House-debt a time bomb
Updated: 2013-02-06 06:10
(HK Edition)
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Hong Kong Monetary Authority Chief Executive Norman Chan warned on Monday that housing prices rose again last month while household debt now accounts for 59 percent of gross domestic product, just one percentage point shy of the all-time high of 60 percent recorded in 2002. He said the HKMA may launch a sixth round of cooling measures to rein in the property market.
The fact is Hong Kong's real estate market is overheating the same way it was before the 1997 Asian financial turmoil and before the SARS pandemic of 2003, which means it may collapse if property prices continue to climb. There is no need to remind people of the economic calamity occurring when a real estate market buckles under its own weight. The government should step up risk management of local banks and keep a close eye on mortgage loans in particular. Local residents should also take all risks into account before jumping onboard the home-purchasing bandwagon.
The bloated property market and high household debt situation today is scarily reminiscent of the days preceding the housing market crashes of 1997 and 2003. The previous two market crashes happened when interest rates rose in 1997 and 2003. Now it is only a question of when Hong Kong's interest rate will go up on the heel of the United States' own interest rate hike. Property prices fell by more than 70 percent when the SARS epidemic broke out in 2003, resulting in an explosion of negative asset cases as more than 100,000 homebuyers declared bankruptcy.
Market pundits are predicting the US may raise interest rates as early as late December. If the lending rate in Hong Kong rises by 3 percent to the normal level, then the portion of mortgage payment in average monthly incomes would surge to 65 percent immediately. Once interest rates begin an upward swing, the housing market could be at heightened risk of hurtling into a nosedive. That is why the government must do everything necessary to prevent this scenario from coming true again.
This is an excerpted translation of a Wen Wei Po editorial published on Feb 5.
(HK Edition 02/06/2013 page1)