Hong Kong Finance Chief Warns Again of Property Risk on Fed (1)

Sep 13, 2017 3:17 am ET

(Bloomberg) -- Hong Kong’s Financial Secretary Paul Chan warned potential buyers to be careful buying property in the world’s most expensive housing market, as moves by the Federal Reserve to unwind its balance sheet may shrink money supply.

Chan warned in June that Hong Kong’s property market is in a “dangerous situation” and vulnerable to a correction. Hong Kong Chief Executive Carrie Lam describes housing as citizens’ No. 1 concern and recently set up a task force on increasing land supply as she tries to rein in ever-escalating prices.

“One has to be very careful if one really wants to buy a property in Hong Kong,” Chan said in an interview on the sidelines of a Belt & Road Forum in Hong Kong on Monday. Buyers need to assess their ability to service mortgages as interest rates normalize, he said.

Hong Kong home prices, the least affordable in the world, have surged 21 percent in the 12 months through June 30, the second-biggest gain globally after Iceland, according to a report from broker Knight Frank LLP. The boom in global house prices may be coming to an end as central banks worldwide step away from economic stimulus, with a slowdown in growth already evident in Europe, the broker said.

Sun Hung Kai Properties Ltd, the city’s biggest developer by market value, fell as much as 1.8 percent on Tuesday. Cheung Kong Property Holdings Ltd. declined 1.2 percent. while the benchmark Hang Seng Index was little changed as of 11 a.m. local time.

Expectations for Fed tightening have been scaled back as its preferred inflation gauge has declined for five straight months, sitting below the central bank’s 2 percent goal. Even so, Hong Kong’s leaders are monitoring the situation closely, especially because an unwinding of central bank support could coincide with the addition of a large supply of homes in the city, Chan said. The government estimates 98,000 first-hand housing units will come on the market in the next three or four years.

Not 1997

Past experience indicates that rising U.S. interest rates will “definitely” affect Hong Kong asset prices, Chan said. Combined with the increased supply of homes, “I would not be surprised if there will be a certain adjustment in the market,” he said.

However, the finance chief saw limited impact on Hong Kong’s economy should a correction occur. Chan said the city is more resilient than in 1997 when the Asian financial crisis touched off a six-year property bust.

“I’m not worried about its impact on our economy because the situation is very different from that in 1997, in terms of liquidity of developers, the leverage level of our homebuyers, prevailing interest rates and serviceability,” Chan said. “We are confident even if there’s an adjustment in the property market, we will be able to weather through strongly.”

(Adds further comment from Chan, stock reaction.)

--With assistance from Paul Panckhurst Kelly Belknap and Andy Clarke

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