Financial Secretary John Tsang warned that the local economy is still at risk of forming a property bubble, and the administration will unveil more measures to suppress the bubble formation whenever it deems it appropriate.

The administration last week announced a series of measures tackling the swelling property prices, including increasing public land auctions, raising property transaction stamp duties as well as enhancing transparency in property transactions.

Speaking in a seminar Monday, Tsang said that with the introduction of new measures, property prices and transaction volumes are showing signs of slowing down. He noted that local property prices for the last two months rose only 1.1 percent, compared to the January 2.5 percent increase.

However, Tsang warned that "with the ample liquidity in the financial system, low interest rate environment and limited land supply, the risk of a property bubble formation in the local economy is still looming."

Tsang projected that if the market interest rate increases by 3 percent, monthly mortgage payments for household property owners will jump by 30 percent. Therefore it is prudent for the administration to be proactive in introducing more measures if the property bubble fails to slow down.

"With the proclamation of last week measures, I am confident that the market supply of housing flats can increase in the medium and long run to suppress property price increases," Tsang declared.

Meanwhile, statistics from Hong Kong Monetary Authority (HKMA) showed that new mortgage loans approved grew by 38.7 percent to HK$36.9 billion in March on a month-on-month (MoM) basis. Mortgage loans drawn down rose by 60.3 percent to HK$27.4 billion for the same period based on MoM basis, reflecting the vibrancy of the local mortgage market.

Local property agents estimate that after the introduction of last week's measures, local property transactions have slumped, while property prices were just modestly lower for last weekend.

"Primary market transactions fell drastically and the secondary market transactions dropped by 20 to 30 percent on a week-on-week (WoW) basis as the market players adopted a very cautious stance," said Willy Liu, managing director of Ricacorp Properties Ltd told China Daily.

He added that while property transactions for the secondary market have slumped, property prices are just modestly lower by 1 to 2 percent on a WoW basis.

Liu predicted that the local property market for the next three months will be more sluggish, as the market still needs time to digest the implications of last week's measures, adding that local property prices will slide no more than 10 percent.

"The government's measures are achieving what it wants: to cool down the market, without suppressing it harshly; therefore, we can envisage the property-user market will remain stable, while for property speculation, a price slump will be more evident, as this sector is more prone to any changes in the business environment," Wong Leung Sin, associate director (Research Department) of Centaline Property Ltd told China Daily.

"The market will remain sluggish, as market players will gauge the responses of next month's public land auction to formulate their buying and selling strategies afterwards," Wong told China Daily.

China Daily

(HK Edition 04/27/2010 page2)