HK fears for market as property prices soar

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Risks in Hong Kong's property market may exceed those in 1997 if falling prices coincide with rising interest rates, Hong Kong Monetary Authority chief executive Norman Chan said.

The property market has been rising "quite rapidly" and may collapse if prices keep going up, the Ming Pao Daily cited Chan as saying.

Chan joined the city's Financial Secretary John Tsang in cautioning about an asset bubble. The Government has raised down payment ratios and pledged to increase land supply to rein in home prices that have surged about 47 per cent since the start of 2009, fuelled by record-low mortgage rates and an influx of wealthy mainland Chinese buyers.

"The way home prices have been going up is definitely not healthy," said Francis Lun, general manager at Fulbright Securities.

"The question we're all asking is whether government officials would take more drastic measures to address this issue. What they've done so far are merely cosmetic or plain rhetoric."

Mortgage rates in Hong Kong have been at about a 20-year low as the city's interest rates normally follow those in the US because the currency is pegged to the dollar.

Homes prices also may be vulnerable to credit tightening measures in China that can prompt investors to pull funds away from the property market, Ming Pao quoted Chan as saying.

An estimated 20 per cent of buyers of new apartments in Hong Kong are from mainland China, according to Centaline Property Agency, one of the city's biggest agencies.

By some measures, prices are now already on par with 1997, the height of a previous bubble that was followed by a six-year slump that sent values more than 50 per cent lower. Hong Kong home prices rose to the highest since December 1997 in the week ended September 5, according to an index compiled by Centaline.

The index has risen 1.2 per cent in the three weeks since the government on August 13 raised down payments for apartments costing HK$12 million ($2.1 million) or more to 40 per cent from 30 per cent, and Tsang said the gain in home prices was "rare".

They had risen about 13 per cent since the beginning of the year before the measures were announced.

The Government is monitoring the market and may introduce further measures to contain prices if they continue to escalate, Ming Pao reported.

- BLOOMBERG