The policy goal of easing property cooling must be a soft landing
- The financial secretary’s strong hint that the measures may soon be eased has market insiders rubbing their hands with glee. But lifting all measures in one go would amount to a stimulus, which could trigger another bout of property speculation
Unlike previous official remarks over the years, Financial Secretary Paul Chan Mo-po has given the strongest hint yet that the government could soon ease the city’s more-than-a-decade-old property cooling measures.
That has market insiders rubbing their hands with glee, with some calling for all curbs to be scrapped.
After the recent sustained price declines and market weakness hurt developers’ margins, that is no doubt what many would like to see. But lifting all measures in one go will be a mistake.
That would amount to a stimulus, which could trigger another bout of property speculation, thereby kicking the can down the road for a future crisis.
The “spicy curbs”, hated by some but deemed necessary by others, include tightened borrowing margins, and higher duties on non-Hong Kong purchasers and on buyers who flip their assets within three years.
Mainland Chinese buyers, for example, need to pay a 30 per cent tax which is double what locals pay on a second property.
Yet, Chan is right that the current market conditions are very different from those in 2009 and 2010 when the government started introducing the curbs to cool the market and discourage speculation.
Back then, in the aftermath of the collapse of Lehman Brothers in the United States which triggered the global financial crisis, interest rates were dropping to zero. Now, the city’s base rate stands at 7.75 per cent. That has caught many borrowers and even some lenders by surprise.
So the current market situation may allow some gradual easing. Already in July, the Hong Kong Monetary Authority rolled back a few curbs such as allowing first-time buyers to borrow more by raising the loan-to-value ratios on mortgages.
Property prices dropped by about 15 per cent last year but bounced back by about 2 per cent by the end of this July. Prices fell 1.4 per cent month on month in August. HSBC recently forecast home prices could drop by 5 per cent in the first half of next year before stabilising in the second.
But given the go-go years of the past 13, when prices for many homes easily doubled, tripled or more, the price drop may be smaller than it looks.
The policy goal must be to achieve a soft landing for the market, not to promote speculation or to bail out developers.
When it comes to housing affordability, the city is still a long way from being accommodating to aspiring owners, families wanting to upgrade, and expatriate talent interested in but deterred from migrating here.
Between market affordability and stability, Chan and the government have to walk a fine line. Reversing long-standing policies is usually more difficult than introducing them. Officials must balance the interests of the whole community, not just those of a particular sector, however powerful.
