Property bubble threat remains serious

Financial Secretary John Tsang again sounds warning against a persistent menace.

He said an asset bubble is forming in the market for residential homes, reinforcing a recent government warning to this effect. The government also noted that homebuyers' affordability has been stretched even further by the extremely-low interest rates and will be overstretched when rates start to normalize.

It said the home affordability ratio in the third quarter stood at 50% which is quite close to the 20 year historical average level of 50.4%.

The current mortgage loan rate level of 2.2% is already very low so that the risk of an interest rate hike in the future remains very high, said Tsang.

"Under the stress test performed by the government, if the interest rate shoots up by 3%, then the home affordability ratio will jump to 65% in Hong Kong," Tsang warned.

Tsang warned that residents must act prudently in considering home purchases and consider their job security and the external macroeconomic environment.

The home affordability ratio is the monthly income ratio of a household used in calculating home mortgage loans repayment. It is as benchmark to determine the financial capability of a household to repay a home mortgage loan.

A high ratio could pose a systemic risk to the property market when a rise in local mortgage loan rates may cause defaults on mortgage loans.

Government Economist Helen Chan noted that the local home affordability ratio actually is not low.

“It reflects the current abnormalities of the global financial market. The 50% home affordability ratio in Hong Kong just reflects the extreme low mortgage loan level in the city.

The government said home prices in the first 10 months jumped 23%.Of fhis percentage, properties from the mass market segment jumped 24% while luxury flat prices jumped 11%.