I have noticed that recently some market stakeholders and media said that the Government should slow down land sale, and relax or even abolish the demand-side management measures as soon as possible in view of the recent drop in property prices; otherwise the history of sharp drop in property prices during the Asian financial crisis in 1997 may recur. In this regard, I have to point out that there are significant differences between the current property market and that of 1997, and that they are not comparable. We should stay composed, but not panic unnecessarily.
First of all, as I have mentioned several times before, the overall transaction volume of residential properties in Hong Kong in recent years has been hovering at the record lows since 1997 (i.e. 19 years ago). The transaction volume of residential properties peaked at 172 700 during the property market boom in 1997, while only 50 700, 63 800 and 56 000 transactions were recorded in 2013, 2014 and 2015 respectively. The aggregate transaction volume in the past three years is less than that of a single year in 1997. This demonstrates that the property market sentiment has been relatively rational in recent years, which is vastly different from that of the buoyant boom in 1997.
The transaction volume of residential properties remaining steadily at a low level does not only reflect that soaring property prices in recent years are beyond what people can afford, but also shows the result of the Government’s efforts in curbing property speculation and non-local demand through the implementation of several rounds of demand-side management measures over the years. Meanwhile, the Hong Kong Monetary Authority (HKMA) has implemented seven rounds of measures since 2009 to tighten the maximum loan-to-value (LTV) ratios of mortgage loans for residential and other types of properties, in order to control stringently the risks of the financial system. In particular, in February 2015, the maximum LTV ratio for properties valued under HK$7 million was further lowered to 60 per cent. I can recall that some young people who were saving down payment complained that this measure had interrupted their home ownership plans when it was launched last year. Looking back, however, this measure suppressed some of the market demand and reduced the number of cases in the market with LTV ratio of 80 or 90 per cent last year. Under such circumstances, even a drop by 10 to 20 per cent in property prices will not lead to instant emergence of a large number of negative equity cases. If property owners have stable income and are able to make regular mortgage payments, banks generally do not request mortgage payers to make early repayments even when property prices fall. Moreover, most of the banks are currently offering a mortgage rate of around 2 per cent, which is far lower than the level of around 10 per cent in 1997. In view of the global economic uncertainty, though the United States stepped into the up-cycle of interest rates last year, the market generally anticipates that the pace of interest rate hikes would be rather slow. The burden brought by additional payments on mortgage payers would thus be relatively light. In other words, unless there are unforeseeable circumstances, it is unlikely that the property market would be dealt a severe blow by a large number of property owners being forced to sell their properties.
Furthermore, the current financial environment and market in Hong Kong are more stable and robust than in 1997. During the Asian financial crisis in 1997, the Hong Kong dollar exchange rate was under attack and the overnight interbank interest rate surged, forcing local banks to significantly increase the prime rate. Some foreign banks, for various reasons, either withdrew from Hong Kong or reduced their amount of loans in Hong Kong. This made borrowers rather passive and consequently added pressure to property market correction. As the HKMA’s Chief Executive, Mr Norman Chan, said earlier, although Hong Kong’s economic and financial environment is facing different challenges nowadays, the local banking sector remains robust. The capital adequacy ratio is much higher than international standards, and the liquidity is very abundant. Regulatory measures introduced in the past have also substantially increased the resilience of the banking system. Therefore the public should not over-react to rumours in the market.
In terms of supply and demand, the Government has been working hard in recent years to increase the short, medium and long-term land and housing supply, with a view to addressing the community’s pressing needs for housing. According to the Census and Statistics Department, the number of domestic households in Hong Kong has increased by about 260 000 in the past decade (2006-2015). Assuming half of these households need private housing, then 130 000 private residential units will be needed. This figure has yet to include the households which wish to improve their living environment. During the same period, only around 110 000 private residential units were completed. As I have said repeatedly, the current-term Government’s work on housing and land supply is to catch up on the supply of housing land. We have given a clear message to the society and market that the Government will supply land for private housing in a sustained and steady manner, in accordance with the housing supply target promulgated in the Long Term Housing Strategy. In fact, the number of private flat completions will continue to increase steadily in the next few years. For the future property market, there is no need to worry about the supply falling short of demand that happened in the past few years, or the recurrence of oversupply from 1997 to 2003. The market is expected to gradually reach a balance in supply and demand.
As always, there are unpredictable risks in the market. With the local and global economic outlook remains challenging this year, we will closely monitor the latest economic situation. After objective analysis of various data and circumstances, it is considered that the community still has a great demand for housing and property prices are still unaffordable for the general public. Currently, there is no room for any adjustment to the demand-side management measures. The Government will continue to monitor the latest market situation. We shouldn’t be scaring ourselves; the Government stay composed despite some “panic” remarks, and will not “prop up” the market. More importantly, we should not flinch from or stop taking forward our work on land supply because of such remarks; otherwise we will never be able to resolve the problem of imbalance in housing supply and demand which has troubled Hong Kong for years, and the general public will suffer.
28 February, 2016
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