LCQ1: Rising property prices

     Following is a question by the Hon Wong Kwok-kin and a reply by the Secretary for Transport and Housing, Ms Eva Cheng, in the Legislative Council today (June 29):


     It has been reported that in the recent two years, the Hong Kong property market has been heating up and the cumulative increase in property prices has exceeded 60%, while the prices of some properties have even exceeded the high levels in 1997. Quite a number of members of the public consider that the continuous influx of capital from the Mainland and external sources has led to the continuous increase in property prices, which are already beyond the affordability of the general public. In this connection, will the Government inform this Council:

(a) among the property transactions registered in the past three years, of the respective ratios of transactions involving local buyers to those involving non-local buyers, broken down by flat size, i.e. below 40 square metres, 40 to 69.9 square metres, 70 to 99.9 square metres, 100 to 159.9 square metres and 160 square metres or above; given that the Chief Executive (CE) earlier indicated at a Question and Answer Session of this Council that only when faced with "a hopeless situation" would the Government consider imposing restrictions on the target buyers of local properties, what specific situation was the "hopeless situation" CE was referring to;

(b) whether the authorities have assessed the trend of capital from the Mainland or mainlanders entering the local property market, as well as its impact on the local community and economy as a result; if they have, of the specific situation; whether they have assessed the additional number of residential sites and flats that have to be provided each year in order to meet the demand for properties in Hong Kong; and  

(c) apart from "My Home Purchase Plan", whether the authorities will introduce in the near future other subsidised housing measures to assist the local citizens who wish to buy properties for self-occupation in acquiring home ownership by such means; if they will, of the specific measures?



     The Government has been monitoring developments in the private residential property market closely and remains vigilant on the risks of a property bubble. The current property market situation is very unusual. Over the past year or so, the property market was vibrant primarily because of the abundant liquidity and the ultra-low interest rates over a considerable period of time. The Government has repeatedly reminded the public that an environment with abundant liquidity and ultra-low interest rates will not last forever, flat prices will not keep going up forever, and that people should be careful of the potential impact of increases in interest rate on the property market and should carefully assess the risks and their own financial ability when making a home purchase decision. Since last year, the Government has been responding to the situation through the introduction of long, medium and short-term measures along four directions, including increasing land supply to tackle the problem at source, combating speculative activities, enhancing the transparency of property transactions, and preventing excessive expansion in mortgage lending, with a view to ensuring the healthy and stable development of the property market.

     My reply to the three parts of the question is as follow:

(a) Given that Hong Kong does not have restrictions on the movement of foreign investments, the Land Registry (LR) only records local property transactions which are registered with LR, but does not have breakdown on the number of transactions by people from outside Hong Kong or Mainlanders, or information on the purpose of their flat purchase.

     The Administration has never imposed restriction on any persons in the purchase or transfer of residential properties. The proposal to restrict the purchase of residential properties in Hong Kong by people from outside Hong Kong, including Mainlanders, is a major policy change. When considering this proposal, we have to take into account its impact on the free movement of capital which is a factor of success to the Hong Kong economy, Hong Kong's status as an international financial centre, the long-term economic development of Hong Kong, market response and implementation problems. As Hong Kong is an externally-oriented economy, we have to be very careful about the possible consequence of imposing specific restriction on investments by people from outside Hong Kong.

(b) The Administration has not conducted an assessment specifically on the trend of capital from the Mainland or Mainlanders entering the local property market. On the overall demand for housing, our experience showed that the hard figures estimated by any model could not accurately quantify demand, in particular demand in the private residential market which is affected by many factors, including changes in socio-economic environment such as market sentiment, liquidity and interest rate which would have an impact on demand. Also, external factors such as the "quantitative easing" or adjustment measures of other regions and the changes in interest rates have added difficulties for us to project or assess the demand for housing from local and non-local investors. Any estimation will likely be very different from the actual situation.   

     In the long term, the Government will increase the supply of land in response to market need, with a view to tackling the problem at source. The Government has set the target of making available land for an average of some 20 000 private residential flats per annum in the next 10 years. It is estimated that the housing land available for private residential development in 2011-12 may generate about 35 000 units.

     As regards public housing, the Hong Kong Housing Authority (HA) has a five-year rolling Public Housing Construction Programme (PHCP), with suitable adjustments made annually to the programme to respond to the latest demand and supply situation. In the five-year period of 2011-12 to 2015-16, the total forecast production of public rental housing (PRH) is about 75 000 flats, i.e. an average of about 15 000 flats per year. The HA estimates that this level of production, together with the recovered flats from the existing stock, will allow the Government to meet its policy objective of maintaining the average waiting time (AWT) for general PRH applicants at around three years.  At present, the AWT for general PRH applicants is two years. Following the upward adjustment of Waiting List Income and Asset Limits on April 1, 2011 by the HA, an additional 25 000 or so non-owner occupied households in the private sector will become eligible for public housing. We will closely monitor how this may increase the pressure for PRH flats, and suitably adjust the PHCP as necessary, in order to maintain the target of AWT for general PRH applicants at around three years.

(c) We need to address housing issues using a macro and holistic approach. The Government recognises the importance of a stable home. In the long term, the Government will increase the supply of land in response to market need, with a view to tackling the problem at source. In the face of short-term property price fluctuations, a better way is to provide a buffer to facilitate those households which have home purchase plans and the ability to pay mortgages in the long run but cannot immediately afford the down payment, to save up over a period of time for home purchase. The Government will introduce the "My Home Purchase Plan" in collaboration with the Hong Kong Housing Society.

     There have been calls for the resumption of the Home Ownership Scheme (HOS) or other forms of subsidy for home purchase in the community.  Behind this is the aspiration for more opportunities and choices for the public to purchase affordable homes. As the Financial Secretary has mentioned earlier, the Chief Executive will respond to this issue in this year's Policy Address.

     I have to emphasise that subsidised housing schemes are not measures to suppress flat prices. Nor are they the tools to adjust the property market. Private flat prices are affected by various factors, such as demand and supply of residential units, economic situation, and the movement of interest rates, etc. Experience showed that the provision of subsidised sale flats could not tackle cyclic problems, and could not mitigate short-term fluctuations in the market. Take HOS as an example, during 1996 and 1997, a total of 46 000 subsidised sale flats were launched for sale but private residential property prices increased by more than 50% during the same period. Any form of subsidised home ownership scheme will only serve as a buffer.  

     The various measures which the Government has taken along the four directions since February 2010 to ensure the healthy and stable development of the property market are appropriate and timely. On housing land supply, the Government has set the target of making available land for an average of some 20 000 private residential flats per annum in the next 10 years. It is estimated that the housing land available for private residential development in 2011-12 may generate about 35 000 units, which exceeds the 20 000 target announced last year.  The effect of the Special Stamp Duty (SSD) has been obvious in curbing short-term speculative activities. Statistics show that there were only 72 subsale cases (i.e. confirmor cases) in April 2011 as compared to the monthly average of about 320 cases in the first 11 months of 2010 before the Government announced the introduction of SSD, which represents a decrease of about 78%.  In order to further enhance the regulation of the sale of first-hand private residential properties, the Transport and Housing Bureau has set up the Steering Committee on the Regulation of the Sale of First-hand Residential Properties by Legislation (the Steering Committee) to discuss specific issues pertaining to the regulation of the sale of first-hand properties by legislation. The Steering Committee commenced work in November 2010 and will come up with practical recommendations for the consideration of the Transport and Housing Bureau by October 2011. Also, the Hong Kong Monetary Authority introduced new prudential supervisory measures for mortgage lending on June 10, 2011. The maximum loan-to-value (LTV) ratio for residential properties with a value below HK$7 million remains to be 70% with the maximum loan amount capped at HK$4.2 million. The maximum LTV ratio for residential properties with a value at HK$7 million or above is further lowered. We believe the basket of measures will help ensure the stability of the property market.

     The Government will continue to closely monitor the market, and will take appropriate measures as and when necessary to ensure the healthy and stable development of the property market.

Ends/Wednesday, June 29, 2011
Issued at HKT 14:45