Budget Speech by the Financial Secretary (3)

Challenges in the Coming Year

19. The challenges in the coming year arise mainly from the risk of asset-price bubbles and inflation.  I will now analyse the issues and propose strategies to address them.

Risk of Asset-price Bubbles

20. I have been mindful of the risk of a property bubble.  I have repeatedly reminded the public that an environment with abundant liquidity and ultra-low interest rates will not last forever.  People should carefully assess the risks and their own financial position when making a home purchase decision.  To ensure socio-economic stability by forestalling the risk of a property bubble, I introduced three rounds of measures in February, April and August last year to ensure the healthy and stable development of the property market.  In October, the Chief Executive also announced a series of short, medium and long-term measures in his Policy Address.  These measures have to a certain extent achieved the intended effects of increasing flat supply, enhancing transparency in the property market, and preventing excessive expansion in mortgage lending.

21. The US・s second round of quantitative easing measures worth US$600 billion announced in November last year has fuelled the already buoyant property market.  The excessive fund flows have led to exuberant speculative activities, and short-term resale transactions have surged sharply.  The exuberance has even spread from the luxury market to the mass market.  To curb speculative activities, we have introduced a Special Stamp Duty on short-term resale of residential properties.  The Hong Kong Monetary Authority (HKMA) has also further tightened the loan-to-value ratio for mortgages made by banks.

22. With the introduction of these measures, there was an immediate reduction of speculative activities.  The number of residential property transactions in January plunged by 39 per cent over November to around 8 000 cases, of which short-term resale cases fell 34 per cent.  In December, the number of new mortgage applications likewise fell sharply by 37 per cent over the previous month.  Although the figures for January are not yet complete, a preliminary examination shows that flat prices were up by two to three per cent in January after falling 0.9 per cent in December.  There are also signs of pick-up in the turnover of residential flats lately.  The pick-up of late conceivably reflects the strength of the demand from genuine end users and long-term investors.  Notwithstanding this, we will remain vigilant against the possible risk of a property bubble posed by excessive liquidity and exceptionally low interest rates.  We are determined to maintain the stable and healthy development of the property market and will continue to monitor closely the market situation.  I will not hesitate to take further actions to safeguard our socio-economic and financial stability when necessary.

Residential Flats

23. In the medium to long term, the most effective solution to the problems of the property market lies in the fundamental issue of ensuring steady and adequate land supply.  Besides reviewing and releasing sites for housing development as soon as possible, the Steering Committee on Housing Land Supply that I chair has adopted a new mindset to explore in a forward-looking way options for identifying more land resources for future use.

Land Sale Arrangement

24. In my last Budget, I announced that, while maintaining the Application List system as the principal mechanism for the sale of government land, we would introduce a government-initiated land sale arrangement.  This two-pronged land sale approach worked well over the past year to increase land supply.

25. In response to the market demand for residential sites, we will take more proactive measures this year, which include:

(1) specifying in the Application List four residential sites for government-initiated sale by open auction or tender this year; and

(2) putting up for sale by tender five residential sites in addition to those sites on the Application List, and restricting in the sale conditions their use for construction of about 3 000 small and medium-sized flats in total.

26. The total number of residential sites available for sale next year is 52, comprising 18 new sites and 34 sites rolled over from last year・s Application List.  This will altogether provide some 16 000 residential flats, an increase of more than 70 per cent over the 9 000 or so flats provided in 2010-11.  The Secretary for Development will explain in detail later the land sale arrangement for next year.

27. Along with the above-station projects at Nam Cheong, Tsuen Wan, Tai Wai, Tin Shui Wai and Tseung Kwan O, the two redevelopment sites of the Urban Renewal Authority, and the annual average supply from lease modifications and private redevelopment projects for which lease modification is not required, it is estimated that housing land available in the coming year will provide a total of 30 000 to 40 000 private residential flats, far exceeding the target of an annual average of 20 000 flats.  In response to my request, the West Rail Property Development Limited has redesigned six property developments above MTR stations along the West Rail in respect of which master layout plans and building plans have been approved.  This will help increase the supply of small and medium-sized flats.  The plans will also comply with guidelines on controlling :inflated buildings;, which will take effect on April 1.

Supply of Public Housing

28. Increasing the supply of land for private housing development will not affect the current supply of public housing.  Relevant government departments will identify public rental housing (PRH) sites to maintain the average waiting time for general PRH applicants at around three years.

29. In the five-year period starting from 2010-11, the forecast production of new PRH flats is about 75 000 flats.  The new PRH flat production forecast for 2011-12 and 2012-13 will be some 11 200 flats and 16 700 flats respectively, of which about 84 per cent will be built in urban areas.

My Home Purchase Plan

30. To relieve the pressure faced by the sandwich class in home purchase, the Government, in collaboration with the Hong Kong Housing Society (HKHS), will launch the My Home Purchase Plan for eligible applicants.  The Government has already earmarked sites in Tsing Yi, Diamond Hill, Sha Tin, Tai Po, Tuen Mun and other areas for a total of some 5 000 flats to be built under the Plan.  We expect to invite applications for the first project in Tsing Yi as early as next year, and plan to carry out the second project in Sha Tin.  We will identify more suitable sites for the Plan.

Increasing Land Supply

31. To meet the demand for public and private housing sites, we will continue with our work on land use planning and urban design.  We also need to explore new ways to increase the supply of land.  Two possible ways are reclamation on an appropriate scale outside Victoria Harbour and rock cavern development.  I will allocate about $300 million to the Development Bureau to initiate public discussion about the feasibility of these new options by carrying out relevant studies and public engagement exercises in the next few years.  We will consider a number of factors, including engineering feasibility, cost-effectiveness and public acceptability, before deciding how to put the ideas into action.

32. On reclamation, we will first review those locations outside Victoria Harbour which were previously considered for this purpose.  At the same time, we will conduct a comprehensive site search to identify other suitable locations.

33. On enhancing the use of rock caverns, the Civil Engineering and Development Department will complete a study shortly.  According to the study findings, the geology of Hong Kong is extremely suitable for developing rock caverns to provide usable underground space.  We will consider formulating long-term strategic planning for reserving potential sites for cavern development.  We will also explore the feasibility of relocating such government facilities as sewage treatment works and service reservoirs to rock caverns in order to release land for housing and other uses.  Further planning and engineering studies will commence in due course.

Commercial Buildings

34. As for commercial buildings, the land available for sale next year includes sites that will provide a floor area of 600 000 square metres for commercial/business use.  To enhance our competitiveness, we must maintain a steady and adequate supply of Grade A offices, and strive to develop new high-grade office clusters through land use planning, urban design, area improvement and the provision of better transport networks.

Increasing Office Supply

35. When the new Central Government Complex at Tamar comes into operation, the Main and East Wings of the Central Government Offices will be used by the Department of Justice and the West Wing will be demolished for redevelopment into Grade A offices.  We will consider the views collected from the public consultation exercise, and announce the site・s design, planning and particulars of sale later.  We will continue the preparatory work to relocate departments in the three government office buildings at the Wan Chai waterfront as and when appropriate to free the land for developing more Grade A offices.

36. Transport infrastructure will facilitate office decentralisation.  The South Island Line (East), which is scheduled for completion in 2015, will facilitate the redevelopment of industrial buildings in Wong Chuk Hang for office use.  The development above the terminus of the Guangzhou-Shenzhen-Hong Kong Express Rail Link located in West Kowloon has been designated as quality office space.  Taking advantage of the location of a station of the Shatin to Central Link at Kai Tak, we will develop Kai Tak into another premier office node.  The Kai Tak Government Offices, expected to be completed in 2015, will speed up the development of commercial office space at this brand new node.  The Kai Tak Development will create noticeable synergy with the office belt transformed from the former industrial areas in Kwun Tong and Kowloon Bay.

Revitalising Industrial Buildings

37. We have also made good progress in revitalising industrial buildings.  As at the end of January 2011, the Lands Department approved 12 applications for wholesale conversion and 3 applications for redevelopment, while 22 applications were being processed.  Most of the buildings approved for conversion or redevelopment are located in Kwun Tong and Kowloon Bay.  Their revitalisation will provide additional office space to meet the needs of our economy.  We will also put up two business sites in Kwun Tong and Kowloon Bay for sale this year to accelerate the commercial development of these two districts.

38. In support of the efforts to revitalise industrial buildings, we are considering purchasing an industrial building for conversion into an office building for the relocation of the New Territories West Region Office of the Water Supplies Department (WSD).  Apart from injecting new impetus into an old industrial area, this will also allow for more cost-effective use of the original site of the WSD office in the central commercial area in Mong Kok.  We plan to adopt green design and introduce environment-friendly and water conservation measures for the conversion works as far as possible.  The experience gained will provide practical reference for incorporating green features in retrofitting buildings.  This is also in line with the Government・s policy in promoting green buildings.

(To be continued)

Ends/Wednesday, February 23, 2011
Issued at HKT 11:27