Hong Kong Property Market Won’t Rebound Despite City Scrapping Decade-Old Restrictions: Experts

The picture shows Mount Nicholson, which has one of the most expensive luxury residential lots in Hong Kong. (Anthony Wallace/AFP via Getty Images)

Hong Kong authorities announced the removal of all unfavorable buyer control policies in their latest budget to revive the weakening local property market. However, experts believe it won’t stop the property prices from falling and view the authoties’ attempt as a desperate measure.

On Feb. 28, Hong Kong Financial Secretary Paul Chan announced the immediate withdrawal of all restrictive measures. This means that all residential transactions will no longer require additional stamp duties, including buyer’s stamp duties and new residential stamp duties.

Hong Kong’s property market experienced an upward trend since the 2008 financial crisis. To curb soaring property prices, the authorities imposed additional taxes on housing transactions since 2010, mainly increasing the tax on housing transactions and levying an additional tax on purchases made by people from outside Hong Kong, with mainland Chinese being the most affected.

Expert: Property Price Depends on Macroeconomic Cycles

Economic analyst Law Ka-chung believes that property prices mainly depend on macroeconomic cycle factors, namely that of mainland China.

“If Mainland China goes down, Hong Kong goes down,” he told the Chinese edition of The Epoch Times, adding that the current measures would not change the direction of property prices: After the budget announcement, real estate owners will “stop selling properties, and then increase prices again for sale.” If there is no significant response later, they will still have to reduce prices.

He explained that despite various control policies over the past decade, they had not affected property price trends, and it took ten years for prices to drop after rising since 2010.

Mr. Law believes that even if property transactions slightly increase due to the current measures, the chances of returning to the previous monthly transaction volume of 10,000 are not high. Furthermore, with the current change in population structure, even if the authorities relax restrictions on mobile populations, they may not necessarily stay long-term, leading to different demands for real estate.

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Mr. Law argued that the government’s removal of control policies benefits property transactions, especially for real estate developers who will have the capital to reinvest, leading to a rebound in stock prices for real estate agents. However, whether the property market collapses depends primarily on other economic factors.

Analysis: Downward Market Trend Hard to Reverse

Yam Po-kong, a columnist for The Epoch Times and former director of Cable TV’s Finance Channel, believes that the authorities’ comprehensive change in property market policies might have some short-term psychological effects.

Some second-hand properties have already seen price reversals, but it will only be a short-term phenomenon, he said. The current leading factor in the property market is not control policies but interest rate factors. There is little room for interest rate cuts in the short term, which won’t significantly help buyers’ affordability.

Furthermore, Mr. Yan mentioned that developers still have around 30,000 units of unsold inventory this year. Developers themselves are affected by high-interest rates and interest expenses, making it difficult for them to lower prices for promotion. In the supply-demand relationship, it’s still challenging for the property market to reverse its downward trend.

He added that Secretary Chan placing all his hopes on the property market actually reflects desperation, indicating that there are no other measures in the budget to revive the economy. He also expressed that Hong Kong’s government finances will continue to deteriorate in the coming years.

Property Prices Continue to Decline

In his policy address in October last year, Hong Kong Chief Executive John Lee announced the relaxation of the policy on the regulation of the property market and the reduction of the applicable period for the Special Stamp Duty (SSD) from three years to two years. This means that property owners do not need to pay the SSD if they sell their properties after holding them for two years. However, property prices have not shown any improvement after that.

Chief Executive of Hong Kong, John Lee Ka Chiu on June 6, 2023. (Bill Cox/The Epoch Times)

On Feb. 27, the Rating and Valuation Department announced the latest property price index. The index for January was reported at 306.4 points, the lowest since 2016. From October to December 2023, the index reported 322, 315.9, and 311.3 points, respectively. This indicates that even after the authorities relaxed control policies, the property market continued to bear the previous downward trend, with no signs of improvement.

It’s worth noting that last year, before the policy address, Secretary Paul still said that property prices remained high and supply was tight, with no intention of adjusting property market control policies. He stated that after authorities implemented property market control policies, speculation had not been intense, but the housing supply remained relatively limited, and the needs of local residents to own homes had to be prioritized.

However, when John Lee announced the reduction in stamp duty, he was asked whether his views were inconsistent with Paul Chan’s. The Hong Kong leader responded that both sides had “same ideas” and had “adequate discussions,” believing that the new measures struck a balance and could maintain market stability.

Expert: Withdrawal of Controls Will Trigger Price Declines

Yip Sau Leung, a part-time lecturer in the Economics Department at the Chinese University of Hong Kong and Hong Kong Baptist University, wrote in late 2023 that once the Hong Kong authorities completely withdraw control policies, it will severely damage the credibility of the governance, leaving no room for maneuver when property prices continue to fall.

He analyzed that the Hong Kong property market had entered the final stage before the bubble burst. The first wave of declines in property and bank stocks had already occurred. The bursting of the bubble and subsequent financial storms were inevitable, and property prices might decline 60 to 75 percent from their peak.

Mr. Yip’s view sparked discussions, but the real estate industry still advocated for the authorities to withdraw controls.

On Feb. 23, Mr. Yip reiterated his views. He predicted that property prices might temporarily rebound at the beginning of the complete withdrawal of controls. Still, there would be multiple waves of price declines afterward until prices fell by 75 percent or more before stabilizing gradually.

He also said that if the authorities can reduce the additional buyer’s stamp duty to 5 percent or keep it at 7.5 percent, it can prevent property prices from falling excessively. When prices drop by 50 percent, announcing the complete withdrawal of control policies can lead to an immediate rebound of about 6 percent.