IMF sees rising risk of bubble in HK housing

The International Monetary Fund (IMF) yesterday warned of increasing risks of a property bubble in Hong Kong amid continued liquidity inflows and rock-bottom interest rates and urged the city’s government to take further measures to rein in the booming real estate market.

The IMF said that while the city had returned to robust growth, it saw rising inflationary pressures fuelled in large part by soaring property prices and a stronger Chinese yuan.

“These pricing pressures will become increasingly visible in the coming months with inflation expected to reach around 5 per cent by end-2011,” said the IMF.

The organisation said it expected Hong Kong’s gross domestic product to expand 6.75 per cent this year, with the growth moderating to between 5 and 5.5 per cent next year.

The IMF said that Hong Kong dollar’s exchange rate pegged to the US dollar would create challenges in preventing inflation and property price bubbles.

The peg means Hong Kong essentially imports the currently very low interest rates set by the US Federal Reserve.

“Hong Kong has monetary policy determined by the US in an economy growing much faster than the US,” said Mr Nigel Chalk, a senior advisor of the IMF.

“Our concern isn’t now, it’s a prospective concern. You could end up where the property market starts to deflate, prices going down, but payments on household mortgages are going up. It becomes harder to pay your mortgage on an asset that has less value,” he said.

Hong Kong home prices have climbed about 50 per cent since the start of last year, surpassing a 1997 peak that was followed by a six-year deflationary slump.

Hong Kong Monetary Authority head Norman Chan said yesterday: “We are fully aware of the risks of an acceleration of the credit-fuelled asset cycle,”

Since April, the government has raised stamp duty on some home sales, increased down-payment ratios, stopped offering residency to foreigners who buy property in the city and increased land auctions to boost supply.

Source : Today – 19 Nov 2010

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