Hong Kong tightens mortgage lending to rein in property bubble

Hong Kong’s central bank has tightened mortgage lending after saying a third round of quantitative easing by the US Federal Reserve risks pushing up home prices that have already surpassed their 1997 peak.

The central bank is limiting the maximum term on all new mortgages to 30 years, Norman Chan, chief executive of the Hong Kong Monetary Authority (HKMA) said.

Mortgage payments for investment properties cannot be more than 40% of buyers’ monthly incomes, from the current 50% he said. The measures are the second set of curbs in as many weeks by the government of new CEO Leung Chun-ying, who is trying to rein in home prices that have gained more than 85% since early 2009.

Hong Kong property stocks surged, pushing the benchmark Hang Seng Index to a four-month high, after the Fed said it will continue buying assets in a third round of quantitative easing without setting any limit on the ultimate amount it would buy or the duration of the programme.

“Without policy intervention, QE3 will further heat up the Hong Kong property market,” David Ng, a Hong Kong-based analyst at Macquarie Securities, wrote in a note yesterday after the HKMA’s announcement. “Excessive price growth not only hurts affordability, but will further weaken the political clout of the government.”

Record low mortgage rates, an influx of buyers from other parts of China and a lack of new supply have been underpinning the Hong Kong property market, prompting Leung, who was sworn in as the city’s leader in July, to accelerate land sales and give preference to local buyers in some projects.

The introduction of QE3 “will create the potential for renewed influx of capital into Hong Kong,” Mr Chan said. “We have to stand ready for it.”

The central bank also raised the minimum down payment on investment properties for buyers who derive their income from outside Hong Kong.

Investors using their assets — not income — to borrow can now only take out loans for as much as 30% of a property’s value, Mr Chan said.

The restrictions are effective immediately.