Real estate agents in Hong Kong are reporting that its government’s latest measures to rein in one of the world’s most exuberant property markets had been an overnight success. After Friday’s announcement by the special administrative region’s administration that it is imposing higher stamp duties on property transactions along with home loan curbs, buying activity fell drastically over the weekend.
Hong Kong Implements Property-Cooling Measures on Bubble Concerns
On Friday (February 22), Hong Kong government officials announced a new round of measures to stabilise the SAR’s housing market and overall financial system. The city’s latest measures to cool an overheated property sector which boasts some of the world's most expensive apartments include higher stamp duties on property deals and restrictions on home loan availability.
For residential assets costing less than HK$2 million (£170,300), the stamp duty has been increased from a flat rate of HK$100 (£8.40) to 1.5 per cent of the transaction price, while the impost on Hong Kong’s most expensive properties, those above the HK$2-million bracket, has doubled from 4.25 to 8.5 per cent of the transaction price. The increases don’t apply to first-time buyers amongst Hong Kong residents, in a refinement seemingly aimed at making it easier for local home-makers to enter the market.
With fears of a property bubble spreading from apartments to parking spaces, shops and hotels, and the perceived driver being the city's low interest rate environment, the Hong Kong Monetary Authority, the SAR’s de facto central bank, also issued mandatory guidelines to banks to tighten home loan approval criteria for all commercial and industrial real estate. The measures have included maximum loan-to-value ratios of mortgage loans, which were lowered 10 percentage points from existing applicable levels.
Property prices in Hong Kong have doubled in the past four years on near-record low mortgage rates, an influx of mainland Chinese buyers and a lack of new supply. Since 2009, policymakers have taken a series of steps to curb the price rises. The latest round of property-cooling measures came amid increasing concerns of a real estate bubble. Hong Kong’s Financial Secretary John Tsang said on Friday that "exuberance has regained momentum" in the city’s real estate market and that the implemented measures are needed for preventing a property market bubble and keeping the potential economic risk from spreading more widely in the financial hub. He told reporters: "The risk of an asset bubble is increasing. If we allow the bubble to grow, in the end it will affect the macro-economy and also the stability of the financial system.”
Measures Record Overnight Success with Property Sales Plunging
After the government’s move to double stamp duty, residential property sales in Hong Kong fell significantly, with estate agents reporting that buying activity had plummeted between Friday evening and Sunday night. According to Buggle Lau, chief analyst at Midland Holdings (HKG:1200), the city’s biggest publicly traded realtor, secondary sales for the 15 most popular housing estates fell 15 per cent at the weekend compared with the previous weekend. The plunge follows a last-minute scramble to complete deals at the end of last week, with some realtors reporting a 50 per cent jump from normal buying activity on Friday, followed by a 75 per cent plunge on Saturday.
In a further sign of the market’s reaction to the cooling measures, shares in Hong Kong property companies Cheung Kong Holdings (HKG:0001) and Sun Hung Kai Properties (HKG:0016) fell to their lowest level in nearly two months. On Monday (February 25), the Cheung Kong Holdings share price fell 1.9 per cent, while Sun Hung Kai Properties’ stock dropped 2.3 per cent. Meanwhile, the Hang Seng Property Index (HSP), which tracks the shares of the city’s nine biggest property developers, fell 1.5 per cent to be at its lowest level in two months.