Property: Hong Kong Monetary Authority talks of "the bubble" in property prices

Mr Chan said today "the HKMA must introduce appropriate prudential measures in a timely manner to ensure that our banks adopt the necessary risk management standards and practices, and to make our banking system more resilient to shocks, so as to dampen the damage that would be inflicted by the bursting of the asset bubble."

The HKMA has issued a series of instructions to banks that must take immediate effect except where a mortgage offer has been made and contracts were exchanged on or before today. The notice was issued during the evening Hong Kong time, after close of business in law firms, even with Hong Kong's long working hours therefore reducing the prospect of a wave of last-minute exchanges of contracts.

The requirements are

1. Lowering the maximum loan-to-value (LTV) ratio for residential properties with a value at HK$12 million or above from 60% to 50%.
2. Lowering the maximum LTV ratio for residential properties with a value at or above HK$8 million and below HK$12 million from 70% to 60%, but the maximum loan amount will be capped at HK$6 million.1
3. Maintaining the maximum LTV ratio for residential properties with a value below HK$8 million at 70%, but the maximum loan amount will be capped at HK$4.8 million.
4. Lowering the maximum LTV ratio for all non-owner-occupied residential properties, properties held by a company and industrial and commercial properties to 50%, regardless of property values.

Mr Chan had a stern warning for consumers: "It is not enough to rely solely on the measures introduced by the Government. The entire community must heighten their awareness of the risks that lie ahead. It is essential that we do not overstretch ourselves by borrowing beyond our means, bearing in mind that interest rates will one day return to more normal, but significantly higher levels."

China today raised its benchmark interest rate. Although some have called the increase a "surprise" it was widely expected across South East Asia and has been extensively discussed by market watchers in the past couple of days.

The People's Bank of China increased the rate from 5.56% to 5.31% due to increasing concerns over inflation. it is also widely expected that the rate rise will be accompanied by capping of the price of staples such as meat, vegetables and rice. This is a tactic that the government has used in the past to curb rapid inflation.

However, it is not expected that the Chinese rate increase will have a significant downward pressure on Hong Kong property prices which have been fuelled by mainland money, much of which is not borrowed.

However, the rise did spook markets which are concerned that there may be increased loan defaults in China. The USD rose on the news.