Hong Kong Moves to Slow Property Market
August 17, 2010 - Hong Kong
Mortgage lending rules in Hong Kong are to change and more land made available in a bid to cool rocketing real estate prices.
As part of the measures it is expected that deposits for apartments costing HK$12 million or more will increase by 10% to 40% and the government will increase land sales next year, said Hong Kong Monetary Authority chief executive Normand Chan.
For properties worth HK$12 million or less, the maximum loan amount will be capped at HK$7.2 million, meaning down payments will increase for any property valued above HK$10.3 million.
Luxury homes in the city are defined as those costing at least HK$10 million, or bigger than 1,000 square feet.
Down payments for investment properties will also rise to 40% and Hong Kong banks will be asked to apply stress tests on mortgage rates rising 2%, Chan added.
Mortgage borrowers' debt-to-income ratio should not be higher than 60% when the interest rate increases by 200 basis points, Chan also announced.
The moves are due to an alarming 40% increase in real estate prices since the beginning of 2009 as demand for property has also soared due to low interest rates and the buying power of mainland Chinese.
There is a lot of concern that prices are approaching the level of 1997, the height of a previous bubble that was followed by a six year real estate slump.
‘This is a serious attempt by the government to slow the growth in property prices. Maybe a lot of people still have HK$4.8 million for a down payment on a HK$12 million flat, but luxury is a leading sector and this is sending a message that this is serious,' said Nicole Wong, regional head of property research at CLSA Asia Pacific Markets in Hong Kong.
Leading analysts have warned the prices are set to rise by a further 10 to 15% by the end of the year.
‘We want to remind all potential homebuyers that the interest rate right now is at a very abnormal level and it is impossible for this to be sustained,' Chan said.
Since the early 1990s, Hong Kong banks have been restricted from lending more than 70% of the purchase price of a home, to reduce the risk of loan losses from a market crash.
To help the market recover from the 1998 crash, buyers were subsequently allowed to borrow a further 15% of their home's value as long as they obtained mortgage insurance, a move that increased affordability while limiting risk for banks.
The government will offer sites for auction next year in the Chai Wan, Hung Hom and Fanling districts, and will work with MTR and the Urban Renewal Authority to increase land supply.
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