Hong Kong Overheating Risk Seen by HKMA’s Chan as Debt Up

Hong Kong’s economy is at risk of overheating after household debt rose to a record 61 percent of gross domestic product, said Norman Chan, chief executive of the Hong Kong Monetary Authority.

“Hong Kong’s consumption and personal-debt growth have consistently outpaced overall economic growth,” Chan told lawmakers today, citing risks to “macroeconomic stability.”

While the housing market has shown signs of cooling after extra curbs in February, it’s too early to say that it’s in a downward cycle, Chan said. A declining current-account balance is a “warning signal” that consumption and the economy are at risk of overheating, he said.

Hong Kong home prices, the most expensive among major global cities, last month fell the most in three years after the government imposed its harshest measures yet to curb prices and as lenders raised mortgage rates for the first time since 2011. Chan’s comments come amid signs that the global economic recovery is faltering, with industrial and manufacturing data from China, Japan and South Korea less than estimates.

In December, the HKMA said the overheated property market is increasingly disconnected from the rest of the economy. Sanford C. Bernstein H.K. Ltd. said prices could fall as much as 25 percent after the government stepped up measures to curb an asset bubble and banks raised mortgage rates.

The government on Feb. 22 doubled the stamp duty on all property transactions higher than HK$2 million ($258,000). The HKMA has told banks to maintain the risk weighting for new home loans at a minimum of 15 percent to help protect them against a drop in home values.

Wealth Effect

Chan cited an “ultra-low interest rate environment” as a factor in the economic risk, adding: “When property values appreciate, people think they have more wealth even though they haven’t yet sold the asset.”

In a February briefing of lawmakers, Chan cited household debt to GDP ratios of 58 percent to 59 percent in the third and fourth quarters of last year.

Chan said the monetary authority will monitor whether any more property measures are needed.

The city’s economy may have expanded 2.5 percent in the first quarter from a year earlier, according to the median forecast of six economists surveyed by Bloomberg News, ahead of a release on May 10. That would be the same pace as in the fourth quarter.