Hong Kong Acts to Prevent Bubble

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JONATHAN CHENG Concerns about a growing bubble in Hong Kong's high-end property market pushed central bankers here to increase the required down payment on luxury homes to 40%, from the current 30%. The new measure, which goes into effect immediately, applies to properties valued at HK$20 million (US$2.6 million) or more, part of an attempt to tamp down an overheated sector that has alarmed regulators and set off a wave of populist anger. The Hong Kong Monetary Authority, the city's de facto central bank and main banking regulator, said that luxury-home prices already had exceeded Hong Kong's historical peak in prices, in 1997. While property prices in much of the rest of the world continue to languish, prices in traditionally volatile Hong Kong have been on a tear this year, thanks in large part to low interest rates and a wave of liquidity from mainland China, where Beijing last year unleashed a four trillion-yuan (US$585.6 billion) stimulus. Economists attribute much of Hong Kong's property run-up to mainland Chinese, and developers say that mainland Chinese customers now account for as much as 40% of new-home sales. Last week, one major local developer said it sold a luxury condominium to a mainland Chinese buyer for HK$71,280 per square foot, spurring fears that mainland Chinese buyers were pricing local home buyers out of the market. Hong Kong's top leader Donald Tsang said earlier this month that the very high end of the luxury property sector was separate from the mass market, but concerns have grown about the broader impact on ordinary home buyers. In issuing its new rules Friday, the HKMA urged banks to be more prudent in valuing homes, and to assess whether borrowers would be able to repay their loans should interest rates rebound to "more normal levels." "There are no real problems in the overall property market, but the luxury residential sector is worrying," HKMA deputy chief executive Y.K. Choi said. One contributing factor is low interest rates in Hong Kong, where the local currency is pegged to the U.S. dollar. Because lending rates are at a historic low, mortgages can be had for around 2% these days, the HKMA said. So far, Hong Kong has managed to sidestep the troubles that beset the U.S. subprime mortgage market, thanks to a 30% down-payment requirement that has been in place since 1991. HKMA officials pointed Friday to the U.S. subprime meltdown to justify its higher down-payment requirement. "We want to get out ahead of any potential problems, instead of waiting until we have a full-blown crisis," Mr. Choi said. The HKMA said it had no timetable for when the tightened restrictions might be lifted. Write to Jonathan Cheng at jonathan.cheng@wsj.com This e-mail address is being protected from spambots. You need JavaScript enabled to view it