Hong Kong Rolls Out Measures to Cool Booming Property Market

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Hong Kong introduced more measures aimed at cooling the property market and protecting financial stability after home prices rose to a record last year.

Buyers of properties valued at up to HK$7 million ($900,000) will have to make larger down payments, while mortgage rules for second-home purchases will be tightened, Norman Chan, the head of the Hong Kong Monetary Authority, said at a briefing on Friday. The measures take effect immediately.

Rounds of cooling measures from 2012 have failed to tame the market, fueling complaints that the rising prices are worsening Asia’s largest wealth gap. While Chan acknowledged that the steps will hurt first-home buyers, he cited a duty to protect the stability of the banking system.

“From a risk-management perspective, the policy is correct,” said Raymond Yeung, an economist at Australia & New Zealand Banking Group Ltd. in Hong Kong. “However, young couples will find it more difficult to fulfill their basic housing needs.”

A government index of residential home prices surged 13 percent to a record in 2014, driven by gains among smaller properties. Prices have more than doubled since 2009, spurred by record-low mortgage rates and money flowing in from mainland China. Mortgage loans approved in January surged by 21.4 percent from the previous month to HK$30.3 billion, the HKMA said in a separate statement.

New Homes

Property prices in Hong Kong may drop 3 percent in the short term after the new measures, Centaline Property Agency Managing Director Louis Chan wrote in an e-mailed statement. He expects transaction volumes to “shrink drastically” in the next three months.

The Hang Seng Properties Index of developers in Hong Kong reversed gains in late Friday trading to close 1 percent lower, the biggest decline since Feb. 3, in advance of the HKMA’s statement on the measures. The gauge climbed 6.9 percent in the past three months.

“People will take profit because the run-up in Hong Kong property developers’ stock prices has been quite good,” Lee Wee Liat, a Hong Kong-based analyst at BNP Paribas, said by phone. The government isn’t enacting any “significant kind of measure, but incremental measures, trying to contain the pace of the price increase or the demand increase.”

The maximum amount that can be borrowed for homes meant for personal use and valued at less than HK$7 million will be reduced to 60 percent of the purchase price from 70 percent, HKMA’s Chan said.

Mortgage Payments

Borrowers buying a second home for personal use must also now be able to service their mortgage payments with a maximum of 40 percent of their income, down from 50 percent previously. The new mortgage-servicing ratio also applies to properties bought for non-personal use including commercial and industrial sites, and car-park spaces.

The steps will “safeguard the stability of the banking and financial system given the renewed signs of overheating in the property market, particularly the small-sized residential units,” Chan said. He added that the ratio of household debt to gross domestic product had climbed to a “historic high.”

Hong Kong Chief Executive Leung Chun-ying is struggling to find enough land to build homes quick enough to meet demand, after pledging to increase the total housing stock by 18 percent over the next 10 years.

The city has the least affordable housing of 378 metropolitan areas in nine countries, with the median home price 17 times household income, according to an annual study by consultancy Demographia.

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