HKMA launches newest round of prudential measures

It's to strengthen banks' risk management, partly.

The Hong Kong Monetary Authority (HKMA) recently announced a new round of tightening measures on property mortgages to strengthen banks’ risk management and resilience.

According to a research note from Barclays, this is the seventh round of prudential measures that HKMA has rolled out since the first one was introduced back in October 2009.

Barclays noted that, looking back to how the physical market reacted to previous prudential measures, it found that home prices generally continued to rise.

For the six previous prudential measures, in the 30 days after their introduction, home prices had risen in five out of six instances with an average gain of 0.5%.

In the 90 days after mortgage tightening, home prices had risen in four out of six instances with an average gain of 2.5%.

Here's more from Barclays:

While home prices were generally resilient to the mortgage tightening, the same cannot be said for volumes.

If one were to look at average transaction volumes in the three months before and after the prudential measures, we find that volumes fell nearly every time.

In the secondary market, we find that not only did secondary volume shrink after the policy announcement, the magnitude of the decrease intensified every time.

In the first round in 2009, secondary volume only shrank by 10% from 8,505 monthly cases in Aug-Oct 2009 to 7,654 monthly cases in Nov 2009 – Jan 2010.

By the sixth round announced on 22 Feb 2013, secondary volume shrank by 32% from 3,945 monthly cases in Dec 2012 – Feb 2013 to only 2,677 cases in Mar-May 2013.

Interestingly, the primary volumes reacted differently. In the first four rounds of tightening in 2009-2011, primary volume also shrank between -34% to -56%. However, for the fifth round of tightening in September 2012, primary volumes only declined by 1%.

And in the sixth round in February 2013, monthly average primary volumes actually rose by 17% from 689 to 808 cases. Developers’ share of market volume has gone up in the sixth round.