Bloomberg News

Hong Kong’s John Tsang Sees Rising Risk in Home Market

October 27, 2011

(Updates with comments from economist in the fourth paragraph, shares in fifth.)

Oct. 27 (Bloomberg) -- The threat of a global economic slowdown is intensifying risks in Hong Kong’s home market and the government will monitor housing policies designed to curb prices, said Financial Secretary John Tsang.

“The deepening of the European debt crisis and stalling growth in the U.S. could affect Hong Kong’s economy, and may bring turmoil to global financial markets,” Tsang told lawmakers in Hong Kong today.

Hong Kong’s Chief Executive Donald Tsang promised to provide more affordable homes and signaled greater government intervention in narrowing social inequity in his Oct. 12 policy address, responding to a public outcry over the more-than 70 percent surge in home prices since early 2009. Home transactions fell for a ninth straight month in September, while prices declined 3 percent from June to August.

Adjusting land supply “is the most effective and flexible dose at the moment,” said Raymond Yeung, a Hong Kong-based economist at Australia & New Zealand Banking Group Ltd. “The government can influence that without intervening in the property market or risking banking stability.”

The Hang Seng Property Index, which tracks the city’s seven biggest developers, gained 4.6 percent at the close in Hong Kong, cutting its loss this year to 17 percent. Sun Hung Kai Properties Ltd., the world’s biggest builder by value, advanced 3.1 percent to HK$106.10. Cheung Kong (Holdings) Ltd., controlled by Li Ka-shing, Hong Kong’s richest man, rose 4.5 percent to HK$95.45.

Land Supply

The government has in the past year raised minimum down- payment requirements on some home mortgage loans and increased land sales in an effort to curb soaring prices fueled by record low mortgage rates, a shortage of new apartment supply and an influx of buyers from other parts of China. Banks in Hong Kong have raised mortgage rates five times since March.

Chinese buyers accounted for 51 percent of the city’s new home sales by value in the third quarter, up from 37 percent in the previous three months, Centaline Property Agency Ltd. said Oct. 25

More than 17,000 subsidized homes will be available over four years from 2016, Donald Tsang said in the final policy address before his term ends next year. The government will also provide land for 20,000 private homes a year, and offer sweeteners including rental waivers and help with transport fares for the elderly.

‘Getting it Right’

Hong Kong is “finally getting it right” by increasing home supply as mainland Chinese coming to the Hong Kong property market is an “irreversible trend,” Ronnie Chan, Chairman of Hang Lung Properties Ltd., the city’s third-biggest developer by value, said at a Bloomberg conference this week.

The government has sold four sites since August for less than analysts estimated, and home prices may decline 10 percent over 12 months on higher mortgage rates, Colliers International Executive Director Simon Lo said this month.

“We have to be cautious and cannot ignore the risk of a bubble in the property market” as the low-interest rate environment will last for sometime, John Tsang said today.

“More worrying” than inflation is that a possible recession in Europe and the U.S. could hurt the city’s exports and job markets, he said.

Consumer Prices

The increase in consumer prices, excluding distortions from government subsidies, may be less than the official forecast of 5.5 percent this year, as inflationary pressures will ease as gains in global food prices have stabilized, he said.

Underlying inflation accelerated last month to 6.4 percent from a year earlier, the fastest pace since 2007 when records started. Higher housing rentals have bolstered living costs, the government said.

“Local economic growth will fall amid the severe external environment and there are cooling signs in the property market,” the finance secretary said.

Morgan Stanley and Daiwa Capital Markets Co. said Hong Kong may have fallen into a recession in the third quarter, after the economy shrank 0.5 percent in the April-to-June period from the previous quarter.

--Editors: Andreea Papuc, Malcolm Scott

To contact the reporters on this story: Kelvin Wong in Hong Kong at kwong40@bloomberg.net; Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editors responsible for this story: Andreea Papuc at apapuc1@bloomberg.net


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