Hong Kong has long been one of the world's most expensive real estate markets, and for most of the past decade, Hong Kong has struggled to rein in the world's top real estate**, but now it has turned to propping up house prices, and the new round of measures announced on Wednesday may not be enough.
This not only shows that Hong Kong's economic problems have frozen, but also reflects the deep financial difficulties of Hong Kong**, which relies heavily on land sales revenue.
On Wednesday, Hong Kong lifted a series of restrictions on home purchases that had been in place for at least 10 years, including a 15 per cent stamp duty on non-permanent residents and a $7 on home buyers who already own a home5% stamp duty. In the past, buyers were required to pay additional stamp duty for reselling properties within two years, but this has also been abolished. The Hong Kong Monetary Authority (HKMA) has also relaxed some mortgage restrictions.
Hong Kong's hilly terrain once had a thriving financial sector and tightly controlled land** and has long been one of the most expensive real estate markets in the world. Research firm Demographia ranked Hong Kong as the most expensive property market for 13 years in a row, most recently in March last year.
At the end of 2022, the median house price in Hong Kong was nearly 19 times the median household income, which is almost double that of San Francisco, according to Demographia.
However, Hong Kong's property market has taken a sharp turn recently. According to a closely watched index by real estate agency Centaline, local house prices have been **23% since 2021. The turnover of the new and second-hand home market in 2023 will be about $50 billion, nearly 30% less than in 2019.
The removal of various stamp duties may boost property transactions in the short term. New residents in Hong Kong, mostly from Chinese mainland, may have been afraid to buy a home in the past because transaction costs were too high. Shares of real estate agency Midland have soared 35% in the past two days.
But to reverse the decline of the entire market, I am afraid it will be more difficult. Hong Kong's pegged exchange rate system to the US dollar means that Hong Kong's monetary policy has to passively follow the Fed, which has led to Hong Kong's interest rates remaining high. At the same time, Hong Kong's economy and rental market remain weak. Rental yields are around 3%, which is still about 1 percentage point lower than new mortgage rates. According to JPMorgan Chase & Co., developers' inventories reached a 25-month all-time high. The second-hand home market** is also likely to increase, as sellers now don't need to hold a home for two years to be exempt from paying SSD.
What's more, China's economy, a key speculative capital in Hong Kong's property market, remains sluggish. China's real estate market is also in deep trouble, and it is difficult to protect itself. At the same time, Hong Kong's financial sector, which is a pillar industry, is in deep trouble. Hong Kong-listed IPOs raised only about $6 billion last year, down nearly 90% from 2020. Declining global interest in China** and Hong Kong's awkward position between Chinese and U.S. regulators could make it difficult to reverse the decline.
Demographics are also detrimental to Hong Kong's development. Although the population has rebounded in the past year, it is still slightly lower than at the end of 2019. The population remaining in Hong Kong is ageing rapidly. By the end of 2023, the proportion of residents aged 65 and over in the total population was 224%, compared to 17 five years ago4%。
Hong Kong once made great efforts to curb housing prices during the economic boom, and now that the prosperity is gone, the task of supporting housing prices is likely to be equally daunting.
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