Homes cooling measures may need a revamp to achieve desired effect
Hong Kong property prices have continued to go through the roof — it’s simply unstoppable.
Writing in his Sunday blog earlier this week, Financial Secretary John Tsang Chunwah warned of the impact rising interest rates could have on asset prices. Most investors would be convinced by now that the US Federal Reserve will raise interest rates before the end of the year. But that doesn’t seem to have dampened Hong Kong’s property rush.
Neither has the buying spree been dented by government projections of an increase in supply of land and property in both the private and public sectors.
Property agents have reported brisk sales of small- to medium-sized apartments in new projects across the city. The strong demand has prompted many developers to keep upping prices of new apartments in the market.
The main driving force behind the escalating homes prices, obviously, is the low cost of money. Many lenders, including some of the largest banks, are cutting mortgage loan margins to the bone to grab market share. A few, especially aggressive banks, are known to be offering qualified borrowers mortgage loans at 10 basis points above banks’ fund costs.
It’s an offer many potential homes buyers have found it hard to resist. Now, they too can enjoy the narrow spreads that are usually restricted to lending to banks’ most credit worthy corporate clients.
Some developers have also provided a way for buyers to circumvent the high initial deposit requirement for mortgage loans introduced by the government several years ago as part of measures to cool an overheated market. What these developers have done is to extend depositfree mortgage loans through their finance company affiliates to property buyers.
At least two of the city’s largest non-bank money lenders have now teamed up with leading property sales agents to provide 100-percent mortgage financing to selected buyers.
Banks can certainly make life difficult for those money lenders by restricting their credit lines, as recommended by some economic analysts. But that’s a highly unusual and potentially controversial tactic that contravenes accepted practices in this free market town.
An alternative is for the government to lift the mortgage loan deposit requirement and allow the banks to compete with the money lenders on an equal footing. It has become obvious that the four-year-old market cooling measures have passed their used-by-date.