Hong Kong Financial Secretary John Tsang predicted a "soft landing" for the real estate market and said the city will keep its currency peg to the US dollar, blamed for helping drive home prices up about 70 percent.

"There have been ups and downs but the peg has come through for us," Tsang said in an interview in Chicago on Monday. As for the property market, "transactions have fallen and prices are starting to trend down slowly," he said.

The US dollar's 6.8 percent decline against the yuan in the past two years has inflated the cost of imports to Hong Kong and drawn property buyers from the mainland. Home prices have tripled from their 2003 low, prompting a government crackdown on speculation that's caused a three-month drop in new lending.

"The residential market has basically frozen as a result of the curbs and the global downturn," said Alva To, head of consulting for North Asia at DTZ, a property broker. "Our surveyors are seeing almost a 60 percent drop in the number of valuation queries from banks compared with normal times."

Hong Kong's used home sales have slowed, with prices falling for the first time in seven months in July. That's not a "very violent reaction," Tsang said.

The government has imposed measures to address concerns about housing affordability, including raising the down-payment for some mortgages, accelerating land sales and imposing a tax on real estate resold within six months of purchase. Prices have jumped about 70 percent since the start of 2009. New loans approved fell 10.3 percent in August from a month ago.

Hong Kong's economic cycle still most closely resembles that of the US, so the city has no need or intention to change the dollar peg, he said.

"It is simple and transparent," Tsang said. "There's no need for us to make any changes."

The Hong Kong dollar has been kept at about HK$7.80 versus the greenback since 1983.

Linking the Hong Kong dollar to the yuan won't work until the mainland's currency is fully convertible with an open capital account, Tsang said. Dealing with Hong Kong's soaring home prices and inflation are the policy priorities, he said.

Chief Executive Donald Tsang may speak about housing prices in his annual policy address next month, said John Tsang, without giving details.

Bloomberg

(HK Edition 09/28/2011 page2)