When Financial Secretary John Tsang Chun-wah intervenes in the property market he leaves a calling card threatening to return. Once again an increasing flood of hot money has forced him to make good on his promise to do what it takes to head off a property bubble. His latest cooling measures are both necessary and appropriate. It is only four months since he announced a 15 per cent stamp duty on home purchases by non-locals and companies. This raised concerns about a price breakout for commercial and industrial units. That Tsang and monetary authority chief Norman Chan Tak-lam have had to intervene in tandem so soon bears them out.
Previous measures may have curbed the number of residential transactions, but not prices, which Tsang says have rallied by 120 per cent since 2008, including a 2 per cent rise last month. The new measures, targeting both the residential and commercial markets, are welcome, given the unsustainable rise in home prices, increased business costs and rising discontent about the disappearance of small firms that serve local communities - driven out by rent rises.
Tsang announced a doubling of stamp duties for homes and other properties valued at more than HK$2 million and a steep rise from the flat rate of HK$100 for cheaper properties. These measures are targeted at speculators in both luxury and mass-market flats, as well as parking spaces, shops and hotel units. At the same time, the monetary authority reduced the maximum loan-to-value ratio for commercial and industrial properties and told banks to toughen tests of borrowers' ability to repay.
So long as monetary easing in the US, Japan and Europe funnels hot money into Hong Kong, where interest rates are low, the risk of a bubble forming and bursting is ever present. Hopefully the double-whammy stamp-duty impost will deter some overseas speculators.
The administration of Leung Chun-ying has staked its credibility on stabilising the property market. True to this pledge, Tsang has promised more measures if needed. They may well be needed, given that steps to increase the supply of flats will take two or three years to bear fruit. Meanwhile, buyers should exercise prudence in view of the potential risks. And the authorities must walk a fine line between the need for further cooling measures, and quick action to relax existing controls if the market stabilises or shows signs of going into reverse.