Hong Kong Races to Find Its Property Market Bottom

Shuli Ren, Bloomberg

As fiscal income from land sales evaporates, Hong Kong is removing all of its onerous property cooling measures that have been in place for over a decade. The government is making an audacious attempt to restore normalcy to a market that has come to a standstill. It’s showing the world what a true financial center should be.

From now on, foreigners wishing to buy Hong Kong property no longer have to pay the extra stamp duty. Nor do wealthy people who want to own multiple homes — the death of 28-year-old socialite and model Abby Choi put the spotlight on the controversial housing policy. Meanwhile, Hong Kong›s central bank eased mortgage rules and lowered loan-to-value ratios in a coordinated move with its fiscal peers.

Removal of these extra levies is clearly meant to boost demand, a no-brainer for a city that relies heavily on real estate. At its 2018 peak, land premium accounted for more than 25% of fiscal income.

More interestingly, Hong Kong is also relaxing restrictions that may lead to a flood of housing units being put up for sale. Those who have owned their homes for less than two years will no longer need to pay the so-called Special Stamp Duty if they are selling. That adds pressure to an industry already flush with new homes. A total of 91,300 flats were unsold as of the 2023 year-end, the highest for almost two decades, according to data from the Hong Kong Housing Bureau.

The Special Stamp Duty, implemented in 2010 to curb speculation, has almost worked too well. Transaction volume tumbled and has ground to a halt as the city’s home prices continue to fall. But how does a prospective homebuyer know what the fair price is if an entire district has just an occasional sale here and there? It is only rational they sit on the sidelines.

As such, the removal of this levy will speed up the price discovery process. We will find out faster where the sector bottoms. A market that has no transactions might as well not exist.

To be sure, these encouraging policies don’t mean Hong Kong’s real estate is near its trough. On average, home prices have fallen by about 25% from their late 2021 peak. While that seems substantial, it pales in comparison to the slump after the 1997 Asian Financial Crisis. And some worry that another storm is brewing. We have a long way to go if the turn of the century is any guide.

Hong Kong’s future is uncertain, but at least the city can promise functional capital markets that will eventually attract investors. A true financial center must not have purchase restrictions or short-selling bans. Hong Kong must keep its appeal.

Courtesy Bloomberg/Shuli Ren