Concrete Analysis | Hong Kong government should lift cooling measures to free up supply in secondary market

It was astonishing to learn that the Hong Kong government has decided to launch a new series of cooling measures to distort market demand for properties instead of seeking to boost home supply by phasing out the restrictive measures on second-hand home sales and purchases.

Last month, the Hong Kong Monetary Authority announced further tightening measures aimed at prospective home buyers with multiple loans and income sources overseas.

The HKMA also tightened the mortgage ceiling for residential properties. For borrowers with outstanding mortgages, the maximum amount they can borrow for residential properties less than HK$10 million in value will be reduced from 60 per cent to 50 per cent of the valuation. For homes worth more than HK$10 million, the lending cap is raised by 10 per cent.

Corporate buyers will also have their loan amount slashed from 50 per cent to 40 per cent. Borrowers with the majority of their income from outside Hong Kong will also see a 10 per cent cut to their loan-to-value ratio.

Since 2009, the government has tried to clamp down on property price growth by launching similar credit control measures, as well as special stamp duty for non-first-time home buyers, in order to buy time to build more subsidised and private homes or wait for the US to start raising interest rates.

However, while prices have been surging regardless, the existing demand-management measures had a separate adverse effect of reducing the supply of second-hand homes in the market to a trickle.