THE Hongkong Centre for Economic Research has called on the Government to stop intervening in the property market. Interference could have long-term damaging consequences on developers' ability to respond to changing market conditions, academics claimed. The centre also argued that it was wrong to blame the recent property market boom for fuelling high inflation in the territory. Dr Richard Wong, a director of the centre and a senior lecturer at the University of Hongkong, has issued a research paper illustrating how an efficient property market was vital to the territory's well-being and stating this was best served by free-market economics. Dr Wong said property and construction were the most important elements in preserving the economic and financial health of the territory. Together they made up some 25 per cent of gross domestic product, greater than any other sector in the economy, including the whole of manufacturing, he said. Free and unfettered markets in Hongkong have been seen as key elements in the territory's successful economic development and allowed it to meet the challenges of rapid economic growth under conditions of limited land supply. Dr Wong said: ''Unfortunately, this element of Hongkong's success now appears to be in doubt. ''There are those who believe that free and unfettered property and housing markets do not work in the public interest, causing, for example, uncontrolled speculative activity.'' But he added: ''There are also those who believe that property and housing markets here are not free and unfettered, but are controlled by major property developers.'' The Government has repeatedly interfered in the property market in recent years, hoping to stop runaway price inflation and help those who cannot afford to buy or rent. Among recent measures taken has been the introduction of a stamp duty on property transactions, a recommendation to banks of a maximum 70 per cent mortgage ceiling and the Governor's offer of subsidised flat sales to so-called sandwich class middle-income earners. The mortgage lending ceiling has proved to be very successful at cooling home prices through driving speculators out of the market. In fact, the market has cooled so much that developers and estate agents are now irate because of the extent of the slowdown in buying. They are now campaigning for the Government's mortgage ceiling recommendation to be phased out, arguing that the 30 per cent down-payment needed before taking out a mortgage has made home-buying prohibitive for many middle-income buyers, the very people it is trying to help. ''The importance of the property and construction sector to the Hongkong economy is large and growing,'' Dr Wong said in the report. ''Rapid economic transition from manufacturing to services and growing prosperity presents a challenging task for urban development and redevelopment to meet Hongkong's changing needs. ''This task is best served by preserving the flexibility of free and unfettered property markets to respond to changing circumstances. ''Intervention in the property market will only reduce the effectiveness of developers to respond quickly and would have long-term damaging consequences.'' Dr Wong said rapid integration between the Hongkong and southern China economies and not the recent property market should be blamed for the territory's current high and persistent inflation. To support his argument, he pointed to how the recent fall in property prices due to the imposed 70 per cent limit on mortgage loans had not lowered consumer price inflation.
