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Saturday, May 20, 2017, 17:58
HKMA applies further curbs to red-hot property market
By Luo Weiteng and Evelyn Yu in Hong Kong
Saturday, May 20, 2017, 17:58 By Luo Weiteng and Evelyn Yu in Hong Kong

Private housing is seen in Taikoo Shing, Hong Kong on Sept 30, 2016. (Roy Liu/China Daily)

Hong Kong’s de facto central bank further tightened its grip on mortgage loans to property buyers as it sought to mitigate risks in the city’s real estate market, which shows signs of overheating.

Loan-to-value ratios will be cut 10 percentage points for borrowers with one or more pre-existing mortgages and purchasers whose income mainly comes from outside Hong Kong, the Hong Kong Monetary Authority (HKMA) said on its website on Friday.

Debt-servicing limits for the two purchase groups will also be cut 10 percentage points, the HKMA added.

The new tightening came as Hong Kong’s housing market maintained its breakneck pace, shrugging off policymakers’ months-long efforts to tame surging prices.

Earlier this month the HKMA tightened limits on bank loans to property developers after attempts to rein in the market in November last year by more than doubling the property stamp duty for non-first-time buyers to 15 percent proved to be in vain.

Statistics from Rating and Valuation Department showed property prices in the world’s least affordable city in March surpassed their recent peak, recorded in September two years ago. 

Transaction volume for residential properties more than doubled from about 3,300 in January this year to about 7,000 last month. 

“The risk of overheating in the property market in Hong Kong continues to increase,” HKMA Chief Executive Norman Chan Tak-lam said. “The keen competition for mortgage business in the banking sector has heightened the risk of overheating in the property market, and weakened the resilience of banks to cope with a downturn in the market.”

Chan reiterated that the new regulations, taking effect immediately, are “counter-cyclical”.

Yet analysts questioned the effectiveness of the new measures. 

“Basically, the new curbs may affect investors most rather than homebuyers. Given a 10 percent drop in the mortgage rate only acts as a modest deterrent to the deep-pocketed investors, over the coming few weeks we will see a wait-and-see attitude from them. But it will not take long for investors to make a comeback after figuring out the limited effect of the new measures,” said Sammy Po Siu-ming, residential chief executive of Midland Realty.

Vincent Chan, Hong Kong-based managing director of real estate agency, agreed with Po, believing the new regulation is an unnecessary move. 

“To be sure, I don't think Hong Kong banks, with a long track record of prudence in lending to homebuyers, would face the risk management problem in mortgage loans,” said Chan.

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