Downside risk of homes U-turn

Editorial | Mary Ma 17 Oct 2019

Precisely as predicted, Chief Executive Carrie Lam Cheng Yuet-ngor's policy address was focused on housing and blank on political reforms.

Although it was delivered by video after a brief interruption due to the opposition chaos in the Legislative Council, the legality of giving the speech via video should survive any challenges even if it's raised in the court.

Should she be blamed for leaving political reforms blank? I fear that, unless Beijing gives the nod, there is little she can do to bring in a greater degree of democracy.

It's a forbidden area as far as she is concerned.

The housing measures, however, are major. First, she relaxed the mortgage restrictions. In one stroke, the cap on property values was doubled from HK$4 million to HK$8 million for units covered by the Hong Kong Mortgage Corporation's mortgage insurance scheme that offers loans of up to 90 percent of the value.

The cap on property values for those applying for common mortgage loans of up to 80 percent was also raised - to HK$10 million from HK$6 million.

Instantly, the hurdle for home buyers to enter the market was lowered. If they had been prevented from buying because they did not have a large lump sum for a down payment, they may now have a chance of getting on the property ladder.

It's small wonder property-related stocks were animated, with Midland Realty surging more than 14 percent.

The move is a total policy U-turn for Lam who, at the beginning of the year, was strongly opposed to the idea and silenced Financial Secretary Paul Chan Mo-po after he said it might be time to review the mortgage caps.

The correction in home prices could also now make a U-turn and begin to rise. In the long term, the outlook depends on supply and the economy.

But neither of these factors is entirely within Lam's control. Hong Kong's economic performance will depend on the Sino-US trade war and how peacefully the social unrest will be solved.

While Lantau reclamation continues to be a dream riddled with uncertainty, the policy address provided greater clarity on how the Lam administration will use the Land Resumption Ordinance to recover land from private ownership.

Brown fields about the size of 24 Victoria Parks are the primary targets.

As demand heightens, a timely increase in supply will keep property prices stable to produce the best-case scenario.

But if supply doesn't catch up and the economy declines should China and the US fail to reach a truce, people encouraged by the policy to enter the market will be trapped.

That's the downside risk everyone must heed.

As assuring aspect of Lam's speech was a sign of restraint from lavish spending.

Missing were previously highlighted items like hundreds of millions of dollars to ease the workload of doctors and nurses and school fee subsidies for youngsters studying alternative tertiary programs.

I can only wish that this was due to fiscal considerations rather than Lam's performance in the anti-government protests.

Admittedly, this is the most difficult year for the government since 1997. The presumed passage of the Hong Kong Human Rights and Democracy Act by the US Senate after its unanimous clearance in the House of Representatives will further complicate the situation.

It's fortunate that Hong Kong has saved a lot of cash for torrential rainy days.

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