With a limited supply of land, Hong Kong is renowned for having some of the most expensive residential and commercial real estate in the world.
So far, efforts to cool a market that is becoming unaffordable for many have failed.
Recently, however, the government has redoubled its efforts. Earlier this month, Executive Council of Hong Kong chief executive CY Leung unveiled a 10-point plan to promote affordable housing that includes the sale of government-owned residential units and measures to help local residents purchase housing.
Last week, the administration went further, announcing a range of mortgage-tightening measures aimed at curbing property investment and making more properties available for owner/occupiers of land – the fifth such attempt to restrict credit access in recent times.
Under the new measures, the Hong Kong Management Authority (HKMA) has reduced the Debt Servicing Ratio ceiling for investors seeking more than one mortgage from 50 per cent to 40 per cent and, for those borrowing on a ‘net worth’ basis, the Loan-To-Value (LTV) ratios from 40 per cent to 30 per cent.
For overseas investors – predominately mainland the Chinese – it has lowered the applicable LTV by a further 10 per cent, to between 30 and 50 per cent, depending upon the value of the property.
In short, the HKMA is trying to cool the residential market by limiting the extent to which property investors can use debt to finance property purchases.
The government has also limited all mortgage tenures to a maximum of 30 years, removing the ability of borrowers to meet mortgage lending requirements by opting to pay off loans over longer mortgage lives .
Both measures, along with those contained in the 10-point plan, are aimed at tempering the market and making housing more affordable. It is also believed the latest measures will strengthen overall underwriting standards.
Research firm Barclays Capital Inc. says a number of factors are behind the latest moves. From a social perspective, rising property prices are creating a divide between the wealthy baby boomer generation and younger generations and making housing increasingly unaffordable for those on low incomes.
Furthermore, there is no shortage of evidence that residential property investors are crowding out ‘genuine’ home buyers, driving up the cost of housing for many families.
Barclays says that, despite their intentions, the new measures are unlikely to cause housing prices to fall. Despite the anticipated drop-off in demand resulting from these measures, Barclays says, not many existing property owners are under any substantial pressure to sell. Therefore, while the new measures will probably curtail transaction volumes, they are unlikely to cause any contraction in prices.
Still, the measures may have the effect of restraining demand, thus limiting future price rises, and Barclays says the government is right to target investors in its quest to cool the market.
At times, Hong Kong’s property market can resemble a wild beast.
For now, the government hopes its measures will at least tame the monster a little.