QE3 Adds to Hong Kong Asset Bubble Risks, HKMA’s Chan Says
Hong Kong’s central bank head said a third round of quantitative easing by the U.S. Federal Reserve risks pushing up property prices that have already surpassed their 1997 peak, and may prompt the city to adopt more cooling measures.
“The launch of QE3 and the short-term improvement of the European debt crisis will increase the risk of overheating in Hong Kong’s asset market,” Norman Chan, chief executive of the Hong Kong Monetary Authority, told reporters at a briefing today. “We will further introduce more counter-cyclical measures when appropriate.” Chan will address reporters again at 4:30 p.m. local time today, the HKMA said in an e-mailed statement.
Hong Kong property stocks surged, pushing the benchmark Hang Seng Index (HSI) to a four-month high, after the Fed said it will continue buying assets in a third round of quantitative easing and may employ other policy tools if the U.S. labor market doesn’t improve. Hong Kong’s government on Sept. 6 introduced its toughest measures in more than a year to rein in home prices that have gained more than 85 percent since early 2009.
“Low interest rates and ample liquidity globally” will last for a longer time, adding pressures to inflation and asset prices in emerging markets, Chan said.
The nine-member Hang Seng Property Index (HSP) jumped 3.2 percent to the highest since August 2011 at the 4 p.m. close in Hong Kong. New World Development Co. surged 5.2 percent to HK$10.88, Sino Land Co. rose 3.9 percent to HK$14.34, while Wharf Holdings Ltd. advanced 3.5 percent to HK$51.80.
The Hang Seng Index gained 2.9 percent to the highest since May.
The city’s government has had to tweak demand and supply through additional property transaction taxes, higher mortgage down payments and by releasing more land to developers as Hong Kong’s currency peg to the U.S. dollar pushed borrowing costs to a record low and prevents the de-facto central bank from using monetary policy.
“The government measures launched so far are not tackling the gist of the problem,” said Ronald Wan, a Hong Kong-based managing director at China Merchants Securities Co. “They could only stabilize property prices by controlling the pace of growth, but prices are unlikely to plunge. As long as low interest rates and ample liquidity remains, the risk of asset bubble remains.”
The government will restrict buyers of apartments on two sites it plans to sell next year to local residents, Hong Kong Chief Executive Leung Chun-ying said Sept. 6, a week after flagging it will begin drafting laws that may be incorporated into land sale agreements to put restrictions on purchases by people outside of Hong Kong.
The HKMA raised the minimum deposit for some mortgages in June last year, the third time since August 2010, with borrowers now having to put down 40 percent for homes costing more than HK$7 million ($902,000). In 2010, the government introduced an additional stamp duty on residential units sold within two years of purchase.
Hong Kong’s home prices have now surpassed their peak in October 1997, which marked the start of a 70 percent decline to August 2003, according to an index compiled by Centaline Property Agency Ltd. They have soared 240 percent since that trough nine years ago.
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