Home prices in Hong Kong have fallen 10 percent from their peak last year. Some believe the correction has been completed.
But in an interview at the World Economic Forum in Davos, Switzerland, Chief Executive Carrie Lam Cheng Yuet-ngor told Bloomberg that her administration’s goal is for a family to be spending only 40 percent of its income on mortgage costs, down from the current level of 70 percent.
The city’s median property price climbed to 20.9 times its median household income in 2018, up from 19.4 times in the previous year, according to a report released this month by urban planning consultancy Demographia. That’s way above the 12.6 years in Vancouver, the world’s second most expensive housing market.
“I feel there is still room for some correction,” Lam said.
Traditionally, the government calculates the debt-servicing ratio (DSR) for new residential mortgage loans based on the monthly mortgage payment for buying a 45 square meter flat at the current mortgage rate, with 30 percent down payment and loan maturity of 20 years, and compares that with the median household income.
In fact, previous administrations never set a specific DSR target. The gauge hovered around 45 percent between 1998 and 2017, peaked at 83 percent in 1998 and reached a trough at 20 percent in 2003. However, the DSR has kept rising since 2010.
The chief executive’s 40 percent target implies a 44 percent decline in home prices.
There is another way, however. Lam could rapidly ramp up public housing supply, which sells at a much lower price than private projects. That way, the 40 percent target would be much more achievable.
Lam has committed to boosting public housing so that it will account for 70 percent of the target supply over the next decade, up from 60 percent at present. This will continue to be her policy direction.
Still, Lam apparently wants home prices to fall further to help reach her target.
This article appeared in the Hong Kong Economic Journal on Jan 24
Translation by Julie Zhu
[Chinese version 中文版]
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