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  • Dec 27, 2014
  • Updated: 2:58pm
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FINANCE

Hong Kong property cooling measures won’t ease ‘until US interest rates rise’

Financial services chief says Fed interest rate hikes a big factor in how long property market cooling measures such as 15pc levy remain

PUBLISHED : Monday, 19 May, 2014, 11:43pm
UPDATED : Tuesday, 20 May, 2014, 7:16am
 

Investors should not expect any easing of measures to cool the property market until a rise in US interest rates.

That was the message yesterday from Secretary for Financial Services and the Treasury Chan Ka-keung.

He described the stamp duties designed to hold back real estate speculation as "extraordinary measures for extraordinary times".

And he said: "Clearly, this is not a time for unwinding."

I don’t want to say this single factor will trigger the unwinding
CHAN KA-KEUNG

When pushed on the question of whether the end of quantitative easing and a hike in interest rates by the US Federal Reserve would be the earliest point at which Hong Kong would roll back stamp duties designed to dampen rampant real estate speculation, he added: "I don't want to say this single factor will trigger the unwinding, but clearly that will be one of the major factors."

Chan was speaking during a wide-ranging, hour-long interview with the South China Morning Post in the government offices complex at Tamar, in which he described how the administration had attempted to cool demand in the property market.

The government imposed three measures in stages in 2012 and 2013 to counter the impact of super-easy monetary policy in the US and elsewhere that led to cash, often from abroad, being injected into the city's property market after the cost of funding in US dollars - to which Hong Kong's currency is pegged - fell to zero in 2009.

Average home prices across the city have risen 125 per cent since then, according to government data, pushing them far out of the reach of average Hongkongers, who complain that salaries have remained largely static in comparison.

The cooling measures include a 15 per cent levy on non-permanent resident and corporate property buyers, an expansion of stamp duties on quick resales of property and a doubling of duties on all properties costing more than HK$2 million, with exemptions for permanent residents who are first-time buyers or sell their only home to buy another.

They have held prices broadly in check, but there is little evidence of a meaningful retreat, despite developers saying they have been forced into giving discounts in the face of softening demand.

"The low-interest-rate environment is still here, so we've got to be very careful," Chan insisted.

Economists widely believe that US interest rates will not rise before June or July next year, with Fed policymakers still nurturing a delicate recovery from the massive downturn that followed the 2008-09 global financial crisis.

Meanwhile, investors awaiting the arrival of the Hong Kong-Shanghai "through train" scheme to allow seamless stock trading access between the two financial centres should expect it to begin on schedule in late autumn.

Chan was confident in sticking to the likely mid-October start date for the scheme, despite a number of key issues remaining unresolved.

They include the availability of investor access to sufficient quantities of yuan, regulatory enforcement and quota limits.

"We're still early, but we are working towards that deadline," Chan said. He refused to speculate on when the scheme might cover other asset classes, though he expressed interest in the logic of commodities given Hong Kong Exchanges and Clearing's ownership of the London Metal Exchange.

Chan said the "through train" was indicative of the role Hong Kong would likely play in facilitating financial reform on the mainland.

"This particular mechanism for opening up is quite easy to implement for China," Chan said. "You don't have to do a lot of regulatory overhaul internally, because you just open up and link to Hong Kong.

"That is fundamental."

 

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This article is now closed to comments

johndoe
Bear in mind that there are 250,000 empty units in Hong Kong. Those who believe this is a supply problem and that it is just a matter of building more units are seriously fooling themselves. Building more units is not the answer. These new units will simply be used as collateral to create more credit which will further drive up the local money supply and ensure that prices stay high. This is how banking works. It would be better to create policies that would release these 250,000 units to the local market by taxing unoccupied units. There are examples of this in the UK, e.g. Council Tax. For example, a unit that has been unoccupied for over a year would incur a more severe holding tax. This would discourage land hoarding by buyers that will never live in the units and just seek to leave them empty.
impala
By the way, political prediction, mark my words. Before the end of this summer, Chief Nitwit Leung will -finally, finally- sack Financial Nitwit Tsang, who will be allowed to make some sort of graceful exit citing how he will focus on coffee and french films in his retirement.

He will be replaced by the joker above, Chan Ka-keung, who seems to have finally stopped calling himself professor (which he strictly speaking is, but he hasn't taught nor published anything of academic value for >15 years), at least in this interview.

The signs are there: CY took him to Beijing last December, presumably so the Masters Up North could vet him and bestow their blessing. In the past months, he has been put forward in the media more and more, and of course he has long been John Tsang's de facto number 2.

It will gain CY some popular approval, since John Tsang is probably the most hated man in Tamar and far beyond. Sadly, for the people of Hong Kong, it won't make any difference. It will just be replacing one ridiculously overpaid bag of poo-ha by another. We will get more of the same Chicago School-inspired policies that will be good news for tycoons and big business while the rest of the population slaves away at low wages, living in tiny homes, choking on pollution and worrying about how to afford decent education and healthcare.
pragmatist
ok - so why are the govt servants not coming up with better policies? They are supposed to be policy makers, not reports and apologists! Too much to expect?
virokick
Until there is concrete evidence to supply 450,000 units and solve the huge housing deficit - restricting ownership is needed. Multiple property ownership should be heavily taxed - forcing rent seekers and property hoarders to put them on market.
HK-Explorer
Then the average Hong Konger can afford to buy homes in comparison to the number of homes available. Everyone knows the demand is there and that the government will not be able to meet their target of building 440 thousand apartments.
There are thousands of people with the necessary money, ability and desire to buy homes but are solely waiting because newspaper articles say prices will drop. The government only put in the restrictions because they know the demand and ability to buy homes are there. The government solely put in the measures to stop further increase in home prices. They know prices will only stop increasing with interest rate rises.
Prices will stagment at this level because demand is there and no one has an incentive to sell. People who own second homes can receive a good monthly rent.
The longer interest rates stay low and the longer the government maintains its current policies the lower the chance of any future drop.
As seen in US prices only drop with recession & negative equity which forces people to sell.
Right now a HK is sitting at 3% unemployment, 1% interest rates, very few people in secondary market taking out mortgages, 30% to 40% down payments and most people in HK with their mortgages payed of r within 5 years of doing so.
Where is the incentive for people to sell cheap? There is none. House owners in HK are a very happy group.
pragmatist
a step forward might be to tax the expats and their firms for getting housing allowances. this is skewing the market.
HK-Explorer
SCMP already said their math was wrong on the 250,000 empty flats and was indeed far lower.
Carparklee
Great point you have made about the ~0 supply in lands and flats during 2005-2012. As all we know, the current term of government is trying to correct things and do the catchup. But we have been facing resistance like what we have ever never seen before. Look at those real clowns who are opposing land reclaim and those who opposed the development of North East nt. Sigh~
virokick
CY Leung actually is against property tycoons and the tycoons (LKS )are against him- even threatened to pull out of HK claiming CY Leung is hurting free market principles. The CE actually has a noble plan- 450,000 units ,but he just doesn't have the power and support; ie to speed up land approvals ,Due to our political structure.
jayb
given our 0% to 1% growth, the Fed will continue print money for at least a few more years (if not decades). if this thesis stands that HKG property markets tie to US interest rate, then HKG property will continue going up in pricing. good luck and good night.

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