IMF warned further overvaluation of property prices
After the International Monetary Fund (IMF) made a summary report on its visit to Hong Kong, the prospects for Hong Kong’s economic growth can be further improved thanks to the stronger-than-expected global growth and faster-than-expected reform of China’s implementation. However, Hong Kong also faces a number of risks. Property prices in Hong Kong have been overestimated. As at September, property prices soared 15% year-on-year. Once the disorderly property market is adjusted, it may trigger a vicious cycle between property prices, solvency and consumer spending, which will eventually lead to a slowdown in economic growth and a second round of bank balance sheets.
When asked whether the property market in Hong Kong is likely to experience a bubble burst soon, Sonali Jain-Chandra, head of the IMF delegation, stressed that property prices in Hong Kong have been overvalued. However, the property market cycle seems to be very long and it is hard to predict the actual turnaround time.
Disorderly adjustment of the potential hit the bank
The report pointed out that a considerable part of Hong Kong’s new mortgage loans using the floating-rate system and based on inter-bank interest rates, the burden of family repayment on the sensitivity of interest rates remain high. Once the disorderly property market is adjusted, the negative wealth effect can have a major impact on personal consumption. Even if the current balance sheet of the bank is quite robust, the property disorder may lead to a second round of bank impact.
Faced with the hot and overvalued property market, the continuous increase of housing supply is the key to solving the structural imbalance between supply and demand. However, if Hong Kong lacks a real-time land for building housing, it may be difficult to meet the 10-year housing supply target set by the Long Term Housing Strategy. The Administration should expedite the identification of land that can be built.
Long-term withdrawal of spicy food should be gradually removed
Jain-Chandra added that Hong Kong’s macroprudential measures and stamp duty stamp duty (stamp duty on stamps and double ad valorem stamp duty) will help alleviate property prices and buffer the financial system and reduce the hot property market System, “If no relevant measure is implemented, property prices may be 12.5% higher than at present.” However, the measures are not sufficient to curb the trend of over-credit and high property prices and reiterate that the government should make every effort to increase the supply of land.
The report added that due to property prices continued to rise, the property market disorder may lead to major macro-financial risk adjustment, the authorities should maintain relevant measures to safeguard the financial system, it is proposed in view of future changes, consider macro-prudential measures to adjust. In the future, if systemic risk is mitigated, the two stamp duty should be phased out and replaced with other measures that do not distinguish between residents and non-residents. The authorities may also phase out the interest exemption on interest of the home building as the relevant measures stimulate housing demand and encourage more lending.
Apart from the property market, is there a bubble in the local stock market? Jain-Chandra said that as the world is still in a monetary easing environment, investment in which funds continue to seek higher returns is not only Hong Kong but also global stock markets are hot. At present, the stock market is not overly stretched, but the funds continue to seek High returns will increase the financial system’s sensitivity to market and liquidity risk.