Fed Easing Worsens Hong Kong ‘Bubble’ Risk, Chan Says

Hong Kong Monetary Authority CEO Norman Chan
Norman Chan, chief executive officer of the Hong Kong Monetary Authority. Photographer: Dale de la Rey/Bloomberg

The U.S. Federal Reserve’s expansion of stimulus will add to the risk of a housing bubble in Hong Kong and may force extra measures to cool prices, said Norman Chan, the head of the city’s central bank.

The Hong Kong Monetary Authority will “take measures that are specific to the housing market if necessary,” Chan said at a press briefing in the city today. “The risk of an asset bubble in Hong Kong’s property market is rising.”

Monetary easing to spur growth in developed economies has sparked inflows of cash to Asia, threatening surging prices for stocks, real-estate and consumer goods. Hong Kong has already tightened purchase requirements after home prices rose about 50 percent from the start of 2009 to the highest level since 1997, according to an index compiled by Centaline Property Agency Ltd.

The Fed’s move to buy another $600 billion of Treasuries, announced yesterday, will “definitely add pressure to the asset markets in emerging-market economies,” Chan said. The HKMA may step up efforts to ensure that banks control the risks associated with expanded property lending, he added.

Former HKMA head Joseph Yam said yesterday that emerging economies may use measures such as currency gains and temporary capital controls to cope with money inflows from U.S. easing. The former option isn’t open to Hong Kong, which has a currency pegged to the U.S. dollar.

Hong Kong’s government has since August raised down-payment ratios, stopped offering residency to foreigners who buy property in the city, and increased land auctions to boost supply. Sales of new homes doubled in October on record-low mortgage rates and an influx of wealthy mainland Chinese buyers.

The city’s government yesterday sold a building site for about 20 percent less than surveyors estimated ahead of rules that restrict sellable areas in apartments. Chinachem Group paid HK$2.17 billion ($280 million) for the site in Kowloon Tong.

Before it's here, it's on the Bloomberg Terminal. LEARN MORE