With the US Federal Reserve’s rate hikes increasing borrowing costs, the financial secretary of Hong Kong cautioned of the property market’s vulnerability to a correction, reported Bloomberg.
Notably, the Hong Kong Monetary Authority raised borrowing costs by 25 basis points to 1.5 percent last week, or the same amount the Fed raised its target range.
“That’s why we have to warn our people about the dangerous situation of the property market at the moment,” said Paul Chan, who was named finance secretary in January. “No one can tell how deep the adjustment will be or what is the appropriate level of adjustment.”
Nonetheless, Chan is confident that Hong Kong’s financial system can withstand any steep correction. In fact, the government is already ramping up its efforts to boost supply and ease demand.
He also noted that unlike the Asian financial crisis which slashed over two-thirds off prices, the current cycle shows no signs of a crash.
“The situation is very different from 1997.”
Notably, the property cooling measures rolled out by the government had little effect on house prices as developers submit record high bids for lands while borrowing costs remain relatively low.
The value of outstanding mortgages soared by over a third in the five years to December, and now stands at 47 percent of gross domestic product. The figure is higher by over 10 percentage points than in early 1997 prior to the bursting of the property bubble.
Proving recent predictions of property crash wrong, Hong Kong’s role as a conduit for capital into and out of China continues to be a key strength, said Chan.
“We can be a risk manager for both sides.”
This article was edited by Denise Djong.
