Hong Kong Property Still in Danger of Overheating, HKMA Says, and a rise in interest rates would “indisputably” affect the city

Hong Kong Property Still in Danger of Overheating, HKMA Says

Hong Kong’s property market is still in danger of overheating and a rise in interest rates would “indisputably” affect the city, Norman Chan, chief executive of the Hong Kong Monetary Authority said today. The outlook for Hong Kong’s property market was uncertain and it wasn’t clear whether it had entered a downward cycle, Chan said at a legislative briefing. Emerging markets would face the risk of capital outflow, currency depreciation and a decline of asset prices once the U.S. Federal Reserve starts tapering stimulus, he said.“If interest rates rise because of the exit of the U.S. Fed, Hong Kong will indisputably be impacted, particularly because the Hong Kong property market still shows sign of overheating,” Chan said. “I’ve mentioned that household debt is still at a high level, accounting for about 61 percent of GDP.”

An influx of wealthy buyers from mainland China, mortgage rates close to record lows and a financial-services sector that has thrived thanks to fundraising by Chinese companies helped Hong Kong home prices more than double since the beginning of 2009. The government in February brought in its strictest measures yet, including doubling stamp-duty taxes for all properties over HK$2 million.

The Hang Seng Property Index, which tracks nine developers in Hong Kong, rose 1.5 percent, the most in two weeks, as of 11:33 a.m. Cheung Kong (Holdings) Ltd., the biggest developer in Hong Kong by market value, gained 1.3 percent.

Relaxing Curbs

An overheated property market is the biggest concern to the city’s economy, Chan said. A “basket of factors,” including property supply, real estate prices and borrowers’ purchasing power, are needed to decide if the property market has entered a downward cycle, he said.

“If a downward cycle is formed, we will consider to gradually relax the tightening measures,” he said.

The HKMA, the city’s de-facto central bank, has introduced six rounds of measures since 2009 to stem home-price gains. They have included raising the minimum down payment required for home purchases over HK$10 million for owner occupiers to as much as 60 percent from 30 percent, and to 50 percent for those from HK$7 million to HK$10 million.

The city’s interest rates track those in the U.S. because of the local currency’s peg to the U.S. dollar.

Prices for large-size apartments fell 2.2 percent from February, while small-to-medium size homes rose 2.4 percent in the same period, Chan said.

Hong Kong’s government won’t cut back property curbs until there’s a “steady supply” of new housing, Chief Executive Leung Chun-ying said in June.

To contact the reporter on this story: Stephanie Tong in Hong Kong at stong17@bloomberg.net

About bambooinnovator
Kee Koon Boon (“KB”) is the co-founder and director of HERO Investment Management which provides specialized fund management and investment advisory services to the ARCHEA Asia HERO Innovators Fund (www.heroinnovator.com), the only Asian SMID-cap tech-focused fund in the industry. KB is an internationally featured investor rooted in the principles of value investing for over a decade as a fund manager and analyst in the Asian capital markets who started his career at a boutique hedge fund in Singapore where he was with the firm since 2002 and was also part of the core investment committee in significantly outperforming the index in the 10-year-plus-old flagship Asian fund. He was also the portfolio manager for Asia-Pacific equities at Korea’s largest mutual fund company. Prior to setting up the H.E.R.O. Innovators Fund, KB was the Chief Investment Officer & CEO of a Singapore Registered Fund Management Company (RFMC) where he is responsible for listed Asian equity investments. KB had taught accounting at the Singapore Management University (SMU) as a faculty member and also pioneered the 15-week course on Accounting Fraud in Asia as an official module at SMU. KB remains grateful and honored to be invited by Singapore’s financial regulator Monetary Authority of Singapore (MAS) to present to their top management team about implementing a world’s first fact-based forward-looking fraud detection framework to bring about benefits for the capital markets in Singapore and for the public and investment community. KB also served the community in sharing his insights in writing articles about value investing and corporate governance in the media that include Business Times, Straits Times, Jakarta Post, Manual of Ideas, Investopedia, TedXWallStreet. He had also presented in top investment, banking and finance conferences in America, Italy, Sydney, Cape Town, HK, China. He has trained CEOs, entrepreneurs, CFOs, management executives in business strategy & business model innovation in Singapore, HK and China.

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