HSBC Says Hong Kong at Risk of Property Bubble
“Property prices are at a fairly high level right now,” Wong said in an interview with Bloomberg Television today. ‘If it continues to increase, it may form a bubble.”
The Hong Kong government is trying to curb 42 percent surge in home prices since the beginning of 2009 amid concern housing is out of reach of ordinary residents. Prices may rise 10 percent in the second half of this year if interest rates remain at two-decade lows and the local economy keeps growing, according to property consultant Jones Lang LaSalle Inc.
HSBC, which has had the largest share of new mortgages among banks in Hong Kong since May, is “quite secured” with a loan-to-value ratio below 40 percent in the city, Wong said.
Hong Kong’s home prices have increased 10.5 percent this year, according to an index compiled by Centaline Property Agency Ltd. The Hang Seng Property Index, which tracks seven of the city’s biggest developers, has risen 11 percent in the past six months, compared with a 5.6 percent gain in the benchmark Hang Seng Index.
Sun Hung Kai Properties Ltd., the world’s biggest developer by market value, in June bought a site in the Ho Man Tin district for HK$10.9 billion ($1.4 billion). At HK$12,540 per square foot, it was the highest price paid in a government auction in urban Hong Kong since the market peaked in 1997.
The government last month sold a residential site in the city’s luxurious Peak district for HK$10.4 billion in an auction it initiated to boost land supply. It will sell two sites in the Kowloon area at auction on Aug. 17 and a residential plot in Kowloon Tong district on Aug. 31.
Most government land sales in recent years have been triggered by developers who promised to pay minimum prices for sites on a list of available plots under the so-called land application system. Regular government land auctions were halted in 2004 to support falling home prices.
Ronnie Chan, Chairman of Hang Lung Properties Ltd., Hong Kong’s third biggest builder by value, said last week the city’s home prices “are already so expensive” when asked whether he’s interested in bidding for land in government auction.
HSBC, Hong Kong’s biggest bank by customers and deposits, yesterday said first-half profit doubled as its North American unit returned to profit for the first time in three years. Asia remained the bank’s “bedrock of profitability,” with pretax profit in the region rising 30 percent to $5.86 billion, according to Chief Executive Officer Michael Geoghegan.
Wong said today he expects the region to sustain the same level of growth in the second half of this year as it did in the first.
Geoghegan moved to Hong Kong in February, leaving Chairman Stephen Green in London, as the bank focuses on emerging markets and plans an initial public offering in Shanghai next year. HSBC will be ready for the Shanghai IPO when the necessary regulatory changes are in place to allow a foreign company listing, Wong said today.
Global growth is likely to remain constrained because of “anaemic growth” in western nations, Geoghegan said yesterday in the bank’s earnings statement, while he was “bullish” on emerging economies.
-Editors: Brett Miller, Malcolm Scott.