Hong Kong Warns on Home Loan Risks, Daily Says, as Prices Soar

(Bloomberg) -- The Hong Kong Monetary Authority has warned banks in the city over the rising risks of property lending, according to the Oriental Daily, just as home prices notch up another record in the world's most expensive housing market and Citigroup Inc. sees an imminent round of new cooling measures.

The authority sent letters this week raising concern over the increasing number of highly leveraged mortgages provided by developers, which boosts risks for banks lending to these companies, according to the Daily and other media reports on Saturday, citing unidentified people. It may tighten risk management and said banks should be prudent when lending to clients who buy multiple units with a single contract, the reports said.

Hong Kong's property market is on a roll, stoking discontent among the city's residents and posing a headache for incoming Chief Executive Carrie Lam. Existing home prices have risen to a record for six consecutive weeks, according to the Centaline Property Agency, shrugging off stamp duty increases in November. Citigroup said in a note dated March 27 that it sees new tightening moves coming any Friday from now on.

Li Ka-shing, Hong Kong's richest man and the 88-year-old head of Cheung Kong Property Holdings Ltd. and CK Hutchison Holdings Ltd., said last month the rebound could persist for as long as two years as growing demand outweighs government curbs. “I cannot see how property prices would fall in the coming one to two years,” he told an earnings press conference. “The force from buyers is very strong.”

Even with the Federal Reserve raising interest rates, brokers and analysts in the city also expect further increases in prices. But Citigroup is not so sure. Home prices increasing at 2 percent to 3 percent a month is “clearly not an acceptable rate” for the government, the bank said in its note, and maintained its underweight rating on developers, with sell recommendations on several.

Hong Kong retained its position as the most expensive housing market among 406 major metropolitan regions in the annual Demographia International Housing Affordability Survey for the seventh year in a row. The median price of a home in Hong Kong last year was 18.1 times the median annual pretax household income, according to its website in January.

The Hong Kong Monetary Authority was not able to comment immediately when contacted on the media inquiry number on Saturday.

To contact the reporter on this story: Sandra Tsui in Hong Kong at ytsui4@bloomberg.net.

To contact the editors responsible for this story: Stanley James at sjames8@bloomberg.net, James Poole