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Saturday, February 28, 2015, 12:56

HKMA tightens mortgage rules to curb prices

By Gladdy Chu in Hong Kong
HKMA tightens mortgage rules to curb prices

This general view shows two new buildings under construction in Hong Kong on Sept 6, 2011. (AFP PHOTO / LAURENT FIEVET)

Hong Kong Monetary Authority (HKMA) on Friday issued a new round of countercyclical measures on property mortgage aimed at cooling the property market and strengthening banks' risk management and resilience after the city’s home prices climbed 13 percent last year.

Maximum loan-to-value ratio for self-use residential properties valued below HK$7 million is further lowered to 60 percent, from the previous 60 to 70 percent, Norman Chan Tak-lam, head of the city’s de facto central bank, said during a media briefing.

Chan also announced tightened mortgage rules for second-home purchases and all non-self use properties, with home buyers’ maximum debt-servicing ratio — the monthly repayment of the borrower as a percentage of monthly income — cut from 50 percent to 40 percent.

The latest countercyclical measures take immediate effect, but mortgage applications for properties with provisional sale and purchase agreements signed before will not be affected.

Chan said these new measures would inevitably put pressure on some of the users and first-time home buyers, but he believes the imperative was to "safeguard the stability of the banking and financial system, given the renewed signs of overheating in the property market, particularly the small-sized residential units."

HKMA's residential mortgage survey result released on Friday shows the number of mortgage applications in January 2015 increased 22.8 percent to 13,608 over December.

Mortgage loans approved last month reached HK$30.3 billion, a jump of 21.4 percent over December, according to the HKMA data.

"With property prices continuing to rise, these tightening measures will help ensure portfolio risk relating to residential lending by banks is prudently managed," HSBC said in a release.

The latest measures tighten mortgage requirements for all “non-self use properties”, including homes, commercial and industrial properties and car park spaces, according to the HKMA.

"We are likely to see a slightly cooling property market in the next two or three months,” said Joseph Tsang, a managing director from Jones Lang LaSalle in Hong Kong.

"But once home buyers get used to the new measures, the transactions will rebound due to huge market demand, particularly for small-sized residential units," Tsang added.

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