Following is the opening statement by the Financial Secretary, Mr John C Tsang, at a press conference on the "Economic Situation in the Second Quarter of 2010 and Latest GDP and Price Forecasts for 2010" at the Information Services Department Press Conference Room today (August 13):
Ladies and gentlemen,
I shall summarise the main points of my statement in English.
I'm here today to brief you on our latest economic figures as well as further precautionary measures that we will be taking to meet the economic challenges ahead, particularly with reference to the property market.
The economic statistics that we have been receiving of late are encouraging, but we must not take our eyes off the ball.
We are at a crucial juncture of our economic recovery, and it is important that we prepare now for the challenges ahead.
In the second quarter of 2010, our economy grew by a healthy 6.5% year-on-year and by 1.4% quarter-to-quarter, marking the fifth consecutive quarter of expansion.
Exports of goods grew by 20.1% and exports of services expanded by 16.9%, both year-on-year figures.
Domestic demand and consumer confidence remained firm, with private consumption increasing by 4.6% and overall investment up by 15.2% year-on-year.
Unemployment, currently at 4.6%, will see further improvements in the months to come.
Headline inflation at 2.6% and underlying inflation at 1.5% during the second quarter remained relatively mild.
Forecast for our headline inflation and underlying inflation at 2.3% and 1.5% respectively for the whole of 2010 remained on target.
Overall, I now forecast real economic growth for 2010 of between 5% and 6%. This is up by one percentage point from the 4-to-5% growth that I set out in my Budget in February.
However, the external environment remains uncertain.
Recent statistics indicate the pace of economic recovery in the US is slowing down. It is unclear whether the US economy can maintain growth momentum when the effects of various governmental stimulus measures fade away.
In Europe, the sovereign debt crisis is not yet over. Austerity measures adopted by various European governments could weigh on our economic recovery.
So, we must remain vigilant as the crisis plays out.
The fragile external environment means that the abundant supply of global liquidity floating around an ultra-low interest rate environment is going to remain longer than earlier expected. This will entail higher risk of an asset bubble in Asia. We must be fully prepared and take precautionary measures to avoid systemic risks that might disrupt our economic recovery.
In my Budget, I announced four measures to ensure healthy and stable development in our property market:
(1) increase supply;
(2) curb property speculation;
(3) ensure transparency; and
(4) prevent excessive expansion in mortgage lending.
These measures are taking effect, but owing to extraordinary external factors, property prices have continued to rise. Average flat prices are now 15% higher than the previous peak in 2008. Prices for large flats have surpassed previous highs of 1997. Although flat prices overall are still 16% below those in 1997, flat prices at some popular housing developments are fast approaching historical highs.
The mortgage repayment to household income ratio has risen to 41.5% in Q2. Although this is still lower than the 1989-2008 twenty-year average of 53%, there is increased risk of a property bubble forming because interest rates are expected to continue to be very low for some time to come.
After balancing the various factors, I am introducing additional measures today to control the potential risks in the property sector.
On the supply side, since end-2009, eight plots of land in the Application List have been triggered for public auction. Five of them have been sold, providing some 5,600 units. We have also sold by auction two sites at Ho Man Tin and Mount Nicholson providing some 1,200 flats.
In response to market demand for smaller flats, we will further earmark three more plots of land in Chai Wan, Hung Hom and Fanling in the Application List and will put them out to the market through government initiated auctions or tenders. The two sites at Chai Wan and Fanling will be auctioned in September 2010. The Lands Department will announce the details in due course.
As to the 2011-12 Application List, we believe that the land to be made available will provide more than the 9,000 units under the 2010-11 List.
The Application List is not the only land supply for housing development. We can also look to planning applications, lease modifications, land exchange, property development along railway lines and urban redevelopment, for example.
We have conducted reviews from time to time and embarked on studies to ensure an adequate supply of new land for residential use in the long term.
A Planning Department review has identified some 20 hectares of land currently earmarked for industrial and business use that can be turned into residential use.
The Planning Department is also considering changing the use of selected GIC (Government, Institution and Community) sites for residential development.
Planning studies are also underway on the Anderson Road, Lam Tei and Lamma Island quarry sites as well as sites in the New Development Areas, including land near the boundary area in the New Territories to see if they can provide more land for residential use.
Meanwhile, development of the Kai Tak site will eventually provide some 16,000 residential flats, land for about 4,000 of which should come on stream by 2015.
As well as increasing land supply, we are determined to curb speculative activities in the property market.
The Lands Department will disallow confirmor transactions of first-hand uncompleted flats which are granted pre-sale consent by the department on or after today. In other words, purchasers of those flats will not be allowed to re-sell, sub-sell or transfer the benefits of the Agreements for Sale and Purchase (ASP) before completion of the transaction.
Also, the Lands Department will require that buyers of those flats forfeit 10%, instead of the current 5%, of the total purchase price if they cancel the transactions.
We have earlier introduced a series of measures to enhance the transparency of property information and transactions. We will monitor the implementation of these measures closely. We do not rule out the possibility of legislating if these measures do not prove to be effective.
On preventing excessive expansion in mortgage lending, the Hong Kong Monetary Authority has been monitoring closely the financial stability risk relating to the residential mortgage lending portfolio of the banking sector. The MA will shortly announce additional measures to ensure that the risk management practices adopted by banks in granting residential mortgage loans will remain prudent and appropriate.
I would like to take this opportunity to remind once again potential home buyers to be cautious when borrowing money to purchase property. They must be aware that current levels of interest rates are unusually low, and their repayment burden will soar when interest rates return to more normal levels, and the property market makes the necessary price adjustments.
We will continue to monitor the situation closely. I will not hesitate to introduce further measures should that prove necessary. Meanwhile, you can rest assured that we remain determined in maintaining a strong economic recovery from the global financial crisis, and reducing the risk of a bubble forming in the property market.
Thank you very much.
(Please also refer to the Chinese portion of the opening statement.)
Ends/Friday, August 13, 2010
Issued at HKT 18:22