IMF endorses Hong Kong’s wait-and-see housing policies as property prices have room to fall
- Current Hong Kong policies to moderate housing prices, including the stamp duty, should remain in place for now
- A ‘significant increase’ in housing supply remains the most needed course of action by Hong Kong government
The International Monetary Fund (IMF) has endorsed the Hong Kong government’s wait-and-see stance before taking any further actions to offset the risk of a fall in housing prices.
In particular, the IMF said that the government policies to moderate housing prices, including the stamp duty on new home purchases, should remain in place for now, and only be phased out when the risk of a further rise in housing prices has dissipated.
Hong Kong first implemented a stamp duty in 2010 to slow speculation housing sales. Three additional stamp duties have been implemented since then.
The government announced late last month that it had collected HK$133 billion (US$17 billion) from stamp duties over the last eight years, prompting calls from business groups to reduce or eliminate some of the levies.
The IMF said the focus on government policy should be on increasing housing supply.
“A significant increase in housing supply remains the most needed course of action,” the IMF said in its report on its regular Article IV consultations with the Hong Kong government.
Hong Kong’s median housing prices had been declining in August, snapping 28 consecutive months of increases. Median housing prices are down 3.6 per cent for the January-October period, according to Hong Kong government figures.
“Don’t count on the government rescuing the [property] market,” Chief Executive Carrie Lam Cheng Yuet-ngor warned during the Hong Kong Economic Journal ’s Economic Summit 2019 conference in Hong Kong. “The downward adjustment has not even offset the increase at the beginning of this year.”
The IMF agreed that the decline in prices so far does not represent a clear trend.
“There are large uncertainties associated with the housing market in Hong Kong”, the IMF wrote in response to written questions from the South China Morning Post on its Article IV report. “While residential house prices have softened in the past three months, it is unclear whether this is a temporary moderation or a sustained downward trend.”
“The correction of late-2015/early-2016 illustrates the difficulty in projecting house prices, as prices corrected around 11 per cent between September 2015 and March 2016 only to turn sharply up thereafter and rally by 45 per cent to July 2018,” the IMF noted.
“In this regard, the authorities’ approach of cautiously monitoring developments while standing ready to modulate policies if needed is the right one,” the IMF said.
“Although there are signs of moderation in the property boom, housing affordability remains stretched and inequality remains high,” the IMF noted in its report.
A sharper-than-expected decline in housing prices remains a key risk for the Hong Kong economy next year.
“Gradual interest rate increases would cool the market in an orderly way, but a significant deterioration in sentiment remains a key risk,” the IMF said in its report.
A further escalation of the trade war between the US and China also is a significant economic risk for Hong Kong, the IMF said.
“While tariff actions thus far have not weighed on trade through Hong Kong, further escalation would impact the economy through real economy channels - chiefly trade, logistics and tourism - and financial channels, through re-pricing of risk in equity markets, higher corporate [interest rate] spreads and possible deterioration of loan quality, particularly of the large China-related loan portfolios,” the IMF said.
The current link between Hong Kong monetary policy with that of the US remains appropriate, the IMF said. The link “is working as intended and remains the best arrangement for Hong Kong.”