Madness is seen again in Hong Kong's property market as investors swarm in. Housing prices notch up one new record after another in consecutive four months. This is evidence of panic buying as buyers simply ignore factual factors such as supply of residential housing is entering its peak period, interest rates are going up instead of down, as well as global politico-economic instability. At present, property bubble keeps inflating, prompting worries that its burst is just a matter of time.
Right now, enveloped in optimistic sentiments, Hong Kong's property market is flooded with the fallacy that home prices will just keep going up. As such the market could be said in a state of irrational excitement. To a certain degree, this suggests the [government's] tough measures to curb investment demand for housing are not sufficiently effective. Or there is room current policies and measures to be optimised and improved. To save the efforts to regulate property market from falling short of success at the last stage, the government should launch new measures in time to show to the market its unswerving determination to curb market bubble.
The latest Centa-City Index (CCI) shows the pace of home price growth quickens. Second-hand housing prices grew over 4 per cent in the first quarter of this year, far higher than the 1.9 per cent growth of Hong Kong's economy in the whole of last year. Madness can be seen in the property market. The government must not hesitate to act. Otherwise there will be no end of trouble. For, this will leave a time bomb for a property market hard landing to cause harm to Hong Kong's banking system and to the economy and social stability.
Loose monetary policy has been enforced globally for eight years, resulting in capital flooding. Hong Kong government has launched successively tough measures which prove to have some effect in curbing property bubble. Otherwise, home prices would have jumped even much higher. However, as time goes by, the market has become gradually adapted to these tough measures. As a result, they become less effective. Therefore, there is a need to review property market adjustment and control measures from time to time.
As a matter of fact, the current home prices are unaffordable for the general public. Home affordability ratio has worsened to a historic high of 63 per cent. The average mortgage term has further extended to 26.5 years. The driving force to push up property prices is mainly from investors. Seeing that land prices in Kai Tak and Ap Lei Chau set record highs successively and Hong Kong did not follow the US to immediately increase interest rates, they are making heavy bets on real estates.
To curb investment demand, Hong Kong government increased the stamp duty for housing transaction to 15 per cent for a second home bought by a Hong Kong resident. However, investors could make use of their family members as first-time home buyers to buy multiple units with a single contract so as to avoid paying the high tax. This is one reason why new flats have sold like hot cakes recently and with large-sum transactions. It is estimated that nearly half of the new flat buyers are investors. Obviously, there is room to optimise and improve the tough measures targeting at property bubble.
It must be noted that the US has twice increased interest rates in three months' time, European and Japanese central banks have also begun to reduce the scale of purchasing bonds and the People's Bank of China has hiked its policy rate, all this shows global liquidity is being tightened and asset prices face great downward risk. Even the US stock market, strong as it is, becomes shaky recently. It is impossible for Hong Kong's property market to always go up and never come down. Adjustment is matter of time given that the market has already been on the rise in past eight consecutive years.
The US is speeding up the pace of interest rate normalisation, prompting central banks all over the world to tighten their vigilance. Among others, many Mainland cities are moving to regulate their property markets vigorously and effectively in order to avert possible financial risks. Following the release of statistics showing the ratio between Hong Kong's household debts and local GDP (gross domestic product) has set a record high, the Monetary Authority has also begun to take actions in recent weeks, sending banks letters to raise concern over risks of lending to clients buying multiple units with a single contract and highly leveraged mortgages provided by developers. This signals authorities will soon launch another round of counter-cyclical measures.
04 April 2017
