Hong Kong will try to head off a housing bubble by tightening mortgage restrictions and releasing more land for development.
Home prices have soared by 40% since the start of 2009, thanks to low mortgage rates and increased buying by mainland Chinese. They are expected to rise by a further 10% to 15% by the end of the year.
Total outstanding mortgage loans in Hong Kong amount to HK$679.5 billion as of the end of June 2010, increasing by HK$91.9 billion from the end of 2008. Banks will be required to apply stress tests on mortgage rates rising two percentage points or more. Borrowers' debt-to-income ratio should not be greater than 60% when the interest rate increases by 200 basis points. The new restrictions have already led to a cooling of the market, with mortgage approvals declining by 6.2% in June from a month earlier.
Hong Kong's economy is expected to grow by 5% to 6% this year, higher than the previous government forecast.