Hong Kong to rein in property lending amid bubble fears

By Susan Fenton

HONG KONG (Reuters) - Hong Kong's central bank moved on Friday to slow a surge in luxury property prices driven by rich buyers from mainland China by limiting mortgages amid growing concern over a real estate bubble in the territory.

Last week, Hong Kong's Chief Executive Donald Tsang warned of a potential property bubble -- as one luxury flat in the city sold for a world record HK$71,280 ($9,200) per square foot -- and said the government could release more land for sale.

The Hong Kong Monetary Authority said on Friday it would cap the mortgage limit for luxury property at 60 percent, down from 70 percent, and limit mortgage loan values.

"It is very difficult to detect if a bubble is there," Norman Chan, chief executive of the Hong Kong Monetary Authority told reporters. "But what we're concerned about is, given the very sharp rise in prices in this top segment of the property market, the risk, or credit risk, to these mortgage loans to these properties has increased."

The HKMA said the 60 percent mortgage cap would apply to property valued at HK$20 million or more. For properties below that the 70 percent ratio will remain but the maximum loan amount will be capped at HK$12 million.

"We do not directly target price levels," Chan said.

Prices have surged by 26 percent this year, and by more in the luxury segment, where mainland Chinese are snapping up apartments. Many of them are entrepreneurs who are awash with cash and would not be deterred by the mortgage limit, analysts say. Chan acknowledged that but said there was still a portion of people needing mortgages.

He also warned homebuyers and banks to account for an eventual rise in interest rates from record lows.