In control: Financial Secretary John Tsang announces additional measures to control potential risks in the property sector.

Financial Secretary John Tsang has announced additional measures to control potential risks in the property sector. They include increasing land supply and curbing speculative activities in the property market.

Mr Tsang today said the mortgage repayment to household income ratio rose to 41.5% in the second quarter.

"Although this is still lower than the 1989-2008 20-year average of 53%, there is increased risk of a property bubble forming because interest rates are expected to continue to be very low for some time to come."

More land auctioned

The Government will earmark three more plots of land in Chai Wan, Hung Hom and Fanling in the application list and will put them out to the market through government-initiated auctions or tenders. The two sites at Chai Wan and Fanling will be auctioned in September.

"As to the 2011-12 application list, we believe the land to be made available will provide more than the 9,000 units under the 2010-11 list," Mr Tsang said.

"The application list is not the only land supply for housing development. We can also look to planning applications, lease modifications, land exchange, property development along railway lines and urban redevelopment, for example."

Site-use changes

A Planning Department review has identified 20 hectares of land currently earmarked for industrial and business use that can be turned into residential use. The department is also considering changing the use of selected Government, institution and community sites for residential development.

Planning studies are also underway on the Anderson Road, Lam Tei and Lamma Island quarry sites as well as sites in the new development areas, including land near the boundary area in the New Territories, to see if they can provide more land for residential use.

Meanwhile, development of the Kai Tak site will provide 16,000 residential flats. The land for 4,000 will be available by 2015.

Speculation measures

The Lands Department will disallow confirmor transactions of first-hand uncompleted flats which are granted pre-sale consent by the department from today.

Purchasers of those flats will not be allowed to re-sell, sub-sell or transfer the benefits of the agreements for sale and purchase before the transaction's completion.

The department will also require buyers of those flats to forfeit 10%, instead of the current 5%, of the total purchase price if they cancel transactions.

"We earlier introduced a series of measures to enhance the transparency of property information and transactions. We will monitor the implementation of these measures closely. We do not rule out the possibility of legislating if these measures do not prove to be effective," Mr Tsang said.

Mortgage control

On preventing excessive expansion in mortgage lending, the Monetary Authority today issued a circular to banks in Hong Kong requiring them to implement a set of prudential measures for residential mortgage loans with immediate effect.

These include:

* applying a maximum loan-to-value ratio of 60% to properties with a value at or above $12 million. For properties valued below $12 million, the 70% loan-to-value ratio guideline will continue to apply, but the maximum loan amount will be capped at $7.2 million;

* lowering the maximum loan-to-value ratio for properties which are not intended to be occupied by the owners to 60%. Banks should require mortgage applicants to declare whether they intend to occupy the mortgaged property; and,

* standardising the limit on debt servicing ratios of mortgage applicants to 50%, instead of the current range of 50% to 60%. Banks should stress-test mortgage applicants' repayment ability, assuming an increase in mortgage rates of at least two percentage points, and limit the stressed debt servicing ratios to a cap of 60%.

"I remind potential home buyers to be cautious when borrowing money to purchase property. They must be aware current levels of interest rates are unusually low and their repayment burden will soar when interest rates return to more normal levels, and the property market will also make the necessary price adjustments," Mr Tsang said.

"We will continue to monitor the situation closely. I will not hesitate to introduce further measures should that prove necessary."

Insurance programme revised

Meanwhile, the Mortgage Corporation also announced today the following revisions to the Mortgage Insurance Programme:

* suspending applications of mortgage loans exceeding 90% loan-to-value ratio;

* lowering the maximum amount for mortgage loans of 90% or below loan-to-value from $12 million to $7.2 million; and,

* capping the maximum debt-to-income ratio at 50% for all income groups.

The revisions will apply to Mortgage Insurance Programme applications with provisional sale and purchase agreement signed on or after August 14.