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Hong Kong Raises Loan Down Payments to Cool Residential Prices

Hong Kong Raises Loan Down Payments to Cool Residential Prices

Hong Kong raised minimum downpayments for home buyers, signaling no let-up in a 20-month campaign to cool prices even after sales slowed and a land auction raised less than estimates.

Buyers of homes costing more than HK$6 million ($770,000) will have to increase up-front payments, with properties of HK$10 million or more requiring 50 percent, Hong Kong Monetary Authority Chief Executive Norman Chan told reporters yesterday. Foreign buyers must deposit an additional 10 percent.

The measures mark Hong Kong’s fourth attempt since October 2009 to cool prices that surged as much as 70 percent on record-low mortgage rates and an influx of mainland Chinese buyers. Developers on June 9 signaled gains in the city’s home prices, rated by Savills Plc as the world’s most expensive, may slow as they held back bids that exceeded surveyors’ estimates at the auction.

“The measures show the government’s determination to hold prices at their current level,” said Lee Wee Liat, an analyst at Samsung Securities Ltd. in Hong Kong. “It may be a signal they will take a more significant step and that’s to limit the number of units foreigners or mainlanders can buy in the city: If that happens, I think there’ll be a correction in home prices.”

The new rules are effective immediately, Chan said.

Continued Price Gains

Borrowers whose income is primarily from outside Hong Kong will need to make a higher downpayment unless they can demonstrate a “close connection” to the city such as evidence that they work for a local employer or that an immediate family member resides in Hong Kong, the HKMA said in a statement.

Home prices in Hong Kong gained 1.3 percent last week from the previous seven days, according to Centaline Property Agency Ltd., the city’s biggest closely held realtor.

The HKMA had already taken steps to tighten mortgage-lending standards three times since October 2009. The government on Nov. 19 increased stamp duties on homes sold within six months of purchase and mandated higher downpayments on those costing HK$8 million or more.

The city at the time also pledged to boost land supply amid public protests that housing prices are becoming unaffordable.

In the latest land auction by the government, Cheung Kong (Holdings) Ltd., controlled by billionaire Li Ka-shing, agreed to pay HK$11.65 billion for a site on Borrett Road, about a 10-minute drive from the Central business district. The price was equivalent to HK$26,763 per square foot, said Centaline.

Volatile Market

“Although the property market cooled down a bit in March and April this year, there are now signs of renewed exuberance following high transaction prices recorded in recent government land sale auctions,” HKMA’s Chan told reporters in Hong Kong. “The property market has been volatile” since November.

Property transactions fell for a fifth straight month in May while overall home price growth is slowing after lenders accelerated mortgage rate increases in April as liquidity dried up. Prices may drop 10 percent to 20 percent in 2012 and a further 10 percent in 2013 on rising rates, Andrew Lawrence, a Hong Kong-based analyst at Barclays Capital, said this week.