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Following is a question by the Hon James Tien and a reply by the Secretary for Transport and Housing, Professor Anthony Cheung Bing-leung, in the Legislative Council today (May 25):
Question:
Quite a number of young people have relayed to me that although the prices of residential properties have fallen gradually since September last year, they still cannot achieve their aspiration of buying their first properties as the Government has yet to relax the various demand-side management measures targeted at the property market, including the implementation of Buyer's Stamp Duty and doubled ad valorem stamp duty (DSD) (commonly known as "two harsh measures") as well as the lowering of the loan-to-value (LTV) ratio on mortgage loans to be offered by banks, the Mortgage Insurance Programme (MIP) coverage ratio and the maximum debt-servicing ratio (DSR) for borrowers. It is learnt that for a residential flat with a sale price of five million dollars, the maximum amount of mortgage loan that may be offered by a bank is 60% of the price of that property (i.e. three million dollars). As a result, the buyer has to pay as much as two million dollars for down payment. However, there are comments that such an amount is usually not readily affordable to common young singletons or couples. In this connection, will the Government inform this Council:
(1) of the measures in place to assist young singletons or couples in buying properties, including when it will restore the maximum LTV ratio offered by banks to 70% and the maximum MIP coverage ratio to 90%;
(2) given that the central banks of many nations have adopted low or negative interest rate policies in the light of the slowdown of global economic growth, and the United States is raising its interest rates at a lower rate and a slower pace than expected, whether the authorities will consider lowering the assumed interest rate hike from 3% to a more realistic level of 2% in calculating the stressed-DSR cap; and
(3) when the authorities will relax or withdraw the "two harsh measures", for instance, extending the timeframe for disposing of the original property from six months to 12 months under the arrangement of refunding the doubled DSD to people who have acquired a new residential property as replacement, so as to provide more flexibility for such people?
Reply:
President,
In the past few years, owing to tight local housing supply, a serious supply-demand imbalance and ultra-low interest rates in the global environment, local property prices have been out of line with economic fundamentals, with heightened risk of a bubble. Against such background, the Government has, at different points of time, introduced several rounds of demand-side management measures, including the Special Stamp Duty, Buyer's Stamp Duty and a doubled ad valorem stamp duty (DSD), with a view to combating short-term speculative activities and curbing external demands and thereby stabilising the property market. In addition, the Hong Kong Monetary Authority (HKMA) has launched a total of seven rounds of counter-cyclical prudential measures since October 2009 to tighten property mortgages, with a view to strengthening the resilience of banks and borrowers in coping with the possible impact of a fall in property prices.
Having consolidated input from the Financial Services and the Treasury Bureau, my reply to the question raised by the Hon James Tien is as follows:
(1) We are aware of young people's concern over housing problem. However, the prevailing housing demand is keen irrespective of age group. The Government promulgated the Long Term Housing Strategy (LTHS) in December 2014 and adopted the "supply-led" strategy to rebuild the housing ladder. The only way to concretely address the long term housing needs of young people is to build an effective housing ladder and to increase the overall supply.
According to the LTHS, the Government updates the long term housing demand projection annually and presets a rolling ten-year housing supply target. The total public and private housing supply target for the ten-year period from 2016-17 to 2025-26 is 460 000 units. The housing demand projection has taken into account the housing needs of different strata of the community, including the new housing needs of young people arising from the formation of households as a result of their pursuit of an independent living or marriage.
According to the ten-year supply target, there will be 280 000 public housing units, including 200 000 public rental housing units and 80 000 subsidised sale flats. The Hong Kong Housing Authority (HA) has resumed the Home Ownership Scheme (HOS). The pre-sale of the first batch of 2 160 newly-built HOS flats was launched at the end of 2014. The second batch of about 2 700 newly-built HOS flats and about 1 000 subsidised sale flats of the Hong Kong Housing Society were also offered for pre-sale in early 2016.
At the same time, HA introduced two rounds of Interim Scheme to Extend the Home Ownership Scheme Secondary Market to White Form Buyers in 2013 and 2015 respectively to allow eligible White Form applicants (including young people) to purchase flats with premium not yet paid in the HOS Secondary Market.
On private housing, as at the end of March 2016, the projected supply from the first-hand private residential property market for the coming three to four years is 92 000 units. Steady land supply and appropriate demand-side management measures help stabilise property price and rental level, which in turn benefit people from all walks of life who intend to buy or rent private residential flats, including young people. Since September 2015, both property prices and rentals have shown downward adjustments.
Currently, while loan-to-value (LTV) ratios of property mortgages have been tightened up, a regular-salaried first-time homebuyer with a debt-to-income ratio of 45% or below remains eligible for the maximum 90% mortgage coverage on a property of a value at HK$4 million or below. HKMA and the Hong Kong Mortgage Corporation Limited have indicated that they have no intention to adjust the LTV ratio for banks or the Mortgage Insurance Programme coverage ratio at the moment.
(2) Since the outbreak of the global financial crisis in 2008-09, many major economies in the world have introduced "quantitative easing" monetary policies. Hong Kong has been experiencing an abnormal macro financial environment in the past few years where interest rate was at an extremely low level. As normalisation of the United States (US) dollar interest rate has begun, Hong Kong dollar interest rate will follow the movement of US dollar interest rate given the Linked Exchange Rate System, and restore to a more normal level. Besides, Hong Kong dollar interest rate may also be restored to a more normal level due to its own factors. This will increase the interest repayment burden of mortgagors and may also affect their repayment ability. Banks will also be exposed to increased credit risk.
To ensure proper management of risks by banks, HKMA requires them to conduct stress tests of interest rate hike on applicantsˇ¦ repayment ability in processing property mortgage applications with a tenure of 20 to 30 years in general. This is an important risk management measure for banks. As the prevailing interest rate remains at an extremely low level, HKMA considers it not appropriate to make any revision to this risk management measure but will continue to closely monitor changes in macro financial environment and the situation of Hong Kong property market.
(3) The current property prices remain at levels beyond the affordability of the general public. The home purchase affordability ratio (note), at 59% in the first quarter of 2016, was significantly higher than the long-term average of 46% over the 20-year period from 1996 to 2015. The Government has no intention to relax or withdraw the demand-side management measures at the moment, or to relax the six-month timeframe under the DSD regime for owners having acquired a new residential property as replacement before disposing of their original one. The Government will stay vigilant and prudent, and closely monitor the property market movements and ever-changing external conditions with reference to a series of indicators, including property prices, home purchase affordability ratio, transaction volume, flat supply, changes in local and global economies, etc.
Note: Home purchase affordability ratio refers to the ratio of mortgage payment (assuming a tenure of 20 years at the prevailing mortgage rate) for a 45-square metre flat to median income of households (excluding those living in public housing).
Ends/Wednesday, May 25, 2016
Issued at HKT 19:25
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