Monetary Authority of Hong Kong warn of property bubble with QE3

HONG KONG: Hong Kong’s Monetary Authority warned Friday that the loosening of monetary policy in the United States could lead to overheating in the territory’s already hot property sector.

HKMA Chief Executive Norman Chan said the latest US stimulus plan announced Thursday could increase the risk of a property market bubble forming in the southern Chinese city.

He said the de facto central bank would take measures to cool local asset markets if necessary, and had already required banks to tighten lending requirements for people with multiple mortgages.

“We expect that the period of exceptionally low interest rates and abundant global liquidity will stay with us longer and the risk of overheating in the property market in Hong Kong will increase,” Chan told reporters.

“HKMA is concerned that borrowers with multiple mortgages loans will pose high risk to the banks.”

Chan’s comments came after the US Federal Reserve’s policy-setting committee announced a new, open-ended US$40 billion-a-month bond-buying programme to stimulate growth and employment in the world’s biggest economy.

The third round of so-called quantitative easing, or “QE3”, will take the US central bank’s total monthly purchases to US$85 billion a month.

Hong Kong’s currency peg to the US dollar means monetary policy in the United States flows directly into the local economy.

The Asian financial centre has some of the highest property prices in the world, driven by limited supply and speculation from wealthy mainland Chinese investors.

Hundreds of thousands of working people are forced to live in tiny, windowless “cubicle” apartments because they can’t afford to rent decent accommodation or buy their own homes.

The government has promised to alleviate the situation with measures including boosting public housing and releasing more land for development, but so far the policies have made little difference to housing affordability.

Chan said there was no prospect of the peg being dropped, despite calls earlier this year from the former head of the HKMA, Joseph Lam, for a review of the government’s monetary options.


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