Hong Kong says risk of property bubble increases after U.S. stimulus

HONG KONG, Sept 14 Thu Sep 13, 2012 11:14pm EDT

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HONG KONG, Sept 14 (Reuters) - The latest stimulus from the U.S. Federal Reserve increases the risk Hong Kong's red-hot property market will overheat and authorities may take measures to deal with that at an "appropriate" time, Hong Kong's de facto central bank said on Friday.

The Federal Reserve kicked off another aggressive stimulus programme on Thursday, saying it would pump $40 billion into the U.S. economy each month until it saw a sustained upturn in the weak jobs market.

"Due to the launch of QE3, and as the risks of the euro debt crisis calm down, the chance of an overheating asset market in Hong Kong is escalating, so we will introduce suitable measures at the appropriate time," Norman Chan, chief of the Hong Kong Monetary Authority, told reporters.

"The risk of an overheating property market also suggests a potential asset bubble," Chan added.

Hong Kong property stocks surged on Friday morning after the Fed action, with the Hang Seng Properties index up 3.2 3 percent at 0313 GMT.

Hong Kong has one of the world's most open economies and a property market that is easy to enter, has low transaction costs and no capital-gains tax. That makes the city's housing market a popular target for "hot money" when liquidity enters the global economy, as expected with QE3.

Chan said he did not expect the U.S. measure to put significant pressure on Hong Kong's super-low interbank interest rates. Hong Kong's interest rates are inextricably linked to those in the United States because the Hong Kong dollar is pegged to its U.S. counterpart.

The Fed said it was not likely to raise overnight interest rates from their current near-zero level until at least mid-2015. Previously, it had set such guidance at late 2014.

That pledge and the U.S. slowdown come at a time when Hong Kong's economy has been forging ahead, leading to the highest property prices in the world, according to real estate consultant Savills.

Chan reiterated that the Hong Kong government has no plan to change the Hong Kong dollar's peg to the U.S. currency.

Borrowing costs at near-record lows and a flood of buyers from mainland China have pushed up Hong Kong real estate prices and fuelled broader inflationary pressures in the territory, which imports many goods from China.

Hong Kong home prices are up 12.3 percent in 2012 and have soared 89 percent since the end of 2008, according to data from private Centaline Property Agency. The price-surge has made it hard for lower-income households to get on the property ladder.

Financial Secretary John Tsang warned Hong Kong's banks that they need to remain alert to economic risks in an address to the Hong Kong Institute of Bankers on Thursday. In July, he warned that the risk of a property bubble will remain as long as interest rates stay low.

Housing prices are a key focus of the administration of Hong Kong's new leader, Leung Chun-ying, a former property surveyor who took office on July 1. He has pledged to introduce more public-rental and subsidized housing, including a controversial plan to restrict the sale of some property plots to Hong Kong permanent residents. (Reporting by Donny Kwok, Twinnie Siu and Alex Frew McMillan; Editing by Richard Borsuk)

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