Property speculation has resurfaced despite the government's new measures to crack down on speculators by increasing the risks and transaction costs of their activities. The latest land auction proves that recent restrictions on mortgage lending have failed to dampen developers' demand for land, while prices in the secondary market have also rebounded.
Two basic factors drive property prices: supply and demand. Demand can be divided into genuine housing needs and investment needs. Obviously, prices are being influenced by Hongkongers' insatiable investment needs.
To overcome the effects of the global financial crisis, many central banks have pumped money directly into the economy. The excess cash has pushed up economic and investment activity, and banks' increased willingness to lend owing to the excess cash has helped inflate property prices worldwide.
It is not difficult to understand why Hong Kong home prices remain high, in defiance of government measures. The city is a well-established premier financial hub for Asia, the preferred city for regional headquarters of multinational corporations, and a beneficiary of the persistent inflow of mainland capital.
The US Federal Reserve's key interest rate remains at a record low, with no signs of upward movement. This will pump up asset prices further. With the US dollar peg, Hong Kong mainly follows the interest rate adjustments by the Fed. Small players either invest in stocks or the property market, owing to a lack of other options. But after the financial crisis, many see the stock market as a bad place to be, and thus the property sector has become a safe haven.
When the financial crisis first hit, property prices took a tumble. At the time, even the ever-optimistic Shih Wing-ching, chairman of Centaline Property Agency, warned that the sector was facing not only a harsh winter, but was stuck in an ice age.
Then, out of the blue, Beijing announced a 4 trillion yuan (HK$4.5 trillion) stimulus package to boost its economy and domestic demand. The force of the stimulus-driven rebound boosted the amount of mainland capital flowing into Hong Kong, once again pushing up the value of local properties. And the rush of cash has boosted prices across various market sectors.