Hong Kong Debt Adds to Home Risks as Cooling Steps Eyed

Hong Kong monetary chief Norman Chan said more measures are possible to cool the city’s housing market as elevated household debt adds to risks from property-price gains over the past four years.

Debt is “near historic high levels,” Chan, the chief executive of the Hong Kong Monetary Authority, told lawmakers today, citing ratios of 58 percent to 59 percent of gross domestic product in the third and fourth quarters. In a housing and economic downturn, repayment may become more difficult, the official said.

Chan told reporters that the HKMA can roll out a sixth package of measures if necessary to rein in the property market after already using tools such as limits on mortgage terms. In October, the government added a tax on foreigners’ home purchases. Overheating in the housing market is the biggest risk to financial stability, Chan said, echoing a warning in December from the International Monetary Fund.

“If one believes that the housing market and the economy go in cycles,” household debt levels may rise further when a downturn comes, Chan said. That’s because “the economy will become more difficult and personal and household income will be negatively affected,” he said.

Household debt in Hong Kong almost doubled to HK$1.21 trillion ($156 billion) last year from HK$662.8 billion in 1997, when the housing bubble in the city burst, according to the HKMA. Mortgage loans of households jumped 64 percent to HK$888.9 billion during the period, while credit card and personal loans increased almost three-fold to HK$320.1 billion, the data show.

Stock Gains

The Hang Seng Property Index was little changed in Hong Kong trading today, compared with a 0.2 percent decline for the broader benchmark gauge.

Home prices have doubled since the start of 2009, according to a weekly index compiled by Centaline Property Agency Ltd.

The IMF said that the property sector was the main source of domestic economic risk. At the same time, the odds of a slump that has major economic and financial consequences is “fairly low in the near term,” the fund said in December.

Chan repeated previous warnings that households used to low interest rates may be caught out when borrowing costs climb.

Hong Kong homes cost 13.5 times the gross median household income, up from 12.6 times a year ago, the most expensive housing market in an annual affordability survey by Belleville, Illinois-based consulting company Demographia released last month. The survey examined housing prices in Australia, Canada, Hong Kong, Ireland, New Zealand, the U.K. and the U.S.

A reading of 5.1 or more is considered “severely unaffordable,” while below 3 is seen as affordable.

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