Hong Kong Financial Secretary Paul Chan Mo-po has revised his forecast of Hong Kong’s economic growth to -4.5 percent for the year. This is the third downward revision of Hong Kong’s economic growth.
In his budget speech in February this year, Chan predicted that Hong Kong will grow by 2 to 3.5 percent this year. A -4.5 percent growth rate would be the third-largest shrinkage of the economy in Hong Kong’s history since GDP growth data became available in 1962. It would also be the fifth full year of negative growth since China resumed exercise of sovereignty over the city in 1997.
With some of the counterpandemic measures eased, there are signs that the economy is picking up. Visitors have begun to come back, but the headwinds that are outside of the control of the special administrative government of Hong Kong remain strong and unpredictable. It is important that we do what we can to revive the economy. This is very important for our fiscal health. While we still have fiscal reserves estimated at HK$774.2 billion ($99.1 billion) as of Aug 31, 2022, the current fiscal year is going to face a shortfall of at least HK$100 billion. Unfortunately, with our housing market and land prices falling, and a weak economy, and increasing pressure on the government to spend more, the outlook for our fiscal status is gloomy.
I have been pleading with the SAR government to repeal the Special Stamp Duty for quite some time. My latest article on the subject in this column was dated Aug 30 this year. The main argument I made was that the SSD had already eliminated short-term speculative activities in the housing market; we should not make a huge sacrifice to combat nonexistent speculation. More importantly, while it had eliminated speculative demand, it also had undercut supply — the supply of starter homes from homeowners who seek to improve their living conditions.
If the SAR government wants people to live better, why would the government impede trading-up activities? The government may say that it does not have the intention to impede such activities. But the facts show that ever since the SSD was imposed, the number of home transactions has dropped significantly
Before Hong Kong’s return to the motherland, homeownership had been steadily rising, from under 30 percent in the early 1980s to about 50 percent in 1997. Notwithstanding then-chief executive Tung Chee-hwa’s vision to raise the homeownership rate by 20 percentage points to 70 percent in 10 years, the homeownership rate in Hong Kong fell to a 20-year low of 49.8 percent in 2019 and is around 50 percent today. Sadly, while many public housing tenants took advantage of the Tenants Purchase Scheme (TPS) and bought their own flats, many owners of private housing lost their homes and became tenants. I had pointed out that selling TPS flats at huge discounts would undermine the housing market and would lead to huge fiscal deficits (South China Morning Post, March 24, 1998). Sadly, my dire predictions became a reality. The government announced the ending of the TPS in 2002. The housing market rebounded in 2003 and so did the economy. Fiscal health was restored.
I have pointed out the negative effects of the SSD on the economy for many years. Sadly, the government has ignored my pleas time and again. Weighed by the SSD and other onerous stamp duties, housing market transactions have fallen to a fraction of what they were before the introduction of these measures. Shih Wing-ching, founder of leading property broker Centaline Property, announced that his company will likely have to close down half of its 470 branches. He pointed out that from the fourth quarter last year till now, his company has been registering losses every month with the exception of just one or two months. Unless landlords are willing to cut rentals by 30 percent, the company won’t be able to renew the leases.
So far, the government has merely allowed new residents in Hong Kong to get refunded for the steep Buyer Stamp Duty they had paid after they have lived in the city for seven years and obtained their permanent-resident status. It has done nothing to the other stamp duties. But what has the SSD policy achieved? If the SAR government wants people to live better, why would the government impede trading-up activities? The government may say that it does not have the intention to impede such activities. But the facts show that ever since the SSD was imposed, the number of home transactions has dropped significantly. The decline in the secondhand supply had led to a surge in the prices of starter homes, putting homeownership beyond the reach of many people. This is a fact, not a myth. The surge in so-called “nano-homes” since the introduction of the SSD testifies to that. An illustration of the “inverted” pricing in the housing market is that I was drawn to an ad showing a 594-square-foot (55.2-square-meter) flat in Ascot Court that has an asking price of HK$8.3 million, while a 1,041-square-foot flat has an asking price of only HK$11.5 million. The smaller flat has a per-square-foot price of HK$13,973, while the bigger flat is merely HK$11,047.
I recently read a satirical piece by a well-known commentator who wrote that the SAR government will not abolish the SSD because it did not want the housing market to collapse. Removing the SSD will definitely increase the supply of smaller flats, which will depress the prices of smaller flats. But the trading-up activities will lend support to the bigger flats. I am hopeful that with the increased transactions, Centaline will not have to cut its branches, the economy will get a boost, the SAR government will get more revenue, and Hong Kong people will finally be able to live better.
The author is director of the Pan Sutong Shanghai-Hong Kong Economic Policy Research Institute, Lingnan University.
The views do not necessarily reflect those of China Daily.
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