The dynamics of Hong Kong's property market are complex and volatile. Actions to stabilise price behaviour are welcomed, but they should not include monetary policy or banking supervisory measures.

This was the message from Monetary Authority Chief Executive Joseph Yam in his latest Viewpoint column posted today on the authority's homepage.

He said the Government, being a monopolistic supplier of land, has the difficult task of trying to bring forth a supply of land that is optimal in the long run. But what constitutes long-run optimality in the supply of land is a hotly debated issue, and so are the institutional arrangements for achieving it.

Mr Yam said the relative importance of the relevant considerations - including social and financial stability, on top of the proper functioning of a market - changes constantly, along with shifts in public sentiment, which can be quite strong at times and even capable of derailing long-term policies.

Measures to dampen explosive price behaviour welcomed

"From the point of view of the authority, we are no doubt concerned about the implications for stability in the banking system of further falls in residential property prices, which will be manifested in further increases in the number and amount of negative-equity mortgages," he said.

"We therefore support measures to dampen explosive price behaviour generally and in present circumstances to stabilise the residential property market. But we would also like to make clear that there is no scope for short-term demand management involving monetary policy or banking supervisory measures."

Mr Yam stressed that the monetary policy objective of Hong Kong is singularly and quantitatively defined as the Linked Exchange Rate, requiring interest rates to move in tandem with US interest rates.

"In any case, the demand for residential property in Hong Kong is not as interest-rate-sensitive as in other jurisdictions. Our banking supervisory measures, important for the maintenance of banking stability, are not inhibiting the availability of convenient and favourable mortgage financing arrangements."