"With substantial liquidity in the system, there is a prospective risk that a credit-asset price cycle could take hold, ultimately leading to macroeconomic volatility," the International Monetary Fund said in the final version of an annual report on Hong Kong, published on Thursday.
The Hong Kong government has already warned of the risk of a property bubble as mass residential property prices have risen 30% this year and luxury property prices have surged by more than 40%.
In late October the Hong Kong Monetary Authority reduced the mortgage limit for luxury property to 60% from 70% for luxury property and capped the maximum loan amount for mass-market property at HK$12 million (US$1.5 million).
It has also told banks to be prudent in lending.
The IMF said Hong Kong authorities should go further to ease price pressure. It suggested they ensure that banks differentiate appropriately between loans to finance investment properties and by tightening eligibility criteria for mortgage insurance.
"In addition, the authorities could explore lowering the existing maximum debt servicing ratio for mortgages (which is currently set at between 50% and 60%) based upon the nature and size of the underlying loan," it said.
The surge in property prices is partially driven by wealthy mainland Chinese, who are snapping up luxury apartments, and by the view that Hong Kong interest rates will stay low for some time. Hong Kong tracks US interest rates because its currency is pegged to the US dollar.
Hong Kong equity prices have also rallied, rebounding 70% since March, amid keen demand for the Hong Kong-listed shares of mainland Chinese companies which are likely to benefit from the Chinese economy's return to robust growth and expectations that the Chinese currency could soon start to appreciate again. — Reuters
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