Hong Kong's central bank tightened mortgage lending after saying a third round of quantitative easing by the U.S. Federal Reserve risks pushing up home prices that have already surpassed their 1997 peak.
The central bank is limiting the maximum term on all new mortgages to 30 years, Norman Chan, chief executive of the Hong Kong Monetary Authority, told reporters today. Mortgage payments for investment properties can't be more than 40 percent of buyers' monthly incomes, from the current 50 percent, he said.
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The measures are the second set of curbs in as many weeks by the government of new Chief Executive Leung Chun-ying, who is trying to rein in home prices that have gained more than 85 percent since early 2009. Hong Kong property stocks surged, pushing the benchmark Hang Seng Index to a four-month high, after the Fed said yesterday it will continue buying assets in a third round of quantitative easing and may employ other policy tools if the U.S. labor market doesn't improve.
"The new measure will deter speculative and investment demand and the yield for property investors will be lower," said Raymond Yeung, a Hong Kong-based economist at Australian & New Zealand Banking Group Ltd.
Record low mortgage rates, an influx of buyers from other parts of China and a lack of new supply have been underpinning the Hong Kong property market, prompting Leung, who was sworn in as the city's leader in July, to accelerate land sales and give preference to local buyers in some projects.
The introduction of QE3 "will create the potential for renewed influx of capital into Hong Kong," Chan said. "We have to stand ready for it."
The central bank also raised the minimum down payment on investment properties for buyers who derive their income from outside Hong Kong. Investors using their assets -- not income -- to borrow can now only take out loans for as much as 30 percent of a property's value, Chan said. The restrictions are effective immediately.
The city's Financial Secretary John Tsang also said today that QE3 may push up Hong Kong home prices and the government won't hesitate to introduce more property curbs if needed.
Buyers from other parts of China made up 36.8 percent of all new sales by value in the first quarter, down from 37.9 percent in the previous three months, according to Midland Holdings Ltd. The proportion reached 53.9 percent in the third quarter last year, the realtor said.
The nine-member Hang Seng Property Index jumped 3.2 percent to the highest since August 2011 at the close of trading in Hong Kong, before Chan announced the new measures. That extended its gain this year to 27 percent, more than double the 12 percent advance in the Hang Seng Index over the period.
Leung said on Sept. 6 he will restrict homebuyers of two building sites the government plans to sell to local residents, a week after announcing a 10-point package to rein in prices including making more land available to developers and speeding up the building of public housing.
The city's chief executive, who was elected in March by a committee of mostly businessmen, professionals and lawmakers, has pledged during his campaign to address a widening wealth gap and concerns that housing is becoming unaffordable for the general public.
The city's government has had to tweak demand and supply through additional property transaction taxes, higher mortgage down payments and by releasing more land to developers as Hong Kong's currency peg to the U.S. dollar pushed borrowing costs to a record low and prevents the de-facto central bank from using monetary policy.
The number of home transactions in Hong Kong rose 42 percent in August from a month earlier, the biggest increase since March.
The central bank raised the minimum down payment for some mortgages in June last year, the third time since August 2010, with borrowers now having to put down 40 percent for homes costing more than HK$7 million ($902,000). In 2010, the government introduced an additional stamp duty on residential units sold within two years of purchase.
Hong Kong home prices have risen 14 percent this year, according to an index compiled by Centaline Property Agency Ltd. They fell 4 percent in the last three months of 2011, the biggest quarterly drop since the global credit crisis, after the government's mortgage restrictions and as China's economy began to slow.
Hong Kong's home prices have now surpassed their peak in October 1997, which marked the start of a 70 percent decline to August 2003, according to the Centaline index. They have soared 240 percent since that trough nine years ago.