Changing times set to hit home

Editorial | Mary Ma 1 Mar 2018

A sense of discipline is evident in Financial Secretary Paul Chan Mo-po's latest budget although the surplus has been buoyed to a record high by lavish land revenues.

It is clear Chan is trying to achieve an equilibrium with his first budget for this administration. Instead of giving in to populist demands for cash payouts, he's chosen to give new life to past sweeteners mostly by increasing their values.

It's appropriate for Chan to adhere to the norms on cash handouts. He has come under criticism for not dishing out HK$6,000 or some other amount to locals as his predecessor, John Tsang Chun-wah, had done in 2011.

However, the brickbats weren't as loud as his detractors would like to hear.

Chan said property prices are out of sync with the local economy. No kidding, Sherlock! But he did mention factors that explain why housing is so crazily expensive: one was tight supply over the years; another was ultra-low rates since the last financial crisis; and finally there was that constant influx of capital.

Reiterating official commitment to increasing land and housing supply, Chan noted that some developers have been deliberately withholding finished flats, and not releasing them in a timely fashion.

Without identifying them, he pointed out a residential project where only two out of 300 units that were built were released for sale by tender.

All in all, 9,500 newly built units weren't marketed in 2017, which I agree is a cause for serious concern.

Chan said the government will tackle this issue of deliberate hoarding of flats. But I wonder how the administration can deal with it without causing an impact on our laissez-faire traditions and practices. It's a sticky wicket, and hopefully, the minister can elaborate on it over the next few days.

Chan may be the first government official to stress so bluntly that our housing prices are out of whack with the local economy.

Another tricky factor resulting in this anomaly has its origins up north. It's probably out of political correctness that he didn't name and shame the mainland - even though it's widely known that the local property surge has been largely due to capital desperately fleeing the mainland.

The vast amount of funds coming in has decoupled the housing market from the local economy. Otherwise, our property prices would have fallen in line with the local economy.

One must admit our hands are tied unless the mainland situation changes. Even if Chan introduced more curbs, they would have little effect given the capital flooding in.

But then, Chan said, there could be fundamental changes this year. So, what are they?

Interest rates are predicted to rise. US Federal Reserve chairman Jerome Powell made it abundantly clear during a congressional hearing that rates are all the more likely to increase at a pace that is quicker than expected. Powell's new hint on interest rate movements will be factored in.

Mainland property prices also seem to be changing course. Prices in first- and second-tier cities appear to be stabilizing, as Beijing tightens its grip on fresh financing for property deals.

In some of the latest developments, the 21st Century Business Herald reported that the mainland's four leading banks in major cities like Beijing, Shanghai, Guangzhou and Shenzhen are raising mortgage interest rates dramatically.

Bloomberg is also reporting that China CITIC Bank has stopped approving new mortgage loans in Beijing.

It's probable that capital will flow to third- and fourth-tier cities, which can be the prelude to a correction.

Could these be the fundamental shifts Chan has in mind for the property sector here? Nobody knows if their impact will surface this or next year.

However, once they have happened, Hong Kong can't be immune to the shift.

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