. When people can't borrow from banks they are forced to turn to finance companies. It is not healthy because the HKMA cannot regulate finance companies," said Centaline research director Wong Leung Sing.
The HKMA spokesman said while it did not regulate non-banking firms, last year it advised banks to ensure finance companies with whom they maintain a credit relationship comply with the central bank's guidelines in extending mortgages to their customers.
"Given this requirement, banks should not be providing loans to finance companies which offer high LTV (loan-to-value) mortgages to property buyers."