February 22, 2013 1:43 pm

HK in fresh move to cool property market

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A billboard (C) advertising for a property development and investment company is seen displayed on a high rise building in Hong Kong on December 12, 2012. The International Monetary Fund warned that Hong Kong could see an abrupt fall in property prices after years of dramatic increases in one of the world's most expensive housing markets.©AFP

Hong Kong authorities have moved to cap mortgages for car parking spaces, part of a fresh round of measures to cool the city’s runaway property market.

The government said on Friday it would double stamp duty on properties worth more than HK$2m ($258,000), and introduce a 1.5 per cent duty on homes under that threshold.

Acting in tandem, the Hong Kong Monetary Authority, the territory’s de facto central bank, cut the maximum loan-to-value ratio to 40 per cent for commercial and industrial spaces, and introduced a maximum loan-to-value ratio of 40 per cent for car parking bays – the latest subject of speculative investment.

Prices in Hong Kong’s property market have more than doubled since the onset of the financial crisis in 2008, as record low interest rates and a wave of capital washing into parts of Asia have caused asset prices to rise.

Norman Chan, HKMA’s chairman, said the new measures were a response to an “extremely unusual macro-monetary environment”.

“The ongoing quantitative easing by advanced economies is unprecedented in both scale and duration. The risk of overheating in the property sector to financial stability in Hong Kong is no smaller than that seen in 1997,” said Mr Chan, referring to the bursting of a property bubble that year in the wake of the Asian financial crisis.

Hong Kong’s latest moves follow measures introduced last autumn, which have so far failed to curb price rises, and echo steps taken by the Singapore government last month, which has – with little success – also been trying to cool its housing market for the past three years.

The HKMA also called on banks in the city to assume that mortgage rates could rise by 300 basis points instead of the existing 200 basis points when testing a mortgage applicant’s ability to repay a loan.

Analysts said the new measures were unlikely to have a lasting impact.

“I don’t think it will be effective in bringing prices down, but it will cool transactions for a couple of weeks,” said Cusson Leung, property analyst at Credit Suisse, who added that stamp duty increases were “not special any more” and would simply be tacked on to the sale price.

Most analysts believe that because of Hong Kong’s currency peg to the US dollar, the market will continue to rise until interest rates go up in the US.

Jennifer Wong, partner at KPMG China, said: “I don’t think there will be any immediately effective measures that could cool down the property market so long as the interest rate is at a low level.”

Hong Kong apartments are the world’s most expensive, according to research from Savills, the property broker. The city also has – on some measures – the most expensive retail rents, and the second-priciest office space.

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