Bloomberg News

China Wealth Fuels Hong Kong Home Price Surges, Tsang Says

June 17, 2011

(Updates with home price data in ninth paragraph.)

June 17 (Bloomberg) -- Hong Kong home prices are “quite frightening” as China’s growing wealth fuels increases of 2 percent a month and the government may introduce more measures to slow the property market, Chief Executive Donald Tsang said.

Buyers from mainland China of property in Hong Kong are exacerbating the territory’s shortage of land for development, leading to government efforts to curb speculation in the city’s real estate market, Tsang said in an interview in Melbourne today. Mainland China doesn’t include Hong Kong, Macau or Taiwan.

“Over the last 30 months, across this period of financial crisis, property prices continue to grow at 2 percent a month, which is quite frightening,” he said. “We will do more to slow it down. But we believe in the market though. We don’t want to do anything that would destroy the market completely.”

Tsang and other government officials have in the past year warned of an asset bubble in the Chinese city, where home prices have surged more than 70 percent since the beginning of 2009 on record low interest rates and an influx of buyers from other parts of China. Since late 2009, the government has raised minimum down payments and deposits for mortgage borrowers, increased land supply and imposed additional transaction taxes to curb real estate value.

Buyers from overseas and other Chinese cities accounted for about a third of luxury home transactions in the first quarter of this year, according to Centaline Property Agency Ltd., the city’s biggest privately held realtor. Savills Plc ranks Hong Kong as the most expensive place to buy an apartment.

‘Heavy Demand’

“There’s a critical shortage of land supply over this period,” Tsang said. “At the same time, there’s heavy demand from investors both in Hong Kong and from abroad, and particularly of mainland China.”

The most recent measures, announced a week ago, include requiring borrowers whose income is primarily from outside Hong Kong to deposit an extra 10 percent when they buy properties unless they can demonstrate a “close connection” to the city. The government will add more than 20,000 homes this year and may offer more land for residential projects, Tsang said.

“As the renminbi, the Chinese currency, keeps appreciating, Chinese buyers will only be getting relatively richer and this trend is beyond the control of Hong Kong’s government,” said Raymond Yeung, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd.

Hong Kong home prices fell 1.01 percent in the week ended June 12, the biggest weekly drop in six months, according to an index compiled by Centaline.

The Hang Seng Property Index, which measures the stock performance of seven Hong Kong developers, lost 2.6 percent this week, extending this year’s decline to 10 percent. The benchmark Hang Seng Index is down 5.8 percent this year.

‘Volatile’ Market

The property market has been “volatile” since November and there are signs of “renewed exuberance” after the market cooled down in March and April, Norman Chan, the chief executive of the Hong Kong Monetary Authority, the city’s de facto central bank, said in a June 10 briefing announcing the measures. Chan earlier warned about the risk of a “credit-fueled property bubble.”

Property transactions fell for a fifth straight month in May after Hong Kong banks including HSBC Holdings Plc began raising mortgage lending rates in October.

Prices may drop 10 percent to 20 percent in 2012 and a further 10 percent in 2013 on rising rates, Andrew Lawrence, a Hong Kong-based analyst at Barclays Capital, said last week.

-With assistance from Sophie Leung, Michelle Yun, Shraysi Tandon in Hong Kong. Editors: Andreea Papuc, Linus Chua

To contact the reporter on this story: Daniel Petrie in Sydney at dpetrie5@bloomberg.net

To contact the editor responsible for this story: Ben Richardson at brichardson8@bloomberg.net


Coke's Big Fat Problem
LIMITED-TIME OFFER SUBSCRIBE NOW

(enter your email)
(enter up to 5 email addresses, separated by commas)

Max 250 characters

 
blog comments powered by Disqus