PRESS RELEASE

Opening remarks by FS at press conference on new anti-property speculation measures (with photo)

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Following are the opening remarks by the Financial Secretary, Mr John C Tsang, at the press conference on new anti-property speculation measures at Central Government Offices New Annexe today (November 19):

As a result of global financial conditions, the local property market has become increasingly exuberant of late. This is causing much concern in our community.

With abundant liquidity worldwide and persistently low, in fact, ultra-low interest rates, there is a huge amount of hot money flooding into our region, including Hong Kong. This has led to hefty increases in asset prices and overheated speculative activities. There is heightened risk of property bubbles forming.

Today, I am announcing further measures to contain such a risk.

First, a brief analysis.

Since the onset of the global financial crisis, some economies have adopted a policy of quantitative easing, or QE. Among them is the United States, which recently launched its so-called QE2, involving an additional US$600 billion.

The US Federal Reserve has also indicated that the repayments from agency debt and mortgage-backed securities from the first round of easing measures will be ploughed back into the US treasuries market. It means that in the next eight months, a total of some US$900 billion will be made available. What's more, we cannot rule out further similar measures by the US in the future.

In response to the US initiatives, Asian economies including South Korea, Thailand, Singapore, India and the Mainland have taken steps to prevent their economies and asset markets from overheating.

We must be alert to the cumulative consequences of these counter measures, taken together at the same time by different economies in our region.

Hong Kong has sound economic fundamentals, but we are also an open economy that allows the free flow of capital. We can expect large inflows of hot money, pushing our asset prices up further.

Since August, our stock market has risen by some 15 per cent. Property prices have also shot up by over 20 per cent compared to the pre-financial crisis levels.

I am deeply concerned about the state of our asset markets, especially the property market which affects everyone in our community. I have stressed on numerous occasions that the current rather abnormal macro-economic environment cannot last forever. When interest rates return to more normal level and hot money inflows reverse course, asset prices will plunge, and our citizens can be hurt as a result.

We must take steps to mitigate such impact, particularly in the housing market.

External factors, coupled with a low supply of flats, have prompted local property prices to surge over the past two years. Overall, prices have risen by 15 per cent in the first nine months of this year. Compared with the ebb in 2008, prices have shot up by a staggering 47 per cent.

Luxury flat prices have surpassed their 1997 peak by 10 per cent. Although average prices in the mass market are still some 12 per cent below record highs, they have been accelerating of late.

Prices of flats less than 70 square metres have increased by 8.1 per cent from March to September this year. Prices of larger flats – those measuring at least 100 square metres – have risen 6.1 per cent.

Property transactions in the first ten months of this year increased by 17 per cent compared with the same period last year. The rate of increase in the number of transactions in small and medium sized units is even greater than those in the luxury market. This suggests that the exuberance has begun to spread to the mass market.

Even with the prevailing low interest rates, the affordability ratio has increased from 32 per cent in the fourth quarter of 2008 to 42 per cent in the third quarter of 2010.

The situation will worsen should the trend continue. If interest rates were to go up by three percentage points, the ratio will increase to 54 per cent, exceeding the long-term average, and average mortgage payment will increase by 30 per cent.

The unusual surge in flat prices has attracted speculators. This, coupled with quantitative easing measures, has distorted the market expectation regarding inflation and asset prices.

Unscrupulous speculators may take advantage of the heated market sentiments to lure people into buying beyond their means.

Short-term resale transactions are increasing rapidly. In the first nine months of this year, the number of resales within 12 months of acquisition increased by 114 per cent compared to the same period last year. At the same time, the number of resales between 12 and 24 months has decreased by 18 per cent. This suggests that short term re-sales have shifted to an even shorter time frame. In the first half of this year, about 84 per cent of cases of short-term speculation within 12 months involved units priced under $3 million. This is cause for concern.

The Government is resolute in maintaining economic stability and countering any threat to people's livelihood.

In my Budget in February, I set out four strategies to stabilise the property market. They are:

(a) increasing supply;
(b) enhancing transparency;
(c) preventing excessive leverage in mortgage lending; and
(d) curbing speculation

In April and again in August, I adjusted the strength of our measures in response to market conditions. In his Policy Address in October, the Chief Executive introduced further measures.

On the supply of housing land, the Steering Committee on Housing Land Supply that I chair has begun work. We should be able to meet our target of making available enough land for some 20 000 private residential units annually over the next decade.

Regarding market transparency, the Government will consult the public on various recommendations by way of a White Bill in due course.

To enhance risk management in mortgage lending by banks in Hong Kong, the Hong Kong Monetary Authority (HKMA) will announce further measures later today.

This will, among other things, include guidelines to banks to lower further the Loan-to-Value ratio for mortgages.

This will help promote prudent lending and reduce the excess liquidity in our market.

To curb speculation, I propose to introduce a Special Stamp Duty (SSD) on residential properties on top of the current ad valorem property transaction stamp duty.

Any residential property acquired on or after tomorrow–either by an individual or a company, listed or unlisted, and regardless of where it is incorporated–and resold within 24 months will be subject to the proposed SSD. This is payable jointly and severally by both the buyer and the seller in the resale transaction.

The SSD payable will be calculated based on the consideration for the resale transaction at the following regressive rates for different holding periods:

(a) 15 per cent if the property is held for six months or less;
(b) 10 per cent if the property is held for more than six months but for 12 months or less; and
(c) 5 per cent if the property is held for more than 12 months but for 24 months or less.

Before the requisite legislative amendments take effect, the Inland Revenue Department will record all residential property transactions during the interim period (i.e. between tomorrow and the date legislative amendments take effect) to identify the parties liable for SSD. Demand notes on SSD will then be issued after the new legislation is enacted.

Also, we propose to disallow deferred payment of Stamp Duty, including SSD, for residential property transactions of all values.

We will introduce the necessary amendments to the Legislative Council as soon as possible.

I wish to emphasise that the reasons for implementing the measures announced today are two-fold:

First, to curb short-term speculative activities that threaten our economic and financial stability.

Second, to reduce the risk of asset bubbles forming and ensure the healthy development of our property market.

These initiatives are extraordinary measures under exceptional circumstances.

The effects of quantitative easing combined with other abnormal influences on our property market are far from over. We will introduce further measures if circumstances so warrant in the future.

I shall now take a few questions from the floor.

(Please also refer to the Chinese portion of the opening remarks.)

Ends/Friday, November 19, 2010
Issued at HKT 18:29

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