Desperate times call for desperate measures. Thanks to global interest rate hikes, an economic slowdown and continuing geopolitical tensions, Hong Kong’s once runaway home prices have nosedived for the ninth straight month to a level last seen in 2016. 

It was high time for the measures intended to cool off the formerly buoyant property market to meet their fate. 

Amid a chorus from the real estate sector, the business sector and potential nonlocal homebuyers, it was encouraging that Financial Secretary Paul Chan Mo-po heeded the call to scrap all anachronistic “demand-side management” property transaction stamp duties which had been put in place in 2010 to rein in the then skyrocketing property prices.  

The removal of the decade-old property curbs included both the Buyer’s Stamp Duty and the New Residential Stamp Duty — respectively targeting non-Hong Kong permanent resident buyers and buyers owning other residential property in Hong Kong, who had been subject to the charge of a flat rate of 7.5 percent since 25 Oct 2023 — and the Special Stamp Duty (SSD) applicable to homeowners who sold their residential properties within two years of purchase. In addition, the Hong Kong Monetary Authority also relaxed its rules and loosened mortgage lending requirements for homebuyers, properties for rent and offices. 

Considering the prevailing economy and market situation in Hong Kong, where property transactions have been sparse since mid-2023, scrapping property cooling measures is a shot in the arm to an ailing property market gripped by high interest rates and weakened external demand. 

It is a necessary panacea as any measures falling short of the full axing of stamp duties would have risked transforming a temporary economic issue to an entrenched “confidence crisis” in the property market; and any other attempt to entice buyers or investors and resuscitate our faltering property market would have been futile. 

First, the scrapping of property curbs emits a strong market-friendly signal that propels local and non-local buyers to engage in property transactions with fewer costs, offsetting the adverse impact of the ratcheting-up of interest rates. 

Meanwhile, flat owners facing grave financial difficulties can at least allow themselves a break by remortgaging or disposing of their properties. 

Given the drop in property prices of over 20 percent since 2021, the number of flat owners in negative equity has tripled. 

To prevent individual cases of mortgage payment delinquency from becoming an avalanche of mortgage defaults that could destabilize our society, the removal of the SSD serves as a crucial safety valve at the flat owners’ disposal to allow them to hedge the mortgage non-repayment risk with an outright unrestricted sale option. 

Whipsawed by the current US rate hike cycle and poor first-hand property sales, since last year developers have felt the financial strain with snowballing borrowing costs affecting project development and underperforming property sales. 

It strikes a fine balance in stimulating public demand for residential property units and preventing property prices from clawing back to record peak levels due to a scarcity of land and housing

As a result, all but one local developer reported positive net debt to equity from 1.4 percent to an astonishing 48.7 percent. Against such a backdrop, it is inevitable that our local developers remain conservative in tendering for government land. It is of little wonder that only three parcels of government land were sold in the current financial year with only HK$19.4 billion ($2.5 billion) collected as the revenue from land premiums, substantially lower than the original estimate of HK$65.6 billion. By removing the decade-old property “straitjackets”, it is estimated that the transaction volume of residential properties will be given a boost and our developers can find it easier to offload unsold residential units at market price. 

In light of the positive relationship between property values and the wealth effect in Hong Kong, the sharp fall in the former in recent years has resulted in a negative wealth effect. It has sent ripples across the economy, depressing consumption and investment activities in Hong Kong, creating a drag on the economy so nobody, including the financial secretary, could turn a blind eye to our economically pitiable state. To reboot our economy, it takes more than splashing some cash on various festivals or markets across Hong Kong. As our property sector has far-reaching cross-sector implications and has been part of Hong Kong’s lifeblood for decades, Chan’s scrapping of property cooling measures is crucial to at least stabilize people’s confidence in the short term and to prevent negative external market sentiments from dampening and dragging confidence aboard. 

While critics may argue that the cancellation of property curbs could fuel speculation with a potential boom of confirmed sales, heightening the risk of bursting the property bubble, such worries are over-simplified. Unlike the last property bubble which burst in 1998 leading to a 70 percent plunge in home prices in nominal terms for six consecutive years, there is currently no market frenzy in our property market. Even if there is a subsequent surge in demand for property, inflationary pressure on property prices is likely to be offset by the ample amount of land and housing. According to this year’s budget, lands have been earmarked to meet the supply target of 308,000 public housing units in the coming decade, and the completion of 19,000 private property units in the coming five years. Moreover, the Hong Kong Monetary Authority has taken certain precautionary measures, such as making a commercial credit database available, enabling banks to thoroughly evaluate borrowers’ financial status before granting a loan. This can effectively prevent individuals overborrowing to finance their property purchase. Thus the risk of a systematic wave of mortgage defaults as a result of overborrowing can largely be alleviated. 

It cannot be emphasized enough that our property sector remains the cornerstone of Hong Kong’s economy. Plagued by an unexpected economic downturn resulting from the COVID-19 pandemic, and interest rates at a high thanks to a strong US dollar, the price of assets, including stocks and properties, in Hong Kong is plummeting, while public savings are at an eyewatering level. With the above factors weighing on our economy, our financial secretary’s prudent decision to ditch the demand-managed property transaction stamp duties, while doubling down on efforts to ensure steady land supply for housing, should be applauded. It strikes a fine balance in stimulating public demand for residential property units and preventing property prices from clawing back to record peak levels due to a scarcity of land and housing. 

The author is a practising solicitor of the HKSAR and chairman of Y Legalites.

The views expressed in this article are the author’s and do not reflect those of the law firm where he works, nor those of China Daily.