Sweet dreams of home ownership can turn into nightmare

Hong Kong parents instil in their children from an early age the virtues of home ownership. A flat, while providing a place to live, is also a sound investment, their logic goes. It is backed by decades of solid evidence of the property market handsomely outperforming stock prices. Financial Secretary John Tsang Chun-wah was therefore bound to come under fire when he cautioned about buying property.

Tsang's message was common sense: if you cannot afford it, do not buy. Historically low interest rates have helped fuel all-time high property prices. The Hong Kong Monetary Authority last Friday introduced mortgage-tightening measures, the seventh move since February 2013 to cool the soaring market, and further restrictions were put in place on Monday. There have since been falls in the number of flats bought by non-locals and fewer sales of properties sold within two years of being purchased.

Whatever steps are taken, though, the deeply engrained ownership ambitions of Hongkongers will not be dented. Tsang is therefore right to remind of the inconvenient truth that prices can fall as well as rise, while the burden of mortgages could increase. There is a strong likelihood of that should the US raise interest rates this year, as has been long foreshadowed. The link of our currency to the US dollar dictates our borrowing rates; the American economy has been performing well and with the seeming inevitability of a rate rise, mortgages will correspondingly increase.

Buying a flat in the present bubble period involves a certain amount of risk. A rate rise of a few per cent could be disastrous for a couple intending to put a large percentage of their monthly income towards a mortgage. Those already on the ownership ladder could be in for a shock should the value of their flat suddenly fall, as can happen when rates rise. High rates mean lower market turnover, prompting discounts by owners trying to sell.

Tsang is not always accurate with his predictions, but his advice that it is unwise to buy property at a peak and better to wait until there has been a market adjustment or correction is sage. Factors like interest rates should not be the only determinant of living the dream of home ownership, though. The government also has a vital role to play - and it has to do a much better job. For one, greater effort needs to be put into providing our city's needy with public housing.