July 10, 2012 / 6:10 AM / 6 years ago

Hong Kong warns property bubble risk remains despite slower growth

HONG KONG (Reuters) - Property prices in Hong Kong grew at a slower pace and sales fell in the second quarter as global stock markets weakened, but the city’s financial chief warned on Tuesday that risk of a bubble will remain as long as interest rates stay low.

John Tsang told legislators that market sentiment had moderated in the past two months after a sharp rebound in February.

In May, prices grew by less than 1 percent and in June registered transactions fell by 30 percent to 5,890, but Tsang said the direction of the real estate sector was still unclear.

“The property market...is under the influence of the weak external economic environment and ultra-low interest rates and it’s difficult to predict its future direction,” Tsang said. “But as long as the low-interest rate regime remains unchanged, the risk of the property bubble remains.”

Low interest rates and a flood of buyers from mainland China have pushed up Hong Kong real estate prices in recent years, fueling broader inflationary pressures in the territory.

Prices soared 94 percent over the last five years to end-2011, according to brokerage Knight Frank.

In answer to widespread local anger at being priced out of the market, Hong Kong’s new leader Leung Chun-ying has proposed a number of countermeasures, including selling land for developments that would be restricted to Hong Kong residents only.

The risk of a sharp correction in the city’s property market has grown as Europe’s debt crisis deepens and as the global economy sputters, reducing demand for goods from China and Hong Kong.

Hong Kong’s private sector output fell for the second straight month in June, with new business from mainland China declining for the third consecutive month and at the sharpest rate since last November, according to a purchasing managers survey released last week.

Hong Kong’s domestic exports fell 26 percent in January- April compared to the same period in 2011. For the month of April alone, domestic exports fell 23.4 percent compared to a year earlier.

China’s customs administration announced on Tuesday that imports rose 6.3 percent in June from a year earlier, less than half the 12.7 percent increase forecast in a Reuters poll as domestic demand flagged in the world’s second biggest economy <ID: nL3E8IA02R>.

The uncertain economic environment may have also dampened developers’ appetite for new projects.

On Monday, Hong Kong’s subway operator MTR Corp (0066.HK) withdrew its tender of a site on top of a railway station in the New Territories after bids from three major developers came in below expectation.

Reporting by Tan Ee Lyn; Editing by Kim Coghill

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