Resist pressure to remove capital controls on home transactions
With demand – and prices – for flats on an ever-upward trend, more not fewer measures are needed to improve the affordability of homes
An uncertain global economic outlook, downturns in the retail and tourism sectors and the possibility of an interest rate hike should combine to make property in Hong Kong more affordable. Yet flats, already beyond the reach of ordinary citizens, are getting ever-more expensive. Surging land prices and rising demand from investors point to an upward trend. The government has to resist pressure to relax or even remove measures in place to cool the market.
Developers and investors have for years been calling for the capital controls on flats, including stamp duties and tough lending restrictions, to be scrapped. That was especially so during the first half of this year, with sales figures well below those of 2015 and doom predicted for the property market. Just 1,807 homes were sold in February, the lowest number for 25 years. The decline was accompanied by a moderate fall in prices.
But there has since been a reversal that has been especially apparent this month. The primary market has been hit by a home-buying frenzy, with 2,300 flats at new developments sold in the first 11 days of the month compared to 2,500 for the whole of August. Property agents believe about 30 per cent of the purchasers were investors. The upswing has been put down to factors including excessive savings, banks offering attractive mortgage plans, a preference for property over securities and optimism as a result of the upcoming Shenzhen-Hong Kong Stock Connect scheme that will allow the cross-trading of shares between the two bourses.
The rise in demand for flats has been accompanied by a surge in prices as developers raise valuations and cut incentives. Amid the brisk sales at their projects, major players in the market have aggressively returned to land acquisition after two years of conservative bidding. Their optimistic outlook of the economy has led to spirited competition with smaller developers and mainland rivals, pushing prices between 20 and 35 per cent above market expectations. A subsidiary of tycoon Li Ka-shing’s Cheung Kong Property Holdings last week paid HK$1.95 billion for a site near Sha Tin, 33 per cent above expectations.
Lobbying against the property cooling measures is likely to increase as the race for next year’s chief executive election gets under way. But property prices are already well beyond what a normal family can afford and are likely to only move further out of reach. Authorities have to resist the pressure and should instead look at ways of improving affordability. One such step would be to consider a tax on vacant flats.