Thursday, 25 February 2010

Hong Kong introduces measures to avoid property bubble

Hong Kong said Wednesday that it will introduce a series of measures to cool the overheating property market, including increasing residential land supply and stamp duty for luxury flats.

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Guanyu 道 said...

Hong Kong introduces measures to avoid property bubble

AFP
24 February 2010

Hong Kong said Wednesday that it will introduce a series of measures to cool the overheating property market, including increasing residential land supply and stamp duty for luxury flats.

Financial Secretary John Tsang warned that a recent property frenzy, driven by a huge inflow of more than 640 billion Hong Kong dollars (82 billion US) since the fourth quarter of 2008, could threaten economic stability.

“If capital flows were to reverse or interest rates rebound, asset prices would become more volatile. This in turn may affect the stability of our financial system and the recovery of the real economy,” he said in his annual budget speech.

To reduce the risk of speculation in the luxury market, the stamp duty for sales of properties valued at more than 20 million Hong Kong dollars will be raised from 3.75 percent to 4.25 percent beginning April, he said.

Buyers of these flats would no longer be allowed to defer payment of stamp duty.

The measure could be extended if excessive speculation was detected in the trading of less expensive properties, he said.

Tsang said the government would also strive to increase residential land supply, with plans to auction several urban residential sites in the next two years if market conditions allow, he said.

The financial secretary also pledged to prevent excessive expansion in mortgage lending and said he would ask banks to take further steps to ensure prudent screening of mortgage loan applications if necessary.

Prices of some luxury flats returned to the peaks of the 1997 property boom in January, while those of small and medium-sized flats were about 23 percent lower, he said.

Concerns over the risks of a property bubble intensified this week after Sun Hung Kai Properties, Hong Kong’s largest developer by market capitalisation, agreed to pay a staggering 3.37 billion Hong Kong dollars for a 130,000-square-foot site in the city’s suburbs.

The price, reached after fierce bidding at a government land auction on Monday, was well above the average forecast by analysts.

Sellers in the southern Chinese city hiked prices of their units after the auction, according to media reports, prompting fears the mass residential market will be as vulnerable to speculation as the high-end market.

However, a property analyst said a bubble would still be created with Hong Kong’s interest rates remaining low due to its currency peg to the US dollar.

“The measures can slow down the property price hike but will definitely not be able to stop it,” Wong Leung-sing, head of research at Centaline Property Agency, told AFP.

“The economic boom in China and low interest rates in the US are two major external factors that together will almost guarantee a property bubble in the next few years.”

Stimulus measures by governments around the world have boosted liquidity, which has led to large fund inflows into Asia, driving asset prices higher, Tsang said.

Mainland China has also seen soaring property prices, with values rising at their fastest pace in 17 months in December after Beijing encouraged tax breaks, loans and lower down payment requirements to boost the sector.

In his speech, Tsang said the government was “cautiously optimistic” about Hong Kong’s economy in 2010 and expected it to grow by 4.0 to 5.0 percent. For 2009 as whole, the economy shrank 2.7 percent, he said.

The city emerged from its latest recession in the second quarter of 2009, when its gross domestic product rose 3.5 percent on a quarterly basis after four consecutive quarters of contraction.

Tsang added the government would in the short term carefully adjust stimulus measures introduced to combat the financial crisis.