Hong Kong Banks Boost Rates as Government Cools House Market

HSBC Holdings Plc and Standard Chartered Plc raised Hong Kong mortgage rates for the first time since 2011, after the banking regulator tightened risk rules on concern a property bubble may undermine financial stability.

Shares in the city’s real estate developers fell, heading for their biggest drop in four months. The banks will raise home loan charges priced at the best lending rate by 25 basis points, starting today, they said in e-mailed statements yesterday.

The Hong Kong Monetary Authority last month told banks to set the risk weighting for new residential loans at 15 percent or more, seeking to strengthen buffers after prices doubled to a record in the past four years. Prices may fall by as much as 20 percent over 24 months as mortgage rates increase and the government seeks to cool demand, Deutsche Bank said yesterday.

“Hong Kong banks won’t increase mortgage rates too much, as this would cause home prices to fall, which isn’t good for them,” Dominic Chan, an analyst at BNP Paribas SA in the city, said by telephone today. “With the larger banks increasing rates, the smaller ones will follow suit.”

Since taking office in July, Hong Kong Chief Executive Leung Chun-ying has added property taxes, favored local permanent residents over foreigners, tightened mortgage rules and increased the supply of buildable land.

The HKMA, the de facto central bank, cited the “increasing risk of an asset price bubble that may undermine the stability of the banking system” when it set the new risk weightings on Feb. 22.

Builders Fall

Sun Hung Kai Properties Ltd., Hong Kong’s biggest developer by market value, fell 3.7 percent to HK$107.50 at 11:42 a.m. The Hang Seng Property Index, which tracks nine of the biggest builders listed in the city, fell as much as 3.5 percent, the lowest level since Nov. 22.

HSBC mortgages linked to the best rate will climb to a range of 2.85 percent to 3.15 percent, from 2.6 percent to 2.9 percent, according to the bank’s statement yesterday.

Hong Kong banks may increase mortgage rates this year by a total of 50 basis points, in two moves, including yesterday’s 25 basis point increase, Chan estimated.

Shenzhen Measures

Separately, the mainland city of Shenzhen, which borders Hong Kong, said it’s taking steps to guide developers in setting “reasonable” prices.

While Shenzhen hasn’t introduced a new policy, it has continued implementing central government measures to ensure prices don’t rise too quickly, the local government said in a statement late yesterday, responding to a report by news portal Sina.com that authorities had ordered a cap on values. The city has strengthened oversight of pre-sale approvals and will set the year’s home-value target as soon as possible, it said.

HSBC ranked second in Hong Kong’s home loan market last month with a 17 percent share, while Standard Chartered was in fourth position with 13 percent, according to Hong Kong-based mReferral Mortgage Brokerage Services. The last time that Hong Kong banks raised mortgage rates was in 2011 when they boosted home loan charges by six times, according to mReferral.

Borrowing costs in Hong Kong are close to record lows because the Hong Kong dollar’s peg to the U.S. currency ties monetary policy to the Federal Reserve, even as the economy is driven by China’s growth.

Government Auction

Kerry Properties Ltd., the developer controlled by Malaysian billionaire Robert Kuok, won a tender for a residential site in Hong Kong’s Ho Man Tin area for HK$11.7 billion ($1.5 billion), the government said in an e-mailed statement yesterday. The price is equivalent to about HK$10,200 per buildable square foot, said Alvin Lam, a surveyor at Centaline Property Agency Ltd., the city’s biggest closely held realtor.

“It shows developers are still confident about the market despite all these curbs,” Lam said. “The per square foot price is not as crazy as the sites sold in the past couple years but the fact that someone is still willing to invest such a big amount in real estate means they don’t see prices crashing anytime soon.”

The site is the first sold by the government since Feb. 22, when it doubled stamp duty taxes on all property transactions exceeding HK$2 million and raised mortgage down payment requirements on some properties.

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