End of curbs must not lead to return of Hong Kong property speculation
- Large supply of homes due to come online soon in Hong Kong will, hopefully, help thwart the rise of a new generation of speculators
Hong Kong property prices are among the highest in the world, and this remains the case despite a decade of highly successful controls that included capping loans to deter speculators and levying a hefty stamp duty on second homes, and an even bigger duty for non-residents.
So when the government decided to abandon those controls in February it was no surprise there were concerns about whether, or perhaps when, speculation would return to the market.
The government had strong reasons for ending the curbs, which also included a special stamp duty aimed at those who resell their homes within two years. They were put in place 10 years ago to cool speculation in a red-hot property market that was fuelled by cheap funding.
Then things changed.
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Along came the pandemic, high interest rates, and a sluggish economy, and the lingering bull market turned into a property slump, and so the government decided the restrictions had outlived their usefulness.
They were removed when Financial Secretary Paul Chan Mo-po revealed his budget last month.
There was an immediate uptick in residential property deals. In the first week after they were lifted, there were 137 transactions – the most in 52 weeks – recorded in 50 major housing estates. Recently, all 138 units offered by Henderson Land Development at its new Belgravia Place sold out in just four hours.
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With Hong Kong maintaining the dubious distinction of being one of the least affordable cities in the world, many wonder how long it will take for speculation to rear its head, and for the resultant spike in prices to follow.
Indeed, in one instance, the recent buyer of a Sha Tin flat turned around and immediately raised the asking price on the second-hand unit by 15 per cent.
The regulators and government share concerns over the spectre of a return to speculation.
The Hong Kong Monetary Authority has advised banks to be diligent and put in place effective risk-management procedures and controls when it comes to speculative loans, an indirect attempt to clamp down on asset flipping.
The loans occur when a buyer, a “confirmor”, agrees to buy a property, but before the transaction is complete, sells to another purchaser.
HKMA asks banks to exercise caution when lending for ‘confirmor sales’
Major Hong Kong banks have said they will not provide loans to finance this kind of sale. There is little to stop someone with deep pockets from buying a property outright and then quickly trying to sell it, but at least the financial industry will not be funding those transactions.
Speculation only becomes a problem when it leads to price spikes. With 100,000 homes set to come online in the next few years, pressure on prices is low.
Keeping in mind the rampant speculation of the not so distant past, fiscal responsibility is welcome and a must, and hopefully the market can resume measured, not breakneck, growth.
