Hong Kong’s principal economist Helen Chan warned on Monday (5 June) that if the low interest rates at present returns to its “normal level” or increase by three percent, monthly mortgage instalments would take up 86 percent of a home buyer’s monthly income, reported the South China Morning Post.
Currently, monthly payments for housing loans account for 66 percent of these people’s monthly salary, noted Financial Secretary Paul Chan Mo-po. But this is expected to rise further due to the high likelihood that the US Federal reserve would raise its interest rate by June 2017.
“The risk in the property market is very high; sentiment in the property market is very exuberant,” he said.
Paul pointed out that home prices in the Special Administrative Region (SAR) climbed by 6.5 percent in the first four months of the year, with April alone recording a gain of two percent. The property market is so hot that prices now surpass their previous peak in 1997 by almost 90 percent.
Nevertheless, he is confident that Hong Kong’s banking system is more robust than it was during the financial crises in 1998 and 2008. A significant downturn in the housing sector would not result in the same situation back then, said Paul.
The warning from Hong Kong’s top financial officials came as the local housing market continues to attract thousands of home buyers, similar to what was seen a year prior to the 1998 Asian economic crisis.
For instance, all of the 842 units at the Cheung Kong Property’s Ocean Pride project were bought during the past few weeks for a total of nearly HK$9 billion (S$1.6 billion). The developer, owned by Hong Kong’s wealthiest man Li Ka-shing, released more flats on Monday at HK$25,000 psf (S$4,438 psf).
In May, Hong Kong’s central bank head Norman Chan Tak-lam said houses in the city were too expensive for most locals, but many still lined up to buy thinking that prices would continue to increase.
This article was edited by Denise Djong.
