Hong Kong’s overheated property market is increasingly disconnected from the rest of the economy and poses “macro-financial risks,” the city’s monetary authority said.
Loose global monetary conditions and low interest rates may fuel mortgage borrowing that intensifies “the disconnect between property prices and economic fundamentals,” the Hong Kong Monetary Authority said yesterday in a quarterly report.
Government measures to cool the market have failed to prevent home prices in Hong Kong, the world’s most expensive place to buy an apartment, doubling in four years and surpassing a previous peak in 1997. In contrast with “tepid” income growth, housing prices surged 23 percent in the year to October, the HKMA said in the report.
The “overheating property market carries macro-financial risks to the economy,” the HKMA said. Mortgagors may end up “in distress when the interest rate returns to a more normal level,” the monetary authority said.
The International Monetary Fund warned Dec. 12 that property is “the main source of domestic economic risk” for the city. At the same time, the odds of a slump that has major economic and financial consequences is “fairly low in the near term,” the fund said.
The Hang Seng Property Index, which tracks the nine biggest developers listed in Hong Kong, fell 0.1 percent at 10:46 a.m. local time. The gauge has gained 37 percent this year, compared with a 22 percent increase in the Hang Seng Index.
Chief Executive Leung Chun-ying, who took over in July, has imposed extra taxes and tightened mortgage lending. Hong Kong’s interest rates track those of the U.S. because of the city’s currency peg.
Hong Kong’s economic outlook is “relatively weak” because of sluggish export demand, the HKMA said.
The economy faces “downside risks, particularly for the external environment,” the report said. “The latest reading of our in-house composite index of leading indicators also points to continued soft growth in the months ahead.”
Hong Kong’s economy is set for its weakest annual expansion since the global financial crisis as the European sovereign debt crisis damps global trade. The government in November cut its estimate for full-year growth to 1.2 percent from an August projection of a range of 1 percent to 2 percent.
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