Safeguarding Banks and Containing Property Booms: Cross-Country Evidenceon Macroprudential Policies and Lessons From Hong Kong SAR

December 1, 2011

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Malhar S Nabar, and Ashvin Ahuja. Safeguarding Banks and Containing Property Booms: Cross-Country Evidenceon Macroprudential Policies and Lessons From Hong Kong SAR, (USA: International Monetary Fund, 2011) accessed September 21, 2024

Disclaimer: This Working Paper should not be reported as representing the views of the IMF.The views expressed in this Working Paper are those of the author(s) and do not necessarily represent those of the IMF or IMF policy. Working Papers describe research in progress by the author(s) and are published to elicit comments and to further debate

Summary

We assess the effectiveness of macroprudential policies against a number of different indicators of property sector activity and financial stability. At the cross-country level the use of LTV caps decelerates property price growth. Both LTV and DTI caps slow property lending growth. LTV caps also affect a broader range of financial stability indicators in economies with pegged exchange rates and currency boards. For Hong Kong SAR, LTV policy tends to be forward looking, with caps lowered to counter downward movements in mortgage rates, and higher growth in mortgage loan and volumes of transactions. The reduction in caps appears to respond to small and medium size flat price appreciation, and contributes to a decline in high-end volume growth after a year and total transactions volume growth after 1½?2 years. Price growth responds favorably after 2 years. The evidence suggests LTV tightening could affect property activity through the expectations channel rather than through the credit channel.

Subject: Conventional peg, Currency boards, Exchange rates, Financial institutions, Foreign exchange, Land prices, Mortgages, Prices

Keywords: Asset price run-up, Banks, Conventional peg, Currency boards, Exchange rate, Exchange rates, Hong Kong SAR, House price inflation expectation, Land prices, LTV, LTV cap, LTV instrument, LTV policy, LTV ratio, Macroprudential Policy, Mortgages, Price, Property price inflation, Property Sector, WP

Publication Details

Pages:

27
Volume:

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DOI:

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Issue:

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Series:

Working Paper No. 2011/284
Stock No:

WPIEA2011284
ISBN:

9781463927189
ISSN:

1018-5941

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