Sweet dreams of home ownership can turn into nightmare

Hong Kong parents instil in their children from an early age the virtues of home ownership. A flat, while providing a place to live, is also a sound investment, their logic goes. It is backed by decades of solid evidence of the property market handsomely outperforming stock prices. Financial Secretary John Tsang Chun-wah was therefore bound to come under fire when he cautioned about buying property.

Tsang's message was common sense: if you cannot afford it, do not buy. Historically low interest rates have helped fuel all-time high property prices. The Hong Kong Monetary Authority last Friday introduced mortgage-tightening measures, the seventh move since February 2013 to cool the soaring market, and further restrictions were put in place on Monday. There have since been falls in the number of flats bought by non-locals and fewer sales of properties sold within two years of being purchased.

Whatever steps are taken, though, the deeply engrained ownership ambitions of Hongkongers will not be dented. Tsang is therefore right to remind of the inconvenient truth that prices can fall as well as rise, while the burden of mortgages could increase. There is a strong likelihood of that should the US raise interest rates this year, as has been long foreshadowed. The link of our currency to the US dollar dictates our borrowing rates; the American economy has been performing well and with the seeming inevitability of a rate rise, mortgages will correspondingly increase.