Hong Kong to Loosen Grip on Property if Prices Extend Decline, Tsang Says

Hong Kong will ease some of its property-cooling measures if home prices extend their decline amid Europe’s worsening credit crisis and a global economic slowdown, the city’s financial secretary said.

Housing prices are “slowly coming down,” and that “will continue for a bit and hopefully we will be able to achieve a soft landing,” John Tsang, Hong Kong’s top financial official, said in an interview in Johannesburg Dec. 6. “When the environment trends downwards, we will surely take countercyclical measures to deal with that.”

Prices dropped to a six-month-low in November and transactions slumped as the threat of a recession dents buyer confidence. The government imposed additional taxes last year and tightened access to mortgages four times since 2009 after prices jumped 70 percent, underpinned by record-low interest rates and an influx of wealthy Chinese buyers.

“Hong Kong is almost confirmed to go into a downward price correction channel into 2012,” said Lee Wee Liat, a property analyst at Samsung Securities Ltd. in Hong Kong. “When prices start to come down, the job of the government is no longer to keep being hawkish on tightening policy, rather it should think about cushioning the decline that could hurt the real economy.”

Lee expects residential property prices will fall as much as 15 percent by the end of 2012. Barclays Capital Research forecasts the drop could be as much as 30 percent by 2013, according to Andrew Lawrence, a Hong Kong-based analyst.

Timing Policy Changes

The Hang Seng Property Index (HSP), which tracks the city’s seven-largest builders, fell 0.2 percent at the close in Hong Kong. Sun Hung Kai Properties Ltd., the biggest developer, rose 0.7 percent to HK$99.70, while Cheung Kong Holdings Ltd., the second largest, declined 1.1 percent to HK$90.60.

Tsang said the timing of any loosening of the property measures was uncertain. “Timing is a judgment call that I will have to make nearer the time,” he said.

Hong Kong may review special stamp duties imposed on some home sales in November last year earlier than the scheduled 24 months if needed, Eva Cheng, secretary for transport and housing, told reporters in Hong Kong today in comments broadcast by Cable Television.

Asia may continue to see capital outflows if the European crisis deepens as banks will repatriate funds from the Asian region, the Manila-based Asian Development Bank’s Iwan Azis said Dec. 6. Hong Kong’s benchmark Hang Seng Index has declined 17 percent this year, while the Hang Seng Property Index, which tracks the city’s seven-biggest developers, is down 23 percent.

Market Disruption

“The problems are rising in Europe and America, and many of those companies need some of the liquidity to assist them to get over the bump,” Tsang said. “We are mindful if the money were to leave in a disorderly way, this could disrupt the market.”

Hong Kong narrowly skirted a recession in the third quarter with 0.1 percent growth from the previous three months, as low unemployment and tourists from China boosted consumption while Europe’s crisis dragged on exports.

Recession is “possible” for Hong Kong on a “worsening of exports,” Tsang said. Still, “exports is the only sector which is hurting, but everything else is really strong,” he added. Overseas shipments from the city fell 1 percent, seasonally adjusted, in the three months ending October from the previous period, according to the government’s data.

Tsang’s signal the government is prepared to loosen property curbs contrasts with new measures announced by the Singapore government, which said yesterday it is imposing additional taxes on private residential property purchases to curb excessive investment.

Singapore’s Measures

The city-state has been attempting to rein in prices since 2009, when the government barred interest-only loans for some housing projects and stopped allowing developers to absorb interest payments for apartments still being built.

Home prices in Singapore are 13 percent above the high seen in the second quarter of 1996 and 16 percent higher than the “more recent peak” in the second quarter of 2008, the government said.

Tsang’s comments echo those of Chief Executive Donald Tsang, who said last month that the city may see “a couple of quarters of bad times” as Europe’s debt crisis roils global markets. Growth may slow to 2 percent in 2012, down from the official estimate of 5 percent this year, Donald Tsang said.

The rising risk in the global economy will create pressure on Hong Kong’s labor market, with a quarter of it related to the export industry, John Tsang said Nov. 20. The city’s unemployment rate rose to 3.3 percent in the three months ended October, the first time in six months.

Home prices dropped 3.5 percent from the peak in June, according to an index compiled by the Centaline Property Agency Ltd., the city’s largest closely held property broker. The value of home sales slumped 40 percent in November from a year earlier, according to the Land Registry.

The government’s property curbs have achieved their “desired effect,” Victor Lui, an executive director at Sun Hung Kai, said at a media briefing after the developer’s annual general meeting in Hong Kong today. Short-term speculative buyers are almost “all gone from the market,” Lui said.

The city’s government pledged in October to build subsidized homes and ensure supply of land for private housing, after it imposed stamp duties on homes sold within two years from the date of purchase in 2010 and raised down-payments for some homes.

To contact the reporter on this story: Franz Wild in Johannesburg at fwild@bloomberg.net; Sophie Leung in Hong Kong at sleung59@bloomberg.net

To contact the editor responsible for this story: Paul Panckhurst in Hong Kong at ppanckhurst@bloomberg.net

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