Hong Kong’s sizzling property market may prevent home buyers from servicing their mortgages, according to the Hong Kong Monetary Authority (HKMA).
If home buyers are forced to borrow too much compared to their income, the city’s overheating market – driven by prolonged negative real interest rates caused by high inflation and near-zero nominal interest rates – could pose a threat to their ability to pay-off loans.
“The extremely low interest rate environment also means the mortgage burden could rise substantially in the future and put mortgagors in distress when the interest rate returns to a more normal level,” said HKMA.
In its quarterly report on the health of Hong Kong’s banking sector and economy, HKMA noted that the city could fall back into recession if the Eurozone debt crisis escalates and if the US fails to tackle its ‘Fiscal Cliff’.
Moreover, home prices in Hong Kong are no longer following economic fundamentals. For instance, prices rose by 23.2 percent in the year to October, while economic growth for 2012 has been forecasted at just 1.2 percent.
HKMA repeatedly warned of this risk since 2011 and has tightened mortgage lending.
Romesh Navaratnarajah, Senior Editor of PropertyGuru, wrote this story. To contact him about this or other stories email romesh@propertyguru.com.sg
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