News Analysis: Will HK’s property price go down?
BY CINDY XU XIN
30 March 2013, Hong Kong – Hong Kong’s housing prices may fall by a minor percentage in the next two or three months in response to the government’s cooling policies, but the impact of the extra taxes will be short-lived, analysts said. As the housing supply remains constrained and the demand keeps robust, homebuyers still have to prepare for increasingly higher prices in the next couple of years.
“In general, I think measures like raising tax rates and tightening mortgage rules can only dry up market liquidity, meaning fewer transactions in the short run, but they won’t cool down the price,” said Dr. Kelvin S. K. Wong, Associate Professor of the Department of Real Estate and Construction, HKU.
“I expect a price reduction of 10 to 20 percent in terms of the new housing projects in the next two to three months,” said Patrick Lam, Senior District Sales Manager from the Centaline Property Agency Ltd. “This is because the developers are under the pressure to sell off their targeted number of units.”
Earlier this month, property giant Cheung Kong took the lead to cut the flat prices of its One West Kowloon project by a maximum of 17% and an average of 11% per unit.
“But in the next year, the property market will be better off,” Lam said. “The housing prices will still be in the upward trend, according to our Chairman Shih Wing-ching.”
Lam said the property market is much healthier than that in 1997 when the bubble burst. The Government introduced a Special Stamp Duty in 2010 to levy an extra tax on properties resold within two years of purchase, which has almost eliminated short-term speculators. Last year, the banks increased the down payment ratios for home buyers to 40% or even 60%.
”The home loans are much healthier than that in 1997 when the first down payment was only about 10% to 20%,” he said.
“Given that the total amount of land supply remains the same, any interventionist policies are only redistributing the existing house supplies,” Professor K. W. Chau, Chair of Real Estate and Construction at The University of Hong Kong, said.
Since October 2012, the Government has introduced a fresh round of interventionist policies to rein in skyrocketing prices. These new taxes included the buyer’s stamp duty, a 15% tax imposed on non-permanent residents and companies, and more recently, a doubling of stamp duty blanketing all non-first time buyers.
“These measures assume that housing bubbles are due to speculative activities,” Professor Chau said. “Hong Kong’s property market is matured and highly transparent. Without the support of the basic demand and supply conflict, these speculations can’t drive up the prices for such a long time.”
“In the long run, the government needs to have much larger land reserves to stabilize the housing prices,” Professor Chau said. “The new stamp duties can only be short-term measures to buy the government some time to boost land reserves.”
Although the government has promised more land supplies, the reclamation schemes have met with obstacles from the local communities. The Baptist University, for instance, has been protesting a government plan to sell a piece of land near its campus in Kowloon Tong. The University wants to build a teaching hospital on this site while the government wants to sell it this year, along with 27 others, to alleviate the residential land shortage.
According to the South China Morning Post, despite the government’s effort to increase supply, only about 12,000 flats came up for sale this year, falling short of the target by 8,000.
Major property agents have reported the coming of “an ice age” in terms of transactions. Wei Xinya, a property agent from the Centaline Property Agency estimated that the number of transactions in March will be only about 20% of last month.
“In the secondary market, there are fewer houses available for sale,” she said. “The owners are concerned that given the high inflation rate, if they sell out their houses, the money will be soon depreciated.”
“The secondary market transactions have dropped by 80% but the primary market doesn’t see such a significant decrease due to the aforementioned hard promotions by the developers,” Patrick Lam said.
Lam expected that expats and non-residents who are end-users will hesitate to buy at this time because of the increased transaction costs, “But they will get used to it and buy houses after about six to ten months because of the needs.”
In another move to curb the overheated market, in late February, HSBC, Hang Seng and Standard Chartered raised home loan rates by 25 basis points, local media reported.
“We expect these tighter regulations to slow down new mortgage lending,” Sabine Bauer, Senior Director with Fitch (Hong Kong) Limited, an international credit rating agency, said.
But, Bauer continued, “It remains to be seen how effective they are in actually slowing down property prices as demand remains robust and a notable share of property purchases is made in cash. We do not expect to see a sudden and severe correction in Hong Kong’s property prices over the next two years considering the low interest rate environment and housing supply remaining constrained.”
As a Chinese saying goes, “Be it a gold or silver nest, nothing is better than a bird’s own grass nest.” For home seekers, the two professors from HKU offered similar advice: They need to assess their future mortgage repayment ability in case interest rates increase sharply as the current artificially low interest rates cannot last forever.
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