Motion on “Inability of Government Measures to Help People in Homeownership”(2011.06.08)

Hon KP Chan on Motion on Inability of Government Measures to Help People in Homeownership:

  • Although their pace of increase is slackened, housing prices are still at record high.   People are most dissatisfied.  The question of surging property prices is rather complex.  The Additional Stamp Duty introduced last year have driven speculators away effectively but also reduced supply in the secondary market to further push up prices instead.  On the other hand, land supply is substantially increased this year but they are also disposed of at high prices recently to sustain market momentum.
  • These phenomena show the complication of housing market.  They also demonstrate that any Government measure would not achieve its intent unless the root cause is tackled.  In my view, the linked exchange rate and Mainland buyers are two vital factors that directly push up local housing demand.
  • Under the linked exchange rate system, local interest rates could not surpass US dollar rates.  As such, local mortgage rates are bound by low interest policy in the US and have been less than 1% pa, much lower than inflation.  Local banks are compelled to maintain very low mortgage rates even if housing demand is surging.  Moreover, Hong Kong could not put up interest rate to contain inflation under the constraint of exchange rate system.  As Hong Kong is entering another inflationary cycle, there is strong housing demand for inflation protection despite rising prices.  Meanwhile, “quantitative easing” in the US has led to influx of hot money into Hong Kong by virtue of the linked rate.  Inflow of liquid funds into the banking system since 2008 has amounted to some HK$1,300 billion, and it would need just a fraction to keep housing prices afloat.
  • Both the original Motion and its Amendments touch on housing and land policies.  However, they would hardly serve their purposes if fundamental issues arising from the linked exchange rate were not addressed in the first place.  I ask the Government to give re-pegging the HK dollar to Chinese renminbi a serious thought.  Local economic cycles are now more in tandem with the Mainland than the US.   It is in the long term interest of Hong Kong to re-peg the HK dollar to the Chinese renminbi.
  • Another vital factor is buying spree of the affluent Mainlanders.  Apart from the inherent attractions of the Hong Kong property market, there is price discount by virtue of persistent devaluation of HK dollar against Chinese renminbi.  Meanwhile, some 30,000 to 40,000 pregnant women come to Hong Kong each year to deliver babies.  Many of these children would come and study in Hong Kong later, and Mainland parents who can afford are buying properties in Hong Kong in preparation.  As a result, housing demand is further pushed up.
  • There are calls for imposing restrictions on purchases by Mainlanders and protecting local residents in homeownership.  Hong Kong is an internationally renowned free port.  Funds are free to come and go, and assets are freely available for sale and purchase.   They are our pillars of success.  Any restriction would be harmful to our free port status.  Thus, restrictions on foreign purchasers are out of the question unless the situation turns detrimental.  That said, as demand from Mainlanders has become secular, it is crucial to contain their buying spree with such measures as special taxation.  These ideas, of course, would need further deliberation, but fiscal measures are more viable.
  • Earlier in this debate, many fellow Members call for resumption of Homeownership Scheme (HOS) and increasing supply of public rental housing.  All along, I have taken the view that the Government has the duty to help people find lodging.  Therefore, the Government should accelerate public rental housing programmes to accommodate the grass root.  On the question of resumption of HOS, the Chief Executive has undertaken to give it serious thought and follow up in his forthcoming Policy Address.  I trust the Chief Executive would make a wise decision that is in the best interest of our society.
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