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Relaxing harsh measures?


During the budget consultation sessions I attended recently, one of the discussion topics which participants concerned most was the property market. Apart from the supplies of land and flats, discussions also focused on whether the Government would relax the so-called “harsh measures” for property market.

In response to the overheated property market in the previous years, the Government has introduced several rounds of “harsh measures” of different purposes and policy objectives. When we consider the requests for relaxing the harsh measures, we need to differentiate them by their different functions.

The objective of Special Stamp Duty (SSD) is to curb short-term speculative activities. Therefore, additional stamp duty is imposed to residential property resold within three years from the date of acquisition. The rates of SSD depend on the period the property is held for, with a view to increasing significantly the costs for speculative activities in the property market. Doubled ad valorem Stamp Duty (DSD) aims to reduce investment demand for properties by doubling the ad valorem rates on transactions for buyers who own other properties in Hong Kong. Buyer’s stamp duty (BSD) is to supress the investment demand of non-Hong Kong permanent resident and is applicable to non-Hong Kong permanent residents (including companies) only. Indeed, both BSD and DSD serve to facilitate Hong Kong residents to acquire a property if they do not own one.

Since Hong Kong residents are still encountering difficulties in owning their properties, the government has no intention to relax these three measures at the moment.

As regards to the several rounds of macro prudential measures introduced by the Hong Kong Monetary Authority in the past, including lowering the loan-to-value ratio, tightening the debt-servicing ratio for borrowers and requiring lenders to go through mock stress tests on interest tax etc, they can help ensure that risks borne by our banking system are still manageable while the property market is volatile.

We understand that the tightened loan-to-value ratio has led to difficulties experienced by some people in Hong Kong that although they can afford the mortgage repayment, they may not be able to come up with the upfront down payment for acquiring a property. Provided that we would not fuel the market or affect the risk management of the banking system, it is not impossible to explore solutions for such cases. This can also enhance the chance for buyers to acquire properties from the secondary market.

We have to be prudent in exploring the solutions. The following four factors would be taken into account :

  • The downward adjustment in property price and the pace of the adjustment, including changes in the premium between first-hand property price and secondary market property price of the same district;
  • Transaction volumes of both first-hand and secondary markets. ;
  • Future supply of residential properties, such as production volume, number of units that are ready to be sold and potential supply of residential properties in the short to medium term;
  • The macro-economic situation and outlook, including Hong Kong’s economic performance, employment situation, trend of interest rates and capital flow, as well as the external economic environment.

We shall consider the above factors in a totality. Assessments will be conducted continuously to identify a right timing for the relaxation without designating hard timelines or indicators.

January 6, 2019