Financial Secretary John Tsang speaks at the luncheon of the Hong Kong General Chamber of Commerce Friday. He expressed cautious optimism about the city's economy prospects, given that Hong Kong is still in the early stages of economic recovery. China News Service

Reiterates govt promise to take additional steps if required

Financial Secretary John Tsang said the threat of a property bubble is the biggest risk to the economy recovery, and that the government will implement additional measures to cool property speculation in order to maintain a stable real estate market.

Speaking at a joint business community luncheon, Tsang said the current low interest rates, an inflow of funds and a relatively low supply of flats have increased the risk of a bubble forming in the city's property market.

To help reduce the risk of forming a property bubble in Hong Kong, the Financial Secretary last month laid out strategies in his third budget address, which includes accelerating the supply of flats, increasing the stamp duty on properties valued over HK$20 million to 4.25 percent from 3.75 percent, ensuring accurate information in property sales documents, and preventing excessive expansion of mortgage lending.

"Perhaps most important in the short term, these measures should send a clear and strong message to the market, and to the public of our intentions to curb property speculation and dampen price fluctuations," Tsang said.

He noted that the basket of measures mentioned in the budget address is not introduced to be "a quick-fix" and that it does not come with a promise of overnight results.

Driven by ample market liquidity, historic low interest rates and persistent inflow of hot money, the property market in Hong Kong has shown a significant rebound in 2009.

Average home prices in Hong Kong for the fourth quarter of 2009 leaped almost 23 percent from a year earlier, while mortgage rates also reached a record low for the past 40 to 50 years.

Tsang said yesterday that the government will ensure banks in Hong Kong process mortgage loan applications prudently.

"We will introduce further measures when it is necessary to further strengthen the prudent regulation of our banks," he added.

Tsang also warned that the current low interest rates will not last forever and that it is crucial for people to factor a rise in interest rates in their affordability calculations, in order to avoid unnecessary pain later.

"The government will continue to monitor market developments closely. If need be, we will implement additional measures to cool speculation," Tsang said.

"We also recognize that the property market is extremely sensitive and important to our economy and our community. We don't want to overdo things that would risk hurting the market," he added.

Despite the government concern about a possible property bubble, the city's developers do not share the worry.

Victor Lui, executive director of Sun Hung Kai Real Estate Agency, said yesterday that he sees no bubbles in the local residential market.

However, Paul Tang, chief economist at Bank of East Asia, said economic recovery in the city will further increase the risk of forming a property bubble.

"As the local economy picks up, people's purchasing power will improve. Together with the factors of historic low interest rates and inflow of foreign capital, home prices are likely to continue to surge," Tang said.

(HK Edition 03/13/2010 page2)