HKMA chief: interest rate hike may ease inflationary pressure on local property

Hong Kong Monetary Authority Chief Executive Norman Chan said Friday monetary tightening on the mainland could help ease inflationary pressure on the city's property market.

The mainland's latest move to raise financing costs is seen as another step to help cool down the mainland property market, in addition to recent administrative measures such as setting higher down-payment requirements and restricting multiple home purchases, according to Chan.

The People's Bank of China (PBoC) surprised markets Tuesday by announcing a 25 basis-point hike in its one-year deposit and lending rates, its first rate hike in almost three years.

"I think there will be an indirect impact on Hong Kong's housing market," Chan said at a function sponsored by the Hong Kong Press Council, when asked whether the move by the PBoC will have a negative impact on the city's housing market.

Mainland buyers currently account for a relatively large portion of home purchases in the city's luxury housing market. This means that their financial capacity and interest in Hong Kong properties will have an impact on local home prices, he said.

Mainland buyers purchased 35.1 percent of all new luxury apartments in the city during the first half of this year, up significantly from 22.5 percent in the second half of 2009, according to data compiled by property brokerage house Ricacorp Properties Ltd.

Mainland buyers also accounted for 16.7 percent of second-hand luxury apartment purchases in the first half of this year. Luxury apartments are defined as units selling for more than HK$12 million.

The rate hike announced by the PBoC will tighten liquidity and increase funding costs for mainland buyers, which may weaken their interest in Hong Kong flats. This could lower some of the demand for homes in the city, and therefore "help ease the inflationary pressure on the Hong Kong property market", Chan explained.

Chan said the PBoC's rate hike move shows the market that the Central Government will use a full array of macroeconomic tools such as the use of interest rates to cool the overheated economy and ease inflationary pressure.

As claimed by many market watchers, the 25 basis-point increase is indeed "moderate", but it was also a "very significant" signal, Chan said.

The PBoC could also raise interest rates further in the future when necessary, he said, adding that central banks never raise or cut interest rates with just one move. "It will be a gradual process," Chan said.

China Daily

(HK Edition 10/23/2010 page2)