Hong Kong to boost housing supply to lower prices

Chief Executive, Leung Chun-ying has announced that Hong Kong has decided to boost the housing supply in response to the demand from the public. The government has taken this action instead of lifting property curbs as property prices are still too high. Over the past three years, Hong Kong has tightened its mortgages requirements and increased stamp duties as well as a tax on non-residential buyers after property prices soared. Hong Kong is now the most expensive city in the world to own property after prices peaked in September, up 160% from December 2008. The plan is to add approximately 97,100 public housing units over the next five years. In addition to this, private developers might offer 87,000 new units in the next three to four years. 

(Bloomberg) -- Hong Kong Chief Executive Leung Chun-ying said the government raised its target for new housing supply, dismissing calls from developers to lift property curbs as prices are still too high.

“We should continue to tackle the housing problem head-on and must not concede,” Leung said in his annual policy speech to lawmakers on Wednesday. Prices and rentals are “still beyond what people can afford,” he said.

He pledged a higher number of public housing units, revising the forecast to 97,100 in the next five years, up from a previous estimate of 77,100 units. In addition, private developers may offer 87,000 new units in the next three to four years, the most since data was first complied in 2004.

In the past three years, the Hong Kong government has tightened mortgage requirements at banks and doubled stamp duties as well as introducing a special tax on non-resident buyers after property prices soared. Prices peaked in September last year, up 160 percent from December 2008, making the city in the world’s most expensive place to own a home.





Price War





Prices started falling in the fourth quarter, when they dropped 7.5 percent, as a slowing economy and concerns of rising interest rates sapped demand. The city’s residential market “is only at the beginning of a multi-year correction cycle,” Credit Suisse Group AG analysts led by Susanna Leung said in a note. Credit Suisse is expecting residential prices to drop 25 percent in the next three years as supply increases.

The price decline will accelerate to 8 percent this quarter as developers engage in a price war, Nicole Wong, head of property research at CLSA Ltd., said.

Wong discounted Leung’s comments about leaving property curbs in place, saying he may change policy in six months should prices plunge 15 percent, leaving the possibility of negative equity for homeowners who have borrowed as much as 90 percent of property prices by taking second mortgages offered by developers.

"Any correction should not destabilize society," she said. "If prices fall 15 percent in six months the government would have to start a policy action."





Previous Crash





The last major home price crash in the former British colony started in late 1997 and bottomed in 2003. Prices fell almost 50 percent in the 12 months from October 1997 after former Chief Executive Tung Chee-hwa announced plans to add as many as 85,000 housing units as residential prices doubled in the previous two years, and as the Asian financial crisis damped confidence.

The program to sell cheap housing was suspended in 2002 to support the private residential market after the plunge in prices and regular land sales to private developers were also halted and resumed only in 2010.

The Hang Seng Properties Index, which tracks the performance of 10 real estate companies, has fallen 8.3 percent this year.

In February 2014, the Hong Kong Monetary Authority imposed a bank mortgage ceiling on homes costing less than HK$7 million ($902,000) from 70 percent to 60 percent. Developers responded by offering second mortgages, enabling borrowers to finance up to 90 percent of the purchase price to boost sales without their dropping prices.

Hong Kong raised its base lending rate for the first time in nine years in December, following the U.S. Federal Reserve’s lead, from 0.5 percent to 0.75 percent. The city’s monetary policy moves with the Fed to maintain a currency link to the U.S. dollar.

As most Hong Kong mortgages have a floating rate, any subsequent increases by the Fed will raise the monthly payments for homeowners, leading to selling pressure.

Another factor contributing to expected price declines is the continued absence of mainland Chinese buyers. Their share of property purchases fell from a peak of 12 percent in 2011 to 6 percent in the first half of 2015, according to data from Jones Lang LaSalle Inc.





To contact the reporters on this story: Annie Lee in Hong Kong at olee42@bloomberg.net; Frederik Balfour in Hong Kong at fbalfour@bloomberg.net To contact the editors responsible for this story: Sree Vidya Bhaktavatsalam at sbhaktavatsa@bloomberg.net Andreea Papuc, Tan Hwee Ann